Major Issues & More–90 Day Report Reviews the Maryland Legislative Session

The Department of Legislative Services annual synopsis of the General Assembly’s time in Annapolis provides an update on budget, education, transportation, and health issues addressed in laws that passed – and didn’t pass – in the 2018 Session. 

As described the the Maryland Department of Legislative Services, the 90 Day Report is divided into 12 parts, each discussing a major policy area.

Screenshot 2018-05-07 11.21.35
This chart from the 90 Day Report provides a summary of the State’s K-12 funding from fiscal years 2018-2019.

The areas include, among others (links will take the reader to the start of each sections, though there are other the references throughout the document):

Budget/Fiscal (includes resolving structural budget and addressing federal tax reform)

Business and Labor (includes paid sick leave legislation’s veto override)

Education (includes education funding, school construction, and school safety issues)

Health (includes opioids and cannabis topics)

State Government (covers elections security)

Transportation (includes highway user revenues legislation)

The Department of Legislative Services will release another report, the Effect of the 2018 Legislative Program on the Financial Condition of the State after the Governor has signed or vetoed all bills passed by the General Assembly.

 

 

Hogan Pumps Brakes On Traffic Relief Plan

In response to concerns about the appearance of conflict, Governor Larry Hogan pulled the Maryland Department of Transportation (MDOT)’s proposal to pay $68.5 million to a consortium of engineering firms led by Transportation Secretary Pete Rahn’s former employer, HNTB. MDOT had proposed bypassing traditional procurement methods to award the contract for the Governor’s touted “Traffic Relief Plan” to to add new lanes to I-270 and the Capital Beltway (I-495).

From The Baltimore Sun:

The HNTB-led consortium was selected in an expedited process that took less than a month after Rahn decided to use the waiver under a system approved by the General Assembly last year as an alternative way to bid public-private partnership contracts. It allows the state to forgo traditional procurement when efficiency and the stakes of the project demand it.

Governor Hogan has directed MDOT to restart the bidding process for the Traffic Relief Plan, with an eye toward assuring “the full and complete transparency that the taxpayers of Maryland expect and deserve,” according to a letter to Secretary Rahn from Governor Hogan. Rahn agreed to recuse himself from the procurement moving forward.

MDOT sought to waive the traditional procurement approach because it was unable to adequately provide a complete scope of work for the project. Additionally, according to MDOT’s “Rationale for the Procurement Method” to the Board of Public Works (BPW), MDOT sought to expedite the process because the project is so large.

The Maryland Department of Transportation (MDOT) is undertaking the largest ever proposed highway P3 in North America and the first highway P3 in Maryland as part of the I-495 and I-270 corridor congestion relief improvements. …. It is this “first of” nature project that has caused MDOT to look at innovative ways to bolster its ability to oversee and manage a project so large and complex.

…To meet the demands of the public, address and reduce the rising traffic congestion in Maryland’s most heavily traveled roads, to offer a more advantageous environment which attracts new businesses such as Amazon, and to control expenditures by innovatively using performance-based design and contracting methods for the design and construction phases of the project, an expedited selection outweighs the benefits of a formal competitive process for the selection of the Programmatic Owners Representative General Engineering Consultant (GEC).

In a particularly sharply-worded essay in Maryland Matters, Regional Policy Advisors President and former Charles County Commissioner Gary Hodge points out that:

Projects of this magnitude and complexity require more consideration, not less.

Expressing the same view, The Baltimore Sun’s editorial board opines:

The public-private partnership Mr. Hogan is pursuing to add new toll lanes to the Capital Beltway and I-270 is unprecedented in scale for Maryland — the administration claims it would be the biggest P3 in North America — and we will be dealing with the consequences for generations. This should not be a rush job, even for this initial, $68.5 million contract to oversee part of the project. Mr. Hogan was right to direct Mr. Rahn to start over with a new procurement.

The project was originally touted to have no financial impact on the State’s Transportation Trust Fund, which is comprised of gas tax revenues and other transportation user fees. However, the BPW item MDOT originally proposed called for $68.5 million from that fund, as well as the opportunity for extensions over 10 years.

Conduit Street Podcast: Kirwan Commission, Take Two. Fiscal Forecast, Session Resources, & Interim Intrigue

On the latest episode of the Conduit Street Podcast, Kevin Kinnally and Michael Sanderson highlight some of the best resources for information on the General Assembly, provide insight on the [Kirwan] Commission on Innovation and Excellence In Education (which reconvened this week), discuss Maryland’s fiscal picture, and preview some hot-button issues for the 2018 interim.

MACo has made the podcast available through both iTunes and Google Play Music by searching Conduit Street Podcast. You can also listen on our Conduit Street blog with a recap and link to the podcast.

May is Maryland Podcast Month! For more information, visit Marylandpodcastmonth.com.

Listen here:

You can listen to previous episodes of the Conduit Street Podcast on our website.

MACo To Governor: Please Sign Highway User Restoration

This session proved a pivotal year for highway user revenue restoration.

Both the House and Senate agreed early on to provide local governments their first multi-year commitment in nearly a decade to bring back some of the local transportation funding that was decimated by about 90 percent in 2010. By passing SB 516/HB 807, the General Assembly has assured that most counties will see an increase in their total transportation funding by more than 40 percent, all the way through fiscal 2024 – assuming Governor Hogan allows the bill to become law.

To that end, MACo sent Governor Hogan a letter thanking him for his efforts to provide additional transportation funding to local governments, and requesting that he sign the bill into law. From that letter:

This bill – a top initiative of MACo’s – codifies an important step toward restoration of highway user revenues to Maryland’s counties, municipalities, and Baltimore City, for five years beginning in fiscal 2020. SB 516/HB 807 begins to address counties’ long-standing top fiscal priority. It provides reliable formula funding for multiple years, allowing counties to program their capital projects accordingly. ….

The cumulative loss of local roadway investment since fiscal 2010 is well over $3 billion.

Again, Maryland’s counties are deeply grateful for your efforts in providing additional transportation funding for local governments. Please take this one last step before the conclusion of your first term, and sign into law Senate Bill 516/House Bill 807, Transportation – Highway User Revenues – Distribution.

Investing in local roads was a key initiative of MACo’s this session.

Helpful Links

MACo’s Letter to Governor Hogan

County Highway User Revenue Breakdown (FY19)

2018 End of Session Wrap-Up: Road Funding

Highway User Revenues – What’s On The Table?

Counties Call For A Local Infrastructure Fast Track

lift4md-logo

The Finally, Final County-by-County Transportation Aid Breakdown

Thinking_Face_EmojiWe love the Department of Legislative Services’ Two-Year Charts. But, counties shouldn’t start budgeting all of the highway user revenues allotted there for fiscal 2019 just yet (unless they are Baltimore City, Baltimore County, or Howard County – they can go ahead). That sum includes the municipalities’ share, as well.

For a final county-by-county breakdown of transportation aid, with the muni share excluded and including the most recent capital grants added through the Governor’s supplemental budget, click here

 

SCOTUS on Online Sales Taxes? No Slam Dunk

Yesterday was not only a big tax day for federal income tax filers – it was also a big tax day for the Supreme Court, which heard oral arguments for South Dakota v. Wayfair – a much-followed case by state and local governments across the country which depend on sales tax revenue to fund their public services. The case sought to overturn Quill Corp. v. North Dakota. In Quill, the Supreme Court held that states cannot require retailers with no in-state physical presence to collect sales tax. The high court decided Quill in 1992, before internet sales became a commonplace occurrence.

In Direct Marketing Association v. Brohl, in 2015, Supreme Court Justice Kennedy stated that the “legal system should find an appropriate case for this court to reexamine Quill.”  Within a year, a number of state legislatures passed legislation in direct violation of Quill, requiring sales tax collection from internet sales platforms in some form or fashion.

The Maryland General Assembly considered similar legislation as recently as 2017 via the Main Street Fairness Act. This session, the Senate passed SB1025, Department of Legislative Services – Study – Sales and Use Tax Collection by Out-of-State Vendors, which would have required the Department of Legislative Services (DLS) to retain an independent consultant to study sales and use tax collections by out-of-state vendors. The bill never made it out of the Rules Committee in the House.

According to the State & Local Legal Center, South Dakota’s new law was the first ready for Supreme Court review.

Some thought that the case was a slam dunk for state and local governments which depend on sales tax. Unfortunately, yesterday’s line of questioning from the justices proved otherwise.

South Dakota Attorney General Marty Jackley, backed by the attorneys general from 42 other states, argued the case. According to SCOTUSblog, he was quickly peppered with questions.

Justice Sonia Sotomayor:

I’m concerned about the many unanswered questions that overturning precedents will create a massive amount of lawsuits about… How much contact is enough to justify placing this obligation on an out-of-town seller?…. What happens when the tax program breaks down, as it already has for the states who are using it, and merchants can’t keep track of who they’ve sold to?

Chief Justice John Roberts:

The suggestion in some of the briefs is that this is a problem that has peaked in the sense that the bigger e-commerce companies find themselves with physical presence in all 50 states. So they’re already covered. And the work-arounds that some of the states have employed are also bringing more [sellers] in. And if it is, in fact, a problem that is diminishing rather than expanding, why doesn’t that suggest that there [is] greater significance to the arguments that we should leave Quill in place?

Justice Elena Kagan:

From this court’s perspective, the choice is just binary. You either have the Quill rule or you don’t. But Congress is capable of crafting compromises and trying to figure out how to balance the wide range of interests involved here.

Justice Samuel Alito:

As things stand now, it seems that both the states and internet retailers have an incentive to ask for a congressional solution to this problem… There are incentives on both sides. But if Quill is overruled, what incentives do the states have to ask for any kind of congressional legislation?

Justice Ruth Bader Ginsburg came across more friendly to the tax collectors:

How about going back to the very basic issue? The assertion is that asking an out-of-state seller to collect tax on goods shipped in-state discriminates against interstate commerce. But, as I see it, why isn’t it, far from discriminating, equalizing sellers. That is, anyone who wants to sell in-state, whether an in-state shop, an out-of-state shop, everybody is treated to the same tax collection obligation. All who exploit an in-state market are subject to the in-state tax. Why isn’t that equalizing rather than discriminating?

Justice Stephen Breyer showed no cards:

When I read your briefs, I thought absolutely right. And then I read through the other briefs, and I thought absolutely right. And you cannot both be absolutely right.

Governing highlights other concerns expressed from the Justices:

They also raised concerns about whether states other than South Dakota would try to retroactively charge online retailers for the sales tax they didn’t impose in the past. Jackley said that 38 other states (of the 45 with sales taxes) have already asserted that they wouldn’t apply the taxes retroactively.

And several justices wondered whether Congress would be better equipped to deal with the issue, rather than the high court, because the federal lawmakers could better craft a nationwide scheme that would address many of the judges’ lingering concerns.

A decision is expected by late June 2018.

State Proposes Spending $70M from Transportation Fund on P3

Tomorrow, Wednesday, April 18, the Board of Public Works considers granting an award of $68.5 million from the Transportation Trust Fund for the Maryland Department of Transportation (MDOT)’s Traffic Relief Plan, its massively-scaled public private partnership (P3). MDOT has selected a contractor team made up of Parsons, JMT, and HNTB to:

provide fully integrated support, guidance and oversight to the Maryland Department of Transportation State Highway Administration (MDOT SHA) Public-Private Partnership (P3) Office in delivering the I-495 and I-270 P3 “Traffic Relief Plan”.

Last September, Governor Hogan announced his Traffic Relief Plan to add four new lanes to I-270, the Capital Beltway (I-495), and the Baltimore-Washington Parkway (MD 295). The anticipated $9 billion plan for these three major state highways is touted to reduce congestion for millions of drivers.

At the time, MDOT indicated that it intended not to use the Transportation Trust Fund to pay for the ground-breaking public-private partnership (P3). In fact, the original Request for Information states:

The desire of MDOT would be that any private agreement not require a financial
contribution directly from the Maryland Transportation Trust Fund and that the
agreement would provide a concession payment to MDOT upon financial close.

However, the item on tomorrow’s Board agenda calls for 100 percent of the $68.5 million award to come from the Transportation Trust Fund. The Agenda Item suggests that the sum will, at some point, be paid back to the Trust Fund:

The scope of services will include developing and implementing a new and innovative P3 project delivery strategy driven by continuous market collaboration and feedback to ensure best value and that the I-495 and I-270 “Traffic Relief Plan” is delivered at a “net-zero” cost to the Transportation Trust Fund.

The winning team includes HNTB. Notably, MDOT Secretary Pete Rahn served as Senior Vice President of HNTB for five years before joining the Hogan Administration as Secretary of Transportation in 2015, according to The Daily Record (story behind firewall). According to that article, the Maryland State Ethics Commission has advised Secretary Rahn that no conflicts of interest exist with his active involvement in the P3 procurement and management.

Maryland’s Tax Reform Response: County Impacts

The 2018 session is complete and with it, any changes to Maryland’s tax code for the next year. Over the session, the General Assembly made few changes to state and local income tax collections. However, those changes may be significant for county budgeting purposes.

Prior to any enactment of significant income tax changes at the state level, the Comptroller’s Office estimated that local income tax revenues would increase by an estimated $255.0 million in fiscal 2019 and $199.0 million in fiscal 2020, as a result of federal tax reform. A significant portion of that revenue gain is due to the shift in taxpayers who will now claim the standard deduction.

Bills passed by the General Assembly which subtract from the original estimate include:

  1. Senate Bill 318House Bill 570, which alter the value of the standard deduction beginning in tax year 2018 by increasing its maximum value from $2,000 to $2,250 for single taxpayers and from $4,000 to $4,500 for taxpayers filing jointly. Beginning in tax year 2019, the value of the standard deduction is indexed based on the annual change in the cost of living. MACo estimates that altering the value of the standard deduction will decrease county income tax revenues by $34.0 million in fiscal 2019, $26.5 million in fiscal 2020, $29.8 million in fiscal 2021, $33.24 million in fiscal 2022, and by $36.9 million in fiscal 2023.
  2. Senate Bill 996, as well as House Bills 296 and 327, expand the existing military retirement income tax subtraction modification by increasing from $10,000 to $15,000 the maximum amount of retirement income deductible from Maryland adjusted gross income. In order to qualify for the increased subtraction modification, the individual must be at least 55 years old. The bills also expand the existing subtraction modification for retired “hometown heroes” by extending eligibility to correctional officers.  Local income tax revenues are expected to decrease by $4.3 million in fiscal 2019 and by $4.7 million in fiscal 2023.
  3. House Bill 96 (Ch. 36) creates a subtraction modification for up to $7,500 of the qualified expenses incurred by a living organ donor.  Local revenues are expected to decrease by $13,000 in fiscal 2019 and by $16,000 in fiscal 2023.
  4. House Bill 43 creates a subtraction modification for up to $50,000 earned from the sale of a perpetual conservation easement on real property
    located in Maryland.  Local revenues are expected to decrease by $110,100 in fiscal 2019 and by $135,200 in fiscal 2023.
  5. House Bill 1069 increases to $7,000 the value of the subtraction modification for qualifying volunteer fire, rescue, or emergency medical services personnel – but not until fiscal 2021. Local revenues are expected to decrease by $332,000 in fiscal 2021 and by $663,000 in fiscal 2023.
  6. House Bill 671 creates a subtraction modification of up to $250 for classroom supplies that are purchased by an elementary or secondary classroom teacher.  Local revenues are expected to decrease by $588,000 annually beginning in fiscal 2019.

Income Tax Legislation - County Effects

BillWhat It DoesWhat It Earns (Costs) (FY19) (millions)What It Earns (Costs) (FY20) (millions)
TOTAL$216$167.38
Federal Tax Cuts and Jobs Act of 2017 Overhauls federal tax code$255
$199
SB 318 & HB 570Increases standard deduction & indexes to cost of living($34)($26.5)
SB 996; HB 296 & 327increases subtraction modification for military retirees and retired correctional officers($4.3)($4.4)
HB 96creates subtraction modification for organ donors($0.013)($0.014)
HB 43creates subtraction modification for sales of perpetual conservation easements($0.110)($0.115)
HB 1069increases subtraction modification for volunteer fire/EMS00
HB 671creates subtraction modification for classroom supplies($0.588)($0.588)

For a wealth of information regarding what happened this legislative session, including regarding income taxes, see the Department of Legislative Service’s 90 Report.

Round-up of the 2018 Session for Counties

MACo’s legislative efforts earned an 80% success rate – and as usual, the counties’ voice makes a difference in Annapolis. Bills we support are more likely to pass, and bills we oppose are more likely to fail.

2018 Legislative Results Infographic

MACo’s legislative initiatives, priorities, and positions are directed by its Legislative Committee. This body comprises elected representatives from all of MACo’s members – the 24 county jurisdictions (including Baltimore City).

The “one county, one vote” system of deciding the Association’s legislative strategies, ensures that all counties have an equal voice. All 24 jurisdictions participated regularly in the weekly meetings throughout the session – where they also engaged with policy leaders and advocates who joined the meeting to address county leadership.

Our policy staff have compiled updates and results on all of the bills the Legislative Committee decided to take action on this year.

For the 2018 End of Session Wrap-up for each subject MACo covers, click below:

2018 End of Session Wrap-Up: Assessments and Taxation

2018 End of Session Wrap-Up: Business Affairs

2018 End of Session Wrap-Up: Disparity Grants

2018 End of Session Wrap-up: Economic Development Tax Credits

2018 End of Session Wrap-Up: Education

2018 End of Session Wrap-Up: Elections

2018 End of Session Wrap-Up: Employee Benefits & Relations

2018 End of Session Wrap-Up: Environmental Legislation

2018 End of Session Wrap-Up: Finance and Procurement

2018 End of Session Wrap-Up: Government Liability & Courts

2018 End of Session Wrap-Up: Health & Human Services

2018 End of Session Wrap-Up: Housing & Community Development

2018 End of Session Wrap-Up: Intergovernmental Relations *MACo Initiative Area*

2018 End of Session Wrap-Up: Parks & Recreation

2018 End of Session Wrap-Up: Pensions

2018 End of Session Wrap-Up: Planning & Zoning

2018 End of Session Wrap-Up: Property Taxes

2018 End of Session Wrap-Up: Public Information & Ethics * MACo Initiative Area *

2018 End of Session Wrap-Up: Public Safety and Corrections

2018 End of Session Wrap-Up: Road Funding * MACo Initiative Area *

2018 End of Session Wrap-Up: School Construction * MACo Initiative Area *

2018 End of Session Wrap-Up: State Budget & Fiscal Affairs

2018 End of Session Wrap-Up: Tax Sale Bills

2018 End of Session Wrap-Up: Transportation and Public Works

2018 End of Session Wrap-up: Wynne Tax Bills

2018 End of Session Wrap-Up: County Tax Revenues

2018 End of Session Wrap-Up: Other Tax Bills

2018 End of Session Wrap-Up: Road Funding

Below is a brief overview of MACo’s work to restore county roads funding that was cut during the Great Recession.  

Follow links for more coverage on Conduit Street and MACo’s Legislative Database

Highway User Revenues

For more than forty years, local governments have received at least 30 percent of these revenues to fund local roads and bridges – 83 percent of the public road mileage in Maryland. In 2010, the State reduced highway user revenues by 90 percent for most jurisdictions – and local governments have advocated for restored highway user revenues ever since.

Push Icons-WONIn 2018, the General Assembly passed legislation to provide counties, municipalities, and Baltimore City with additional highway user revenues for five years beginning in fiscal 2020. HB 807 / SB 516 as amended will provide approximately $30 million more than in fiscal 2018to Maryland’s 23 counties, with additional funding for Baltimore City. Bill Information | MACo Coverage

For more information, see a County-by-County Breakdown of Additional Local Transportation Aid.

This year, as in years past, MACo continued to support legislation that would fully restore highway user revenues to their previous levels. As in recent years, however, the General Assembly did not advance these bills.

Push Icons-NOT IDEALSenate Bill 901/House Bill 1569 “Local Infrastructure Fast Track for Maryland Act,” a MACo initiative for the legislative session, did not pass out of committee in either chamber. This bill would have fully restored highway user revenues, enhanced auditing provisions, required the State to share any windfall of infrastructure funding from the federal government with local governments, and called for an assessment of the state of local infrastructure. Bill Information | MACo Coverage

For more information about the various bills introduced, see MACo’s coverage, What’s Up With All These Highway User Bills?

Click here for a round up of the wrap-ups for all policy areas