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

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

The segments below provide a brief overview of MACo’s work in the area of fiscal affairs policy in the 2018 General Assembly. 

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

SDAT Cost Shift and Mandatory Spending Cuts Resisted by Counties in the Budget

Push Icons-IMPROVEDMACo generally supported the Administration’s proposals for funding county services in the Budget Reconciliation and Financing Act (BRFA). However, counties successfully resisted a potentially calamitous cost shift from the State Department of Assessments and Taxation (SDAT) of nearly $20 million annually beginning in FY2019. This cost shift would have threatened the objective nature of having assessment functions managed and funded by an entity that does not meaningfully, directly benefit from the results of those assessments. Additionally, this cost shift would have required counties to fund, almost in their entirely, functions over which they have no managerial control.

The General Assembly also removed from the BRFA a provision that would have mandated relief by permanently capping formula increases in statutorily mandated programs to the level of general revenue growth minus 1 percent. The long-term effects on county programs would have been significant, but counties remain committed to and understand the necessity of maintaining a balanced budget. Counties are willing to work with stakeholders in the future to achieve this goal in ways that are not harmful to residents through consequential statewide mandates.

Bill Information | MACo Coverage

For more information on state budget and fiscal affairs legislation tracked by MACo during the 2018 legislative session, click here.

DLS Releases Final FY19 Two-Year Charts Detailing State Aid

Wondering what’s in the State’s fiscal 2019 operating budget for your county? The Department of Legislative Services (DLS) has crunched the numbers for you – and even compares them to fiscal 2018.

Find the latest two State Aid reports here:

Two-year Charts by Governmental Entity (Summarizes all counties on one-page)

Two-year Charts by Program (Detailed listing of State aid programs – 2 page summary for each county)

 

General Assembly Strikes Deal On Tax Reform

General Assembly leadership has reached an agreement on how to return some of the State’s anticipated income tax revenue windfall resulting from federal tax reform to the taxpayers, reports The Baltimore Sun. The agreement would provide $100 million through a series of tax cuts and credits – and cost all counties a total of approximately $57 million in fiscal 2019.

According to The Sun, the plan includes passing:

  • SB 318,  Income Tax – Standard Deduction – Alteration – which increases standard deductions to $2,500 for single taxpayers and $5,000 for taxpayers filing jointly. This is estimated to cost the State $87 million in fiscal 2019, $61 million in fiscal 2020, and $31 million in fiscal 2021 – and counties $51 million in fiscal 2019, $36 million in fiscal 2020, and $18 million in fiscal 2021.
  • SB 830, Income Tax – Standard Deduction – Inflation Adjustment, which indexes Maryland’s standard deductions to inflation. This makes county revenues decrease by $0.2 million in fiscal 2019 and by $10.4 million
    in fiscal 2023. 
  • HB 296, which expands the existing State subtraction modification for “Hometown Heroes” to correctional officers, and costs about $0.9 million annually to counties;
  • HB 327, which expands the existing military retirement income tax subtraction modification by exempting all military retirement income from state and local income taxes by 2022, costing counties $2.6 million in fiscal 2020 and $20.5 by fiscal 2023; and
  •  SB 647, “Earned Income Tax Credit – Individuals Without Qualifying Children – Repeal of Minimum Age Requirement” – which extends eligibility of the State and local earned income tax credits to individuals who do not have qualifying children and are under 24 years old. The fiscal note indicates that this costs counties $4.5 million in fiscal 2019 and $3.5 million in fiscal 2023 – presumably only to counties which offer a local earned income tax credit.

According to the article, the deal may also include a number of state tax credits, which have no fiscal impact for counties.

Read the article here.

State Funds Climate Resiliency Projects in Anne Arundel

Two projects in Anne Arundel County are receiving dedicated state Coastal Resiliency Grant Program funding to enhance their resiliency to the effects of climate change, extreme storms and weather.

View of the water from Franklin Point State Park
Franklin Point State Park (photo via DNR)

The West/Rhode Riverkeeper is partnering with the Department of Natural Resources (DNR) to design a climate-resilient living shoreline at Franklin Point State Park. The proposed 2,500 linear foot project will stabilize the existing peninsula to increase resiliency of the park and nearby town of Shady Side.

Additionally, DNR is working with the Alliance for the Chesapeake Bay and Longview Civic Association to design a living shoreline at Longview on the Magothy in Arnold. The proposed 250 linear foot project will include removal of 190 feet of bulkhead, protection of a tidal pond, and stabilization of the community shoreline with natural features.

DNR’s announcement is available here. 

Senate Committee Passes SB830 Indexing Deductions To Inflation

The Senate Budget and Taxation Committee has passed another piece of legislation addressing the income tax revenue windfalls coming to the State and counties: Senate Bill 830, Income Tax – Standard Deduction – Inflation Adjustment, which indexes Maryland’s standard deductions to cost of living. The bill is anticipated to decrease county income tax revenues by $0.2 million in fiscal 2019, and by $10.4 million in fiscal 2023.

From the bill’s fiscal note:

The Consumer Price Index (CPI) is a measure of the average monthly change in the price for goods and services paid by consumers between any two time periods and is the most commonly utilized measure to calculate inflation and deflation. The federal Tax Cuts and Jobs Act altered the indexation of the federal cost-of-living adjustment by requiring the use of the chained CPI. This measure is similar to the CPI but is designed to better account for changes in spending patterns and grows more slowly than the traditional CPI.

Major components of the federal income tax are indexed for changes in inflation, including federal income tax rate brackets. … Although the State’s income tax brackets are not indexed for inflation, several components of Maryland’s income tax system are influenced by inflation, including the State pension exclusion, State earned income tax credit, and poverty level tax credit. Income tax brackets and other important components of the income tax, such as the personal exemption and standard deduction, are not adjusted for inflation.

Click here for an accounting of the latest on bills addressing federal tax reform in the Maryland General Assembly. 

FY19 Transportation Aid: County-by-county Breakdown

The General Assembly completed work on the State’s operating budget – not only leaving all money proposed for local roads, but also adding $2 million to 23 counties’ shares of highway user revenues and additional grants.

The Department of Legislative Services offers this county-by-county breakdown of the total amounts of State transportation funds counties can expect to receive in fiscal 2019. 

This breakdown does NOT include the additional $2 million to be split among all counties except Baltimore City. MACo will make that breakdown available, once it is published.

Click here for an update on the General Assembly’s efforts to provide counties additional transportation funding through 2024. 

State Budget Finalized: All Good News

The State budget conference committee finalized its work resolving differences in the budgets passed by both chambers within a day – and now, counties can rest assured that they will not be enduring a cost shift to fund most of the State Department of Assessments and Taxation (SDAT) or flat funding of local health departments.

The budget, as introduced, included the following cuts and shifts affecting counties, but both the Senate and House rejected them. The Conference Committee verified those rejections.

  • Cost shift of 90 percent of SDAT’s assessment, information technology, and directorial functions to counties ($19.7 million in fiscal 2019)
  • Level fund local health departments ($0.9 million in fiscal 2019)

In addition, the General Assembly struck uncodified language on the last page of the Budget Reconciliation and Financing Act (BRFA) which stated that, beginning in fiscal year 2020, funding increases for most programs are capped at 1 percent less than the reported amount of general fund revenue growth.

Helpful Links

Governor’s Proposed Budget: First Blush County Effects

It’s Back! Governor Revives SDAT Cost Shift To Counties

Fiscal Briefing: Budget Outlook & Local Aid Loss

Senate Passes County-friendly Budget

House, Following Senate, Approves County-friendly Budget

Conference Committee Summary Report 

Tallying The Targets at Tax Reform