HB 793
Department of Legislative Services
Maryland General Assembly
2021 Session
FISCAL AND POLICY NOTE
First Reader
House Bill 793 (Delegate Anderton)
Appropriations
Local Governments - Income Tax Disparity Grants - Amounts
This bill alters the enhanced State funding provided under the disparity grant program to
jurisdictions with a local income tax rate of 3.2% by increasing the minimum grant amount
from 75% to 80%. As a result, eligible jurisdictions will receive at least 80% of their
formula allocation under the disparity grant program beginning in fiscal 2022. The bill
takes effect June 1, 2021.
Fiscal Summary
State Effect: General fund expenditures increase by approximately $5.1 million in
FY 2022 and by $5.7 million in FY 2026. Revenues are not affected. The bill increases a
mandated appropriation beginning in FY 2022.
($ in millions) FY 2022 FY 2023 FY 2024 FY 2025 FY 2026
Revenues $0 $0 $0 $0 $0
GF Expenditure 5.1 5.2 5.4 5.5 5.7
Net Effect ($5.1) ($5.2) ($5.4) ($5.5) ($5.7)
Note:() = decrease; GF = general funds; FF = federal funds; SF = special funds; - = indeterminate increase; (-) = indeterminate decrease
Local Effect: State aid to local governments increase by $5.1 million in FY 2022 and by
$5.7 million in FY 2026. Local expenditures are not affected. Six jurisdictions (Caroline,
Dorchester, Prince George’s, Somerset, Washington, and Wicomico counties) are
projected to qualify for the enhanced disparity grant funding.
Small Business Effect: None.
Analysis
Current Law: The disparity grant program provides noncategorical State aid to
low-wealth jurisdictions for county government purposes. Disparity grants address the
differences in the abilities of counties to raise revenues from the local income tax, which
for most counties is one of the larger revenue sources. County governments with per capita
local income tax revenues less than 75% of the statewide average receive grants unless a
county has an income tax rate below 2.6%.
Under current law, the amount of funding received by county governments equals the lesser
of the dollar amount necessary to raise the county’s per capita income tax revenues to
75% of the statewide average or the amount received under the cap provision. The original
cap provision did not allow county governments to receive an amount higher than what the
county received from the State in fiscal 2010. This provision was established by
Chapter 487 of 2009. However, Chapter 425 of 2013 changed the disparity grant formula
cap provision in order to take into account a local jurisdiction’s income tax effort.
Beginning in fiscal 2014, the fiscal 2010 cap amount continues to apply, but an eligible
jurisdiction may receive a minimum grant amount that can exceed the fiscal 2010 cap based
on local tax effort. The minimum grant amounts are based on the following:
20% of the uncapped grant amount (2.8% to 3.0% local income tax rate).
40% of the uncapped grant amount (3.0% to 3.2% local income tax rate).
60% of the uncapped grant amount (3.2% local income tax rate).
Chapter 738 of 2016 increased the minimum grant amount (from 60% to 67.5%) in
fiscal 2018 and 2019 for jurisdictions with a 3.2% local income tax rate. However,
Chapter 23 of 2017 modified the formula by lowering the minimum grant amount (from
67.5% to 63.75%) for fiscal 2018. Chapter 472 of 2018 extended the 67.5% minimum grant
amount until fiscal 2021.
House Bill 737 of 2020 altered the enhanced State funding by (1) increasing the minimum
grant amount from 67.5% to 75% and (2) repealing the termination date for the enhanced
funding. As a result, eligible jurisdictions would have been able to receive at least 75% of
their formula allocation under the disparity grant program beginning in fiscal 2022. This
legislative enhancement would have provided an additional $15.2 million in State funding
to six low-wealth jurisdictions. However, on May 7, 2020, the Governor vetoed the bill
due to concerns regarding the economic challenges resulting from the COVID-19
pandemic. This veto was subsequently overridden by the General Assembly at the 2021
session. Since the Administration cannot be required to fund the mandated appropriation
in the current budget bill, the six jurisdictions (Caroline, Dorchester, Prince George’s,
Somerset, Washington, and Wicomico counties) will remain subject to the 60% minimum
HB 793/ Page 2
grant in fiscal 2022, unless the Administration provides funding for the legislative
enhancement.
Overview on Disparity Grant Program
Baltimore City and nine counties (Allegany, Caroline, Cecil, Dorchester, Garrett, Prince
George’s, Somerset, Washington, and Wicomico) qualify for disparity grants. Of these
jurisdictions, seven currently impose the maximum 3.2% local income tax rate (Exhibit 1).
Three of the jurisdictions (Caroline, Dorchester, and Washington) increased their local
income tax rate in recent years as a way to receive additional State funding. As shown in
Exhibit 2, the cap provision has constrained the annual growth in the disparity grant
program, with the formula amount being reduced by $52.9 million in fiscal 2022. Over the
past 12 years, the cap provision has reduced State funding under the disparity grant
program by approximately $470.4 million. Additional information on the disparity grant
program can be found in the Overview of State Aid to Local Governments report. A copy
of the report is available on the Department of Legislative Services website.
Exhibit 1
Local Income Tax Rates Imposed in Jurisdictions Receiving Disparity Grants
Source: Department of Legislative Services
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Exhibit 2
Disparity Grant Program – Amount of State Funding
Fiscal 2011-2022
$250
$200
$ in Millions
$150
$100
$50
$0
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22
Amount Funded Amount Capped
Source: Department of Legislative Services
State and Local Fiscal Effect: State funding for the disparity grant program will total
$148.0 million in fiscal 2022. Expanding the enhanced minimum grant amount to reflect
80% of the formula amount would cost approximately $5.1 million based on the fiscal 2022
formula calculation. Exhibit 3 shows the additional amount of funding that each
jurisdiction will receive based on the fiscal 2022 formula calculation.
Pursuant to the bill, the enhanced minimum grant amount will take effect beginning in
fiscal 2022. As a result, general fund expenditures increase by $5.1 million in fiscal 2022
and by $5.7 million in fiscal 2026. This estimate is based on the average annual increase
in the disparity grant formula amount over the previous five years adjusted for the current
economic climate.
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Exhibit 3
Enhanced Minimum Grant Amount at 80% of the Disparity Grant Formula
Based on Fiscal 2022 Formula Calculation
County Funding Amount
Caroline $269,027
Dorchester 272,848
Prince George’s 2,651,477
Somerset 450,488
Washington 557,390
Wicomico 864,866
Total $5,066,096
Source: Department of Legislative Services
Additional Information
Prior Introductions: None.
Designated Cross File: SB 696 (Senator Eckardt) - Budget and Taxation.
Information Source(s): Department of Budget and Management; Department of
Legislative Services
Fiscal Note History: First Reader - February 15, 2021
rh/tso
Analysis by: Michael Sanelli Direct Inquiries to:
(410) 946-5510
(301) 970-5510
HB 793/ Page 5
Statutes affected: Text - First - Local Governments - Income Tax Disparity Grants - Amounts: 16-501 Local Government, 2-011 Local Government