O’Malley’s Parting Gift to Cecil County: Cuts in ‘Disparity’ Grant to Offset Low Income Tax Revenue

O’Malley pushed through a $205 million package of spending cuts at a meeting of the state Board of Public Works last week as part of an effort to leave office without a gaping deficit in the current Fiscal 2015 budget year. But his successor, incoming Republican Larry Hogan, is facing even more budget cutting in the Fiscal 2016 budget he will have to produce just days after he is sworn into office next week.

As part of the O’Malley cutback, the state would freeze current “disparity” grants to lower-income counties to help offset their limited income tax revenues. The state would save more than $7.9 million in the current budget year, according to documents presented to the Board of Public Works, by freezing grants at the previous Fiscal 2014 level.

Cecil County was slated to receive more than $530,000 in this budget year from a “disparity” grant, according to county budget manager Craig Whiteford. But freezing the aid at the previous year’s level of more than $299,000 means a net cut of over $231,000.

And adding insult to injury, Cecil County only qualified for the first time in Fiscal 2014 for the grant, due to declining income tax revenues to the county, which is still reeling from the economic recession of recent years.

Disparity grants are designed to help out poorer counties that are unable to raise adequate revenues from the local income tax, which is one of the larger revenue sources for most counties. A county with per capita taxable income of less than 75% of the statewide average receives a grant, and the aid level equals the dollar amount necessary to raise the county’s per capita income tax revenues to 75% of the statewide average. The General Assembly expanded the program and added funds to it in 2013, which enabled Cecil County to qualify for the first time in the Fiscal 2014 budget.

Cecil County receives one of the smallest disparity grants in the state, with Baltimore City getting a $79 million grant in the current budget year while Prince George’s County received $21.6 million.

Declining income tax revenues have already sent up warning signals to Cecil County officials, with Director of Finance Winston Robinson recently warning the County Council that those revenues were below expectations for the recently completed Fiscal 2014 budget year and that trend would likely continue.

And Cecil County could face a loss of over $3 million in income tax revenues it might have to refund to local residents who work outside the county, depending on the outcome of a court case pending before the Supreme Court. The case involves workers demanding an offset on their county income taxes for taxes paid to another state or jurisdiction where they work. Since so many Cecil County residents work in Delaware or Pennsylvania, the county might be forced to pay refunds on previously collected local income taxes.

Meanwhile, other spending cuts in O’Malley’s package will affect multiple areas of Cecil County’s budget. The Governor’s office is freezing its law enforcement aid to local police agencies for a statewide savings of over $558,000, while a major $6.8 million reduction in statewide community college support was included in the O’Malley package.Cecil College is expected to face a $200,000 budget cut due to that decision.

County Executive Tari Moore has an extra month this year to draft her budget for the Fiscal 2016 budget year that begins on July 1. County voters approved a Charter amendment in November giving the executive until April 1 to present her budget to the County Council, while the Council will have two fewer weeks than in the past to review her budget and consider possible cuts to spending.

Moore has scheduled a town hall meeting, at which citizens can offer their views on what the new budget should, or should not, contain. The meeting is scheduled for 7 p.m. Tuesday 1/13/14 at the county administration building in Elkton.