Hogan ‘State of the State’ Gives Peanuts to Cecil County Road Aid; Tax Relief to Business,Veterans

Hogan also promised some help for military, police and emergency responder retirees with a phase-in of income tax reductions on their retirement pensions. And, in fulfilling a campaign pledge, Hogan promised to seek repeal of the so-called “rain tax” imposed on Western Shore counties, but not Cecil County, to offset costs of dealing with storm water runoff that pollutes streams and the Chesapeake Bay.

The new governor, who ran on a platform to make the state more “business-friendly,” also proposed revisions in the state’s “personal property” tax that is actually a business inventory tax and which has been cited by small business groups as a deterrent to new business location in the state.

Of most significance to Cecil County was the new governor’s proposed revisions to his Fiscal 2016 budget—presented just a week ago and a few days after Hogan was sworn in as governor. At the forefront was his new proposal to give a bit more money in state road aid to county and local governments.

But an analysis by the Maryland Association of Counties (MACO) concluded that the new Hogan proposal was heavily tilted toward Baltimore City and other cities and towns in the state, while the counties—including Cecil County– would get a few peanuts tossed onto their plates.

Hogan said on Wednesday that he was sending a supplemental budget request to the General Assembly to amend his earlier budget plan to provide for a $25 million increase to the $194.3 million in road aid he previously proposed to be distributed to counties, Baltimore city and local jurisdictions in his Fiscal 2016 budget out of highway “user funds” generated from gasoline taxes, car registration fees, and related revenues.

In a letter to leaders of the General Assembly, Hogan proposed the extra $25 million as an additional spending line item and did not offer any offsetting cuts in other programs to pay for the road aid boost.

In recent years, the counties have had their share of the highway user funds cut by over 90 percent as the O’Malley administration tapped those funds to balance the state budget. Hogan said his new proposal would boost the counties, cities and towns shares to the “highest level” they’ve received since Fiscal 2009.

In 2009, Cecil County received $6.4 million in highway user funds from the state, according to Craig Whiteford, the county’s Budget Manager. In the current Fiscal 2015 budget, those funds account for just $602,146.

But the MACO analysis concluded that $19 million of the new increase would go to various cities and towns around the state while the counties and Baltimore City would only get a $4 million slice of the pie. And Baltimore City alone would get half of that sub-slice– $2 million– out of the county tally since the city is considered legally on par with the remaining 23 subdivisions.

As a result, Cecil County will likely get a tiny boost in aid. MACO estimates that smaller counties will get no more than $100,000 in additional aid under the new Hogan proposal.

But Hogan pledged that this initial boost—a downpayment on a crucial campaign promise he made as he campaigned in the rural areas of the state—was just the beginning of a plan to gradually boost the counties’ and other local jurisdictions’ share of state highway user funds. He said he would introduce legislation to boost the aid formula by 2.8 percent a year until the localities eventually receive 30 percent of the total collected by the state in 2024.

“Over the last several years, local governments across the state have had to bear the brunt of deep cuts in highway user revenue,” Hogan said Wednesday. “Although we were faced with a dire fiscal situation and the extremely difficult challenge of delivering structural balance to our state budget, I have remained committed to restoring the money that was raided from our Transportation Trust Fund.”

MACO estimates that the O’Malley administration siphoned off over $2 billion statewide from the counties during his administration through cuts to their traditional share of highway user fund revenues.

The non-urban counties around the state formed the core of Hogan’s electoral victory, and throughout his 2014 campaign local pleas for a return of highway user funds were a key appeal from residents and county officials. The new $2 million set-aside for Baltimore City may seem puzzling from a purely political viewpoint, since the city provided a core majority of votes for Hogan’s failed Democratic opponent, former Lt. Gov. Anthony Brown.

The new largesse toward the towns and smaller cities may reflect an issue highlighted in the non-partisan General Assembly’s Legislative Services office’s analysis of the initial Hogan budget proposal. The analysis noted that grants to the towns and smaller cities in the state had received a temporary influx in the previous fiscal year and such funds were to be zeroed out in Fiscal 2016 in Hogan’s budget.

Former Governor O’Malley provided a short-term fiscal shot in the arm to the towns and small cities in the current Fiscal 2015 budget, but Hogan initially ended such local road aid going forward.

But now, according to MACO’s new analysis of the revised Hogan budget proposal, the new governor is proposing to retain some of that municipal aid and add $3 million to it— while the counties get just a tiny sip of the fiscal waters. Nevertheless, the new Hogan plan could provide some much needed aid to Cecil County’s municipalities that were otherwise zeroed out under Hogan’s initial budget plan.

MACO was apparently unimpressed with the frugal new road aid allocation to the counties and pledged to protest in the General Assembly the “starvation diet” imposed on the counties for aid to local road and bridge repairs.

Meanwhile, Hogan touched on some key themes of his campaign and followed through with modest fiscal initiatives to carry out his promises. As various studies have shown that retirees are leaving the state due to high taxation for people living on fixed incomes, Hogan said he would take steps to eventually exempt pensions from state taxation.

But for now, he would just take some modest steps to phase-in income tax exemptions for pensions earned by military, police, fire and ‘emergency responder’ retirees. For military retirees, the income tax would be phased out entirely over four years. For what Hogan called “Hometown Heroes,” police and other emergency workers’ pensions would also receive a reduction in taxes on pension income directly related to their public service over four years.

Especially in stateline border areas like Cecil County, many local retirees move to Pennsylvania, which does not impose income taxes on pensions. Retirees are considered prized local residents since they make minimal demands on local services such as schools.

Hogan also proposed changes in the state’s ‘personal property tax,’ which is actually an annual inventory and owned equipment tax imposed on businesses. Especially for small businesses, that annual levy and the burdensome paperwork required for compliance can be a deterrent for new businesses to locate in the state—especially in areas like Cecil County situated adjacent to states that do not impose such taxes and regulations.

The new governor proposed legislative changes to eliminate such taxes on small businesses with less than $10,000 in inventory or assets currently subject to the tax. Hogan said that more than 70,000 small businesses statewide would benefit from his proposed legislative change.

Cecil County obtains a relatively small piggyback revenue base from the state’s personal property tax program. So the modest reforms suggested by Hogan would have a related impact of reducing revenues to the Cecil County government. However, if Hogan’s initiative had the desired effect of encouraging small business development in the state, the county might benefit from expanded business development and employment.