What Do You Think? Equitable Revenue Sharing
Nov 10, 2017 02:16PM
It is in the air. All around us are words about tax cuts, revenue sharing…who pays the tab for funding public service and needed capital improvements. Except for a few dollars and cents wizards, this is a go to sleep subject. With a bundle of rules and procedures governing a myriad of sources of revenue and expenditures, funding for the public good is a complicated subject.
So, let’s take a simple look around revenue sharing from State to local government and keep it simple...the KISS principle. Let’s consider what’s an equitable return on revenue sharing and the role of governments.
In Maryland, the State is the great collector of monies...all monies. Cities and towns generally do not collect. Counties collect income taxes and forward it to the State, which takes an administration fee before sharing it back again with local government.
The three highest sources of revenue for the State general fund that supports the State government operations are:
1. The Income tax that represents 53 percent of the general fund
2. The Sales tax for another 27 percent
3. The State lotteries
The State also collects taxes on Alcohol, Tobacco, and Admission and Amusements. When all is said and done, the State collects $39 billion dollars in revenue to support Maryland Government Operations. Twenty percent of this amount is shared with local government. A reminder of our agrarian past, in Maryland, local government is County government. The 157 incorporated municipalities, not inclusive of growing urban centers, are a bit of an afterthought in State legislative outlooks. With rare exception, revenues shared with cities and towns are cycled through the County and under County authority.
In 2015, cities (excluding Baltimore City) contributed approximately 8 percent to the State’s local shared income tax revenue of $8.5 billion dollars. After taking an administration fee and calculating shares for education, libraries, and health, the income tax money is returned to the County.
Towns within its jurisdiction receive 17 percent of the County’s Tax Liability. Towns have different population densities and provide different public services for its constituents. This may be a fair return for some, but is it for all? Consider Annapolis. The Capital City is a seven-square mile urban center with 40,000 residents and a population density of 5,700, three times higher than suburban Anne Arundel County. How does the 17 percent relate to Annapolis’ contribution to the total income tax?
Annapolis has four million visitors a year; it is a popular party and drinking town. All of the liquor tax goes to the State General Fund. All of the sales tax goes to the State. Some could say the city is a cash cow for State coffers. None of this revenue is shared directly with the City. Should it be? Admittedly, monies in the State’s General Fund support agencies that provide public service to all and grant dollars to some. Only the Admission and Amusements tax, collected monthly by the State, comes directly back to the government from which it came (minus the State administration fee).
Despite a lot of hand wringing about money and doomsday predictions, local government is funded primarily by property tax and dedicated user fees and no one wants to raise them. Bond rating agencies Moody and Fitch give Annapolis excellent reports on its fiscal stability. It has had a AA+ rating for more than 10 years. Thirty-nine million dollars are in a general fund reserve drawing market rate 1.4 percent interest.
Debt service from the sale of bonds to fund capital improvements is below the 12 percent cap, but pushing it, and costs 3.2 percent interest. A pay-as-you-go system for funding capital projects requires cash, not the credit card system based on “full faith and credit” used by the vast majority of us.
Back to KISS. Is the subsidy to the State in Income, Sales, and Sin taxes from Annapolis within proper balance and equitably shared? Hard to tell. The State doesn’t collect information from cities in a way that could be evaluated. Should it? If you think unequitable sharing is occurring, then what could you do about it? Under State law, a policy set for one municipality applies to all. No exception is made for the Capital City. With a 2018 legislative session coming, perhaps it is time to hold a public forum on the issue of equitable revenue sharing.