What's a disparity grant, why do we need it and why don't we get as much as we used to?

Each year, the state of Maryland distributes "disparity grants" to jurisdictions whose per-capita tax revenues are less than 75% of the statewide average. And every year, Washington County seems to qualify.

But just how much the county qualifies for — and how much it could get — has been a point of contention among county officials since the last Washington County Board of Commissioners lowered income tax rates during the final two years of their term.

That's because calculations for these grants are based on how much the county assesses for income taxes. Counties that charge the full allowable 3.2% income tax get more; those who don't get less.

In other words, if you have more skin in the game, you get a higher return.

Washington County was awarded a grant just shy of $8 million in Fiscal Year 2021, after the county commissioners agreed to assess the full 3.2% income tax rate. As a result of cuts, first to 3% and then to 2.95%, this year the county anticipates receiving $2.3 million.

Figures from the state's Department of Legislative Services show that over a three-year period since the tax cuts were effective, Washington County has received $20.5 million less in disparity grants than it would have if the county income tax rate had remained at 3.2%.

Add in the numbers for FY 2025, County Administrator Michelle Gordon noted, and the figure rises to nearly $30 million "just in disparity grant that we've lost as a result of decreasing the tax rate down from 3.2% to 2.95%," she said.

That's not counting the cumulative income the tax itself would have generated.

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How much would a higher income tax rate cost taxpayers?

Washington County's median household income is $66,832 — which means an equal number of households is above and below that number. "For the median household income of $66,832, if we were to increase it from 2.95% to 3.2%, they would pay additional tax of $167 annually," Gordon said.

That equates to about $14 per month.

County Commissioner Wayne Keefer, who opposes raising the income tax, argues that homeowners already are paying higher property taxes, and county officials need to consider the total amount of taxes residents pay.

It's difficult, he said, to determine what individuals or couples filing jointly pay in income taxes. "If you don't know what the average person pays right now, you have no right to say it's only $200" more, he told The Herald-Mail.

Income taxes, which Keefer notes are progressive, hurt "job creators,' he said, and can induce them to move to neighboring states.

Keefer also raised the specter of anticipated state budget cuts, which could reduce or eliminate disparity grants altogether.

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Move to restore higher tax rate lacks support

Commissioner Derek Harvey, who floated restoring the higher income tax rate last year, mentioned it again when the commissioners voted last spring to issue bonds for $15.1 million for capital projects. Harvey opposed the bonds, noting the longterm costs of debt service to the county.

He argued that by cutting the income tax rate, the county not only lost disparity grant money but was subsidizing other counties who were getting more of the money set aside for these grants as a result.

But he told The Herald-Mail that he wasn't going to press for a change this year because it did not have enough support from the other commissioners — although commissioners' President John Barr said last week he favored it.

"I was not in favor of lowering the income tax rate when it was done several years ago," he said. Barr was not serving on the board when the rate was lowered.

"I am in favor of moving it back to 3.2%, as much as that's hard to believe," he said. He said hears every week about needed road repairs and needs in the schools. "I think it's counterintuitive, every year, either 1% or no percent increase" to the budget for Washington County Public Schools, he said.

"I do feel for both the (Washington County Board of Education) and the administrative staff," Barr said. "I think they've got a tremendously challenging situation."

Barr said he'd like to give the school system additional funding, particularly if it's going to be used for instructional purposes and "the mental health and wellbeing of both the students and the teachers."

County officials have noted that other counties have employed a tiered system, in which lower-income households might actually see their income tax rates go down while those earning more than the median could pay the higher rate.

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Where would the money go?

That's a decision the commissioners would need to make. Right now, Gordon said, the money is included as part of the General Fund.

"My recommendation for any tax rate change at this point would be to dedicate it to (capital improvements)," she said. "We have historically underfunded our (Capital Improvement Plan). We've underfunded roads, maintenance, we've underfunded school construction, we've underfunded building maintenance. All of those things right now are in dire need of funding to bring them current again."

The proposed FY 2025 budget includes a transfer of $9 million from the General Fund to the Capital Improvement Fund. Another $25.2 million in the General Fund is earmarked for debt service. As reported earlier, capital requests for FY 2025 totaled $73.8 million; about $30 million of that would come from grants and other sources.

"Even in our current plan, right now, the amount of disparity grant is less than the amount we're trying to put into the capital fund," Mace told The Herald-Mail. "So if we were to lose it, that would be the first place we would look, is those one-time costs in the capital fund. And that's kind of been the general approach to the disparity to begin with; that is has always trailed behind what we were contributing into the capital plan."

"You've heard us talk about the need for new Circuit Court building, you've heard us talk about the need for improvements to the detention center and to our patrol office building," Gordon added. "Those are all $60-, $80-, $100-million projects. And if we aren't putting money into our CIP to save up for that money, it means we're going to need to do a bond issue.

"A bond issue on an $80- or $100 million project is $8 to $10 million annually. So to afford some of those projects through a bond issue, we would need to come up with $8 to $10 million annually in revenue that's dedicated just for that bond service."

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This article originally appeared on The Herald-Mail: Does $167 in your pocket cost the county government millions?