Show Me the Money!
February 19, 2020,
The Blueprint for Maryland’s Future Fund
The debate about the recommendation of the Kirwan Commission continues to dominate a large portion of the legislative session. The issue of quality education is vital to help create a strong pool of workers for Maryland businesses. At the same time, there is a need for stable economic conditions and a reasonable tax climate to support the businesses that create the jobs. Therefore, the debate over the funding mechanism for the improvements will be so intense that we will hear legislators and other key stakeholders use the famous line from the movie Jerry McGuire, “Show Me the Money”.
On Friday, February 14th, the House of Delegates overwhelmingly passed legislation to boost funding of school construction projects across the state by $2.2 billion. HB 727, The Built to Learn Act, passed by a vote of 128-6 with all chamber Democrats and most Republicans supporting the measure. It’s designed to address the concerns of counties across Maryland that say they’re struggling to keep up with aging school buildings that are in desperate need of repair.
The $2.2 billion would be distributed to counties over five years from bonds issued by the Maryland Stadium Authority. The bonds would be paid back over 30 years using $125 million a year in casino revenues set aside in a so-called “education lockbox.” Each county in Maryland would get a different amount depending on population and the current level of local school funding already in place. Anne Arundel would get $250 million.
On Monday, February 17, the education and budget committees began the process of holding hearings to take a deeper dive into the specifics of the Kirwan recommendation and hear for key stakeholders about the recommendations and potential funding mechanisms. Under the legislation, the state’s share of the increased school funding would grow to $2.8 billion a year by 2030, while local governments would pay a combined $1.2 billion more annually. At the county level, there has been little conversation about the source of these funds.
Unfunded Mandate to Improve Education
The Kirwan Commission’s report calls for additional programs, such as expanding pre-kindergarten to more students, enhanced standards and higher salaries for teachers, improved college and career-prep programs in high schools and more support for schools with high concentrations of students from low-income families. It would make the starting salary for teachers $60,000. All very important aspects of improving education but at the current time, the bill under consideration mandates the amount of spending but does not say where the money would come from in the future. Basically, it’s an unfunded mandate.
Lawmakers are separately considering an array of options to raise money, from legalizing sports betting to boosting the state’s tobacco tax, to applying the state sales tax to downloads of digital media, such as e-books and music. Speaker of the House Jones and Senate President Bill Ferguson have pledged to pass the Kirwan bill without across-the-board increases in the state’s sales, income or property taxes. SB 2 which would tax digital advertising has already been introduced and is working its way through the legislative process.
Eliminate Economic Development Programs: Pennywise and Pound Foolish
Another source of funding for Kirwan would be to reduce or eliminate economic development programs. Over the years, the economic development incentives and programs that are targeted for elimination have helped hundreds of Maryland companies and assisted in creating thousands of jobs. Without these economic development tools, Maryland would become a less attractive place for companies to expand and grow. The following bills have been introduced and the potential savings would go towards the Kirwan recommendations.
HB 223—End Ineffective Business Subsidies Act of 2020
Prohibiting the Secretary of Commerce from designating or expanding certain enterprise zones and focus areas on or after June 1, 2020; providing for the termination of the One Maryland Economic Development Tax Credit Program on January 1, 2022; applying the Opportunity Zone Enhancement Program to taxable years 2019 through 2021; prohibiting the Department of Commerce from issuing tax credit certificates to certain investors in certain biotechnology companies on or after January 1, 2022
HB 224—Opportunity Zone Tax Deduction Reform Act of 2020
Requiring certain taxpayers to add a certain deduction for gains from sales or exchanges of qualified opportunity zone property back to federal adjusted gross income to determine Maryland adjusted gross income; requiring certain taxpayers to add a certain deduction for gains from sales or exchanges of qualified opportunity zone property back to federal adjusted gross income to determine Maryland modified income; and applying the Act to taxable years beginning after December 31, 2019.
HB 295—Corporate Income Tax–Combined Reporting
Requiring affiliated corporations to compute Maryland taxable income using a certain combined reporting method; requiring the comptroller to report by March 1 of each year an estimate of the total additional tax revenue from corporations to be collected in the next fiscal year as a result of the combined reporting method; requiring the comptroller to distribute certain revenue from corporations to The Blueprint for Maryland’s Future Fund
HB 525—Phase Out Company Giveaways Act
Establishing the Interstate Compact to Phase Out Company Giveaways as a compact among member states; stating the findings of member states; prohibiting member states from offering or providing certain company giveaways as an inducement to relocate certain facilities to a member state subject to certain exclusions; authorizing member states to withdraw from the Compact with six months’ notice in a certain manner; establishing the National Board of the Interstate Compact to Phase Out Company Giveaways.
HB 565—Terminate Business and Economic Development Tax Credits
Prohibiting the Secretary of Commerce from designating or expanding certain enterprise zones and focus areas and from designating or renewing certain RISE zones on or after June 1, 2020; providing for the termination on or after January 1, 2023, of the One Maryland Economic Development tax credit, the Opportunity Zone Enhancement Program, and tax credits for certain biotechnology investment, certain cybersecurity purchases, certain film production activities, and certain small businesses that provide certain employer benefits.
Believe it or not, there are actually a number of other bills that should be of interest to the business community. Here is brief overview:
The program generally provides up to 12 weeks of benefits to an employee who is taking partially paid or unpaid leave for the following reasons: 1) to care for a child during the first year after the child’s birth or after the placement of the child through foster care or adoption; 2) to care for a family member with a serious health condition, 3) because the employee has a health condition that results in their being unable to perform the functions of their job, 4) to care for a service member who is the employee’s next of kin, or 5) because the employee has an exigency arising out of the deployment of a service member who is a family member.
The bill establishes the FAMLI Fund, which will consist of contributions from employees, employers and self-employed individuals starting on January 1, 2021 if the bill is passed. The total rate of contribution: 1) may not exceed 0.5% of an employee’s wages, 2) shall be applied to all wages up to and including the Social Security wage base, 3) shall be shared equally by employers and employees, and 4) shall be sufficient to fund the benefits payable.
SB 523 and HB 129—Pass Through Entities
Altering the tax imposed on certain pass-through entities; requiring each pass-through entity to pay the tax imposed with respect to certain shares of certain nonresident and nonresident entity members of the pass-through entity; authorizing a pass-through entity to pay the tax imposed with respect to certain shares of all members of the pass-through entity; providing for the calculation of the tax; prohibiting the tax required to be paid for any taxable year from exceeding a certain amount.
SB 397 and HB 1339—Attract Data Centers to Maryland
This legislation would provide a sales-and-use tax exemption for the sale of computer technology for use at a qualified data center. If passed, this legislation would level the playing field and attract data center business to Maryland, further supporting the state as a leader in innovation and investment in cyber and information technology. This bill runs contrary to the efforts to eliminate job creating incentives.
The economic impact—both direct and indirect—of data centers is substantial. The additional personal income taxes from new employees and increase of local taxes paid by data centers directly and indirectly support schools and law enforcement, as well as improving local public infrastructure including the expansion of broadband.
HB 492–Small Business Development Center Network Fund – Minimum Appropriation
Increasing the required minimum appropriation for the Small Business Development Center Network Fund from $950,000 to $1,500,000 for the fiscal year beginning July 1, 2021.
SB 66–Income Tax – Credit for Small Businesses – State Minimum Wage Increase
Allowing a credit against the State income tax for certain wages paid by certain small businesses during the taxable year to certain minimum wage employees under certain circumstances; requiring the Maryland Department of Labor, on application by a small business, to issue a tax credit certificate in a certain amount; requiring the Department to report to the Comptroller, on or before January 31 each year, on the tax credit certificates issued; requiring the Department and the Comptroller to adopt certain regulations.