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Change in school funding formula debated

Annapolis, MD-- February 3, 2015--This is Delegate Maggie McIntosh, Chair of the House Appropriations Committee, on the House of Delegates floor. Barbara Haddock Taylor/Baltimore Sun
Annapolis, MD-- February 3, 2015--This is Delegate Maggie McIntosh, Chair of the House Appropriations Committee, on the House of Delegates floor. Barbara Haddock Taylor/Baltimore Sun (Barbara Haddock Taylor / Baltimore Sun)

Some lawmakers said Monday that the General Assembly should change a school funding formula that gives great weight to property values — and is projected to cost Baltimore millions of dollars in lost state aid for next year.

But others say a city with a waterfront ringed by pricey new buildings would have more money for schools if it hadn't handed out so many tax breaks to developers. And a key Baltimore legislator called on businesses who have gotten such breaks to consider stepping up to the plate.

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"I think the business community needs to look at some of these deals and ask themselves, is there something they can be doing to help the schools?" said state Del. Maggie McIntosh, a Baltimore Democrat who is chairwoman of the House Appropriations Committee.

She and other lawmakers and business leaders were responding to an article Sunday in The Baltimore Sun that described the way the city's spiking property values make it appear wealthy enough to warrant a cut of millions in state school aid. That reduction, as well as Gov. Larry Hogan's proposed cuts to two other school funding streams, mean Baltimore is scheduled for a drop of $35 million in state aid for schools next year.

In Annapolis, House Speaker Michael E. Busch and McIntosh, his budget leader, said they are crafting a plan to restore roughly $140 million in school aid statewide to the budget for the year that begins July 1 — including about $24 million of Baltimore's loss. The plan involves identifying enough cuts elsewhere in the state budget to allow money to be shifted back to schools.

"We all have to come to the table to do the best we can do to restore some of these cuts," McIntosh said. "There has to be a four-way conversation: the city, the state, the teachers' unions and the business community."

State Sen. Bill Ferguson, a Baltimore Democrat who sits on the Budget & Taxation Committee, said the state Department of Education is already charged with evaluating the main formula Maryland has used for a decade to distribute school aid. It takes into account both property value and income, but property value dominates.

"We need to broaden the analysis to include realized wealth instead of apparent wealth," Ferguson said.

Senate President Thomas V. Mike Miller said he thinks Baltimore deserves more state money for schools, but added, "We're going to have to reach a compromise. ... We're certainly not going to reward them for all these tax credits they're giving to developers."

And Senate Minority Leader J. B. Jennings said the legislature should not tinker with the funding formula. "It's not fair to the other counties in the state," said Jennings, a Baltimore County Republican. "If it's only one jurisdiction, it's not an epidemic that needs to be looked at statewide."

Republican Del. Susan Krebs of Carroll County pointed out that city officials decided to forego millions in local property tax revenue to encourage development.

"The fact that Baltimore City is giving huge tax breaks for development, that's the decision that they made," Krebs said. She said she thinks the state funding formula should be revised, but said it was "premature" to do while it was under review by the education department.

"It needs to be looked at comprehensively," said Krebs. Tweaking it for just one jurisdiction right now, she said, could lead to a "slippery slope" in piecemeal changes that don't add up to good public policy.

In her Carroll County district, for example, the county loses state funding because of declining enrollment, and the formula doesn't take into account the fact that Carroll has very few industries contributing to its tax base. But she doesn't think the state should change it just solve Carroll's problems, nor to make up for the fact Baltimore handed out hefty tax incentives.

"We all have our unique idiosyncrasies with regards to the formula," Krebs said.

A Hogan spokesman said the governor is open to meeting with lawmakers and considering their ideas.

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"Governor Hogan has consistently said that he looks forward to hearing ideas and solutions from both sides of the aisle on how to solve Maryland's budget challenges," said the spokesman, Matthew Clark. "The Hogan administration aims to create an environment where the best ideas rise to the top based upon their merit."

With development booming in Baltimore, the city's property wealth grew by more than $1.3 billion last year — nearly 4 percent, by far the fastest rate in Maryland.

Under the state's main funding formula, the city is scheduled to lose about $14 million in state aid next year because of the growth in property value. It stands to lose another $11 million under Hogan's proposal to cut in half the extra money given to Baltimore and other jurisdictions where it's more expensive to run a school. And the city would lose $10 million under Hogan's plan to cap an automatic increase for inflation.

Baltimore's spike in wealth is attributable in large part to rising assessments on waterfront properties, according to David R. Brinkley, Hogan's nominee for state budget secretary.

At the same time, Baltimore schools saw almost no growth in the student population, and counted fewer students who qualify for free or reduced-price meals or special education services. The state has dedicated funding streams to support such students.

Nonetheless, under Hogan's budget, the city still would receive more state aid per pupil than any other jurisdiction in the state — nearly $12,000, about twice the state average. Baltimore would get about $945 million in state aid for its annual school budget of roughly $1.3 billion. Only Prince George's County is scheduled to get more.

A developer of the Shops at Canton Crossing, which pays significantly reduced property taxes under two government programs, said he was chagrined to learn the city is scheduled to lose school aid next year.

"In learning about the issue we found it disheartening that the unintended consequence of Baltimore's success in development was that Baltimore's schools and children are" losing funding, said Neil J. Tucker, a partner at WorkShop Development Inc. "We're happy to hear that all the stakeholders are going to work together to fix this."

Del. Anne Kaiser, who heads the Ways & Means education subcommittee, said any adjustment to the formula should be considered as part of a deliberative process that takes into account the effect on the counties.

Kaiser, a Montgomery County Democrat, pointed out that property taxes were part of the distribution formula from the beginning as a measure of a jurisdiction's wealth.

"We shouldn't rush it," Kaiser said. "There are a lot of pieces to the puzzle."

One idea Kaiser likes is to take into account which new properties on the tax rolls are actually producing revenue.

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Kaiser also said she would like to see the formulas give greater credit to a jurisdiction's tax effort – both in property taxes and the piggyback income tax. Taking those efforts into account would help both Baltimore, with the highest property tax rates in the state, and Montgomery, which like Baltimore imposes the piggyback tax at the maximum rate.

"It rewards the jurisdictions that are trying to help themselves," she said.

Jennings said that while the tax breaks may cost Baltimore next year, it will receive the tax benefits of those deals in future years.

"They just need to be more careful in how they do it," he said.

Baltimore Sun reporters Michael Dresser and Erin Cox contributed to this article.

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