Friday, March 12, 2010

Where Do the Counties Rank on Returns from the State?

Ten-year data comparing state aid to state taxes paid by county illustrate a truth we all know: Maryland is a state of donors and recipients. Here are who’s giving and who’s getting.

Page 107 of last year’s Overview of Maryland Local Governments shows the amount of state aid and payments-on-behalf (like teacher pensions) per dollar of state taxes paid for each of the state’s 24 jurisdictions. We reproduce it below.

Over the FY97-06 period, Montgomery County received 15-19 cents in aid and payments-on-behalf for every dollar in taxes its residents paid to the state. Only Worcester (11-13 cents) and Talbot (11-14 cents) received less. The biggest recipients were Somerset (91-114 cents), Caroline (91-107 cents) and Baltimore City (81-108 cents). The state average was 34-40 cents over the ten-year period.

There is a major omission from the above data: transportation spending. Of the $9.1 billion six-year Consolidated Transportation Program, the ICC accounts for $2.6 billion and WMATA will receive $658 million in debt service and $1.3 billion in construction spending and equipment. (A lot of the above funds are federal.) But the ICC and Metro serve many non-Montgomery residents and their inclusion would not come close to eradicating Montgomery’s status as a donor county.

Why does Montgomery do so poorly? We explored this issue in 2008’s MoCo: Not as Rich as You Think series. On the one hand, Montgomery residents need higher salaries to pay for higher costs for gasoline and real estate. The state’s income tax brackets, which treat income equally in every jurisdiction without regard for costs, pinch Montgomery’s residents harder than elsewhere. And on the other hand, most of Maryland’s aid is driven by wealth formulas that depend heavily on real estate values. High home prices in Montgomery may mean more home equity for some, but they also mean higher mortgage payments. In 2006, Montgomery mortgage holders paid an average $2,285 per month, the highest in the state.

The net effect of the system is to drain Montgomery residents of both tax dollars and aid. High nominal salaries are needed for high real estate and fuel prices, which ripple through to increase other costs in the county. Uniform state income tax brackets capture disproportionate amounts of that income. High home prices lead to greater wealth calculations in state formulas, which reduce state aid. And the county government must react by raising its property taxes to make up for relatively low state aid levels.

Anyone up for moving to Crisfield?