Wicomico Income Tax Hike Likely

SALISBURY – Wicomico County residents are facing an income tax increase assuming legislation is passed in Annapolis by Friday as expected.

On Tuesday, Finance Director Andrew Mackel said Senate Bill 848 has been passed and House Bill 1412 is in the process of being reconciled between the Senate and the House. The county is expecting the House Bill to pass by today, Friday, March 23, if not sooner. Both of the bills are emergency legislation and will take effect when enacted.

Current state law under the Maintenance of Effort (MOE) requirement is each county government must provide on a per pupil basis at least as much funding for the local school board as provided in the prior fiscal year. A county may apply to the state board for a one-year waiver of the MOE requirement. A waiver is granted if the board determines that the county’s fiscal condition significantly impedes the county’s ability to fund the MOE requirement.

In 2011, Wicomico County was one out of seven Maryland counties that did not meet MOE levels and the request for a MOE waiver was withdrawn because there was no additional state funding due to tough economic times.

Mackel summarized that Senate Bill 848 and House Bill 1412 impose complex formulas that define the eligibility for types of waivers, waiver amounts limited to small percentages and legislate an annual MOE growth.

The bills also create a new category waiver request based on mutually agreed recurring annual cost reductions with the local Board of Education, provide authority to exceed county charter limitations with funds going exclusively to the Board of Education, provide the authority to exceed the state income tax ceiling of 3.2 percent with funds going exclusively to the Board of Education, and retroactively changes the MOE base computation

“If the counties do not fully fund the MOE and has not received a waiver, it allows the state to intercept county income tax revenue and send it directly to the BOE,” Mackel said.

Mackel stated that the two bills will retroactively change Wicomico County’s FY13 MOE requirement from $36.4 million to $50.8 million, creating a recurring budget increase $14.4 million per year beginning in fiscal year 2013.

“That is an immediate problem,” he said.

In looking for a way to cover $14.4 million, Mackel reviewed Wicomico County’s expense budget. The entire budget for Corrections, States Attorney and Circuit Court totals $13.6 million, and in order to cover the entire $14.4 million 79 percent of the budgets for the Sheriff and Corrections combined would have to be cut.

“There are no combinations of any other county functions that would cover remotely close to equaling $14.4 million,” Mackel said.

The action pending in Annapolis amends the MOE legislation to recognize the maximum income tax effort imposed by July 1, 2012, which would allow Wicomico County to retain its current FY12 MOE base of $36.2 million. This would mean the county would have to immediately increase the income tax rate to 3.2 percent from 3.1 percent, and the legislation had to be introduced that day and passed by April 17 to be effective by June 16.

Director of Administration Wayne Strausburg said that in meeting with Delegate Norm Conway, co-sponsor of Bill 1412, a clear and compelling case was made in why Wicomico County has not met MOE.

“It wasn’t a case of political whimsy; we were just into a free fall here economically … I have had several discussions with him since that point in time trying to avoid this $14.4 million debacle,” he said. “Our hope is that we would get some lead in the reconciliation … he [Del. Conway] clearly understands that this county simply cannot afford this bill as it stands.”

Strausburg added that the only mechanism present to avoid the rebasing is to reset the local income tax rate to 3.2 percent.

“Unless Wicomico County reverses recent trends and starts fulfilling generally seen as a lacking obligation in education, we are going to be constantly confronted with the heavy hammer of the state and they are going to penalize us … They need the evidence that we take this seriously and that we are going to take full advantage of our own tools to fund education and if we don’t than they are going to do it for us,” County Executive Rick Pollitt said.

Councilman Bob Culver referred to the matter as “legislative blackmail” and asked what “doomsday” would look like. Mackel responded that the state would begin to intercept income tax revenue and send it directly to the school system.

“So if we do not have enough money, as you have pointed out … who then takes care of the citizens of Wicomico County,” Culver asked.

Strausburg responded that a bankruptcy trustee will step in to make those decisions at that point.

Strausburg added that if legislation does not consider an income tax reset in Wicomico than other discussion regarding legal action will have to follow.

“We can’t bill $14 million,” Pollitt said. “We will have to decimate the sheriff’s department and other services.”

The County Council voted unanimously to introduce the legislation to increase the tax rate. There will be a public hearing April 17.

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