Blog post by Kevin Rudolph
Kevin Rudolph serves as the Interim Manager of Government Affairs for the Maryland Chamber of Commerce and Manager for the Maryland Chamber Foundation. A policy wonk, he has spent years working at the state, local and federal levels of government in both staff and lobbying roles.
At the beginning of June, leaders of the General Assembly announced the formation the Funding Formula Workgroup as part of the recently enacted Blueprint for Maryland’s Future Act. This workgroup is meeting during the interim to determine a funding formula to implement the Commission on Innovation and Excellence in Education (Kirwan Commission) recommendations.
We applaud the General Assembly and the Kirwan Commission on their laborious work over the past three years to reform the education system in Maryland. However, we encourage caution as policymakers and legislators consider the question of how we will pay for the recommendations sought in the Blueprint.
Many of us remember the “original” Kirwan Commission – the Commission on Education, Finance, Equity and Excellence chaired by Dr. Alvin Thornton, established in 1999 by the General Assembly. While the Thornton Commission and its subsequent legislation, the Bridge to Excellence in Public Schools Act of 2002, made needed reforms to the education system, the $1.3 billion increase to education funding was not attached to a dedicated, new, or proposed revenue source (outside of a cigarette tax increase to pay for 2003 reforms). Without a revenue source or cuts to the budget, the cost of this reform was left as a general appropriation.
The effects of the financial recession of the late 2000’s were compounded for Maryland not only due to the decrease of revenue caused by the slowing of economic activity, but also because of the additional mandates and funding obligations caused by years of spending without reducing spending elsewhere or increasing revenue.
Despite income and corporate tax revenues relying on the ebb and flow of economic activity, the state turned to vulnerable businesses to institute a new set of onerous tax provisions. These include the Tech Tax, a bill the Maryland Chamber helped defeat during the 2008 legislative session, and increases to both corporate and individual income tax rates. Some of the individual income tax rates were altered or sunsetted because of their negative effects on the economy, but the corporate income tax rate was not altered from 8.25 percent back to 7 percent, which consistently restricts Maryland’s competitiveness in the region. With the federal Tax Cuts and Jobs Act (TCJA) provision capitating state and local tax (SALT) deductions, the 8.25 percent corporate tax rate in practice is 9.9 percent.
The General Assembly has already earmarked certain funding sources it wants to use to pay for education reform, including a $36 million corporate filing fee and the $200 million the General Assembly set aside during the 2018 Legislative Session from a surplus of the corporate income tax as a result of the SALT deduction capitation. Even so, there is a large gap to the $3.8 billion annual appropriation the Commission has called for.
If a dedicated revenue plan is not laid out for this education reform, Maryland will be in a vulnerable position when the next recession hits. Additionally, there is some concern that in coming up with a revenue source, lawmakers will consider increasing employer taxes, which has already led to negative economic consequences for businesses and jobs in the state.
We need an efficient and effective education system, and the Maryland Chamber stands ready to work with stakeholders to identify funding solutions that do not unintentionally harm the employer community, which has long-demonstrated its commitment to developing the next generation workforce.