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State overpays locals by $11.7M

Maryland counties unexpectedly awash with extra cash in May will see their finances come back down to earth this month as the state fixes a flubbed formula used to disburse income tax revenue to local jurisdictions.

The mistake in the comptroller’s office sent the state’s 23 counties and Baltimore city $11.7 million more than they were due on May 31. And while the overpayment was small, just 1.5 percent of the sum distributed that day, it gave a false sense of an economy recovering faster than it truly was.

The payment was the local share of the first quarter’s income tax withholdings, a revenue stream that gives state and local bean counters a sense of economic health as it rises with new jobs and higher wages and sinks with layoffs.

Harford County Executive David R. Craig said an excited budget staffer rushed into his office early this month to tell him about the state payment that beat expectations, only to return the next day to say “never mind.”

“Fortunately, I have a very conservative treasury department,” said Craig, explaining the county had not spent the extra cash — $450,000 in Harford’s case.

The comptroller’s office sent letters to all 24 jurisdictions on June 6 explaining the “computational error” and warning that the amount overpaid in May would be docked from the next disbursement, scheduled to go out this month.

“We did have an error in calculations. Each county got more than they were supposed to,” said Joe Shapiro, spokesman for Comptroller Peter Franchot. “Nobody is going to get any less than they deserved. But nobody is going to get any more than they deserved either.”

Overpayments ranged from $16,142 extra sent to Somerset County to $2.9 million for Montgomery County. Baltimore city saw the largest relative overpayment, with $1.8 million accounting for 4 percent of the $47.7 million it received.

A spokesman for Mayor Stephanie Rawlings-Blake said the mistake “wouldn’t affect anything” because the city didn’t expect to have the money, so didn’t plan to spend it before the fiscal year ends June 30.

The mistake originated with the city’s income tax increase from 3.05 percent to 3.2 percent on Jan. 1.

The comptroller’s office collects income tax for the counties and the state and dumps the revenue into a single pool and distributes the local share quarterly. Comptroller staffers needed to adjust the county allotments to compensate for the extra money coming in from the Baltimore tax hike. A mistake in that process led the state to send out $782 million instead of $770 million.

It was not the first such slip-up for the state. In 2007, workers in the State Department of Assessments and Taxation typed in an incorrect total property value for Montgomery, entering a number that was $16 billion too high.

Using that figure, the state overestimated the county’s ability to pay for its schools and shorted the county $24 million while overpaying other jurisdictions $31 million. The state restored the Montgomery funding, but ate the $31 million loss.

Anne Arundel County Budget Officer John Hammond said such mistakes are rare, and are less damaging to county finances than overpayments that have resulted from the economic downturn. The quarterly distributions are paid based on projections for the full year, and if a county receives more than its share after all the tax returns are tallied, it gets less the following year.

Hammond said Anne Arundel was overpaid $8 million in fiscal 2009 and $5 million the following year as the recession dragged incomes below expectations.

The May mistake, however, was caught and is set to be rectified before the end of the fiscal year.

“It’s just one of those things. They caught it quickly,” said Hammond. “We didn’t send the money to Argentina. These kind of monthly things, that’s a rare bird”