A pricey, proposed tax cut for retirees in the state could come at the expense of a multibillion-dollar plan to reshape public education.
Gov. Larry Hogan and lawmakers entered the 2022 session in a unique position. The state has $4 billion in surplus in the current year.
The two-term Republican is pressing for a major tax cut most Maryland seniors, a proposal that would soak up money many lawmakers hope will go to education reforms recommended by the Kirwan Commission.
“The increased loss of revenue because of those tax cuts correspond to our inability to fully fund Kirwan through its existence,” said Sen. Paul Pinsky, chair of the Senate Education, Health and Environmental Affairs.
Revenue estimates for the short term show that the state will maintain a structural surplus. That would change in fiscal year 2027 as large portions of the Blueprint for Education plan, commonly called the Kirwan plan, ramp up at the same time revenues decrease by $700 million as part of a tax cut proposed by Hogan.
“The combination of those two is creating stress that we see creating a structural budget shortfall,” said David Romans, a budget analyst for the Department of Legislative Services. “It would be challenging to do them both at the magnitude that it looks like they would need to be done.”
“It’s going to force something,” Romans said. “If this all plays out the way the governor proposed, it’s going to create a need to cut things somewhere in the budget, whether it’s Kirwan or funding other things to make sure there’s room for Kirwan or having to reconsider revenue options in the future.”
Hogan’s proposal eliminates state income taxes for retirees 65 and older who claim Social Security benefits. The plan would be phased in over six years — most of it coming after the two-term Republican has left office. If passed, the first year of the tax cut would reduce state revenues by nearly $190 million.
The governor, speaking to reporters a week ago, said the state can afford the tax cut that he has desired since 2015.
“Now the state is in even better shape than ever before,” said Hogan. “With struggling families and retirees getting squeezed by inflation and higher costs across the board, there is no reason why we cannot, once again, put the politics aside, to get this done for the people of Maryland.”
The governor claims credit for providing more money for public education than required under mandated funding formulas, but he has declined to pay for portions of the Kirwan plan.
About $139 million in expected funding for the plan is missing in the fiscal 2023 budget proposal. That figure includes $99 million less for Baltimore city and $26.5 million less for Prince George’s County, two jurisdictions with the largest minority populations.
Hogan does this at the same time he pumps $100 million into public safety and victim services. The largest chunk, $48 million, is an increase in state aid to police. More than 15% of that goes to Baltimore city.
“In other words, rather than spend $100 million for children to get to grade level and get educational support, the money is shifted to the back end after potentially young people either drop out or lose interest and in some cases, unfortunately resort to crime and investing the money at the back end rather than the front end,” said Pinsky.