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Analyst: payments to civil divisions fall about $25.8 million in FY26 amid BARFA-related reductions
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Summary
DLS presented the fiscal 2026 budget for payments to civil divisions showing a $25.8 million decline, driven by reductions in disparity grants and a contingent cut to teacher-retirement supplemental grants tied to BARFA; Secretary of Budget and Management offered brief remarks and had no recommendations.
Yashoda Rai, analyst at the Department of Legislative Services, presented the fiscal 2026 analysis for "payments to civil divisions," an account that funds disparity grants to low-wealth counties, mandated teacher-retirement supplemental grants, and gaming grants to Calvert County. "This portion of the budget is comprised of 3 items, disparity grants to low wealth jurisdictions based on a formula set in statute, grants to mitigate the impact of the local assumption of a portion of teacher retirement cost. These amounts are set in statute and gaming grants to Calvert County," Rai said.
Nut graf: The FY26 allowance for payments to civil divisions declines by $25,800,000 after accounting for a contingent reduction in the governor's Budget Reconciliation and Financing Act (BARFA). That reduction chiefly reflects a lower mandated teacher-retirement supplemental grant and a net change in disparity grants across counties.
Rai said the FY26 allowance decreases $25.8 million, with roughly $11.9 million of that change attributable to a net decline in disparity grants; counties receiving higher disparity grants include Somerset, Washington and Wicomico, while Caroline, Dorchester, Garrett and Prince George's counties see decreases. She explained the contingent BARFA provision reduces the teacher-retirement supplemental mandated appropriation from $27,700,000 to $13,800,000 in FY26, and that another BARFA provision would repeal the mandated appropriation beginning in FY27. "This grant was established in fiscal 20 13 to offset costs related to teacher pension shifting to local jurisdictions and to assist local jurisdictions with the transition," Rai said.
Rai described the disparity-grant formula: counties with per-capita local-income-tax revenues below 75% of the statewide average receive a grant equal to the difference, subject to a soft cap based on 2010 grant amounts and county tax rate. She noted Anne Arundel and Frederick counties adopted graduated income tax brackets beginning tax year 2023 and that DBM and related agencies proposed using an effective gross tax rate for calculations; the effective gross rates for tax year 2023 were 2.76% for Anne Arundel and 2.9% for Frederick.
Secretary Helene Grady of the Department of Budget and Management and staff attended; Grady said DBM appreciated the DLS analysis and had no questions or recommendations for the committee. "DLS did not have any questions or recommendations for us to respond to. So we've kept our testimony very, brief and short," she said.
Bottom line: The DLS analysis shows a $25.8 million reduction in payments to civil divisions for FY26 driven primarily by BARFA-related adjustments to the teacher-retirement supplemental grant and by net changes in disparity-grant allocations across counties.
