The following deep dive comes by way of Dentons 50 partner firm Mannis Canning & Associates.
The 2019 General Assembly Session came to a close at midnight on April 8. This session was the first of a new four year term with a total of 60 legislators out of 188 beginning their role as a new senator or delegate and with several changes in committee chairmanships. The session was also an emotional one as Senate President Thomas V. Mike Miller, Jr. announced he had prostate cancer at the start and House Speaker Michael E. Busch passed away the day prior to Sine Die.
A total of 2,481 pieces of legislation were introduced – 1,051 originating in the Senate, 1,430 originating in the House, 16 Joint Resolutions, and two simple resolutions. Of this number, the General Assembly passed 864 pieces of legislation and 2 resolutions.
Legislators focused on balancing the fiscal year 2019 budget, increasing the minimum wage, expanding opportunity zones, laying the ground work for increased funding for K-12 education, banning the use of polystyrene, and moderating the costs of prescription drugs to name a few.
Becoming more of a trend with a Republican Governor and Democratic majority in the General Assembly, a number of bills were passed and presented to the Governor at the end of March/early April to provide sufficient time for the General Assembly to override any potential vetoes. Of the bills presented, the Governor vetoed four bills on March 27 and one bill on April 4, all of which were overridden by the General Assembly. Legislation referred to as the “Federal Shutdown Paycheck Protection Act” had broad support and was passed and signed by the Governor the end of March.
With the early presentment of bills, one bill signing was held prior to the end of session on March 26. The traditional bill signing, which is held the day after session, was canceled this year to appropriately honor Speaker Busch and other bill signings were scheduled following his services. Bill signings have been scheduled for April 18, April 30, and May 13.
Below is a summary of some of the major issues that passed the 2019 General Assembly Session. A more detailed overview of significant legislation that passed and failed can be found in the Department of Legislative Services 90 Day Report.
Fiscal Year 2020 Budget
The fiscal year 2020 budget as enacted by the General Assembly (House Bill 100) totals $46.6 billion, a 4% increase from fiscal year 2019. The general fund budget, the portion supported by tax related revenues such as the income tax, sales tax, and state lottery, accounts for 41.6% of the total budget or $17.9 billion. The general fund budget is subject to volatility as its revenue sources are directly affected by the economy. The term structural deficit or shortfall often refers to the gap between general fund expenditures and general fund revenues. Significant revenue over attainment mostly eliminated any cash and structural shortfalls for fiscal 2020, but projections for fiscal 2021 indicate a structural deficit returning of more than $1.4 billion.
Following submission of the Governor’s budget, revenues were revised downward by the Board of Revenue Estimates resulting in a larger than expected shortfall. To keep the budget in balance, the Governor introduced a supplemental budget to make some adjustments and House Bill 1407 – the Budget Reconciliation and Financing Act of 2019 was introduced to address the revenue shortfall and fund certain budget priorities.
The budget as enacted by the General Assembly leaves a $118.2 million general fund balance and a structural surplus of $26 million at the end of fiscal year 2020. $1.1 billion is preserved in the State’s Rainy Day fund and state spending was constrained in preparation for fiscal 2021. State support for public schools is a record $7 billion and total state aid for primary and secondary education will increase by an estimated $435.2 million. The budget dedicates at least $255 million to support the fiscal 2020 recommendations of the Commission on Innovation and Excellence in Education (Kirwan Commission) and funding for school construction, both operating and capital, is $500 million. To achieve these funding levels, the General Assembly repurposed $182.2 million in general funds and $101 million in special funds to provide $104.8 million for Kirwan, $127 million for school construction in the operating budget, and $25 million for housing programs originally funded with taxable bonds in the capital budget. The budget also directs the Governor to process a budget amendment to provide an additional $150.3 million to implement recommendations of the Kirwan Commission. Additional funding for Kirwan may be provided by Senate Bill 728/House Bill 1301 which requires a marketplace facilitator and a market place seller to collect and remit the State sales tax. Revenues in excess of $100 million are to be distributed to “The Blueprint for Maryland’s Future Fund” created through the Kirwan legislation.
Other budget priorities include Medicaid funding to provide coverage to 1.4 million residents, an additional $80 million targeted at substance use disorder treatment, and funding to moderate tuition increases at Maryland’s public four-year colleges and universities.
Additional information on the fiscal year 2020 budget as enacted by the General Assembly can be found in the Budget and State Aid section of the Department of Legislative Services (DLS) 90 Day Report.
Income and Sales Tax Legislation
Opportunity Zone Enhancement Program
The Federal Tax Cuts and Jobs Act of 2017 established the Qualified Opportunity Zones Program to incentivize private investment in distressed communities. These zones are specified areas designated as a federal opportunity zone under Section 1400Z-1 of the Internal Revenue Code. Senate Bill 581 establishes the Opportunity Zone Enhancement Program which provides qualifying businesses within an opportunity zone enhanced incentives under the following tax credit programs: (1) job creation; (2) One Maryland; (3) enterprise zone; (4) biotechnology investment incentive; (5) cybersecurity investment incentive; and (6) More Jobs for Marylanders.
The bill also extends the More Jobs for Marylanders program by two years and expands the program’s geographic and business eligibility criteria. Additionally, the bill extends the geographic eligibility for a number of other State economic development/tax credit and financing programs available for priority funding areas and/or sustainable communities to include opportunity zones in Allegany, Garrett, Somerset, and Wicomico counties.
Remote Sales Tax Collection
Senate Bill 728/House Bill 1301 requires an online marketplace facilitator and a marketplace seller to collect and remit the State sales and use tax under specified circumstances. The need for this legislation results from the South Dakota v. Wayfair, Inc. decision where the U.S. Supreme Court upheld a South Dakota law requiring remote sellers with sales over $100,000 or with more than 200 different transactions to residents in the state to collect the state’s sales tax. Effective October 1, 2018, regulations promulgated by the Comptroller require a similar threshold for the collection of sales tax by out-of-state vendors who sell tangible personal property or taxable services for delivery in Maryland. However, the regulations did not address the collection of sales tax by online marketplace facilitators that host third-party marketplace sellers.
In addition to requiring the collection and remittance of the State sales tax, the bill establishes tax collection and licensing requirements for marketplace facilitators and marketplace sellers. The first $100.0 million in sales taxes collected from marketplace facilitators and certain out-of-state vendors is to be distributed to the General Fund. Any revenue in excess of $100.0 million from these sales taxes is required to be distributed to The Blueprint for Maryland’s Future Fund to fund K-12 education.
Business and Labor
Alcohol and Tobacco Commission
Legislation that passed in 2018 established the Task Force to Study State Alcohol Regulation, Enforcement, Safety, and Public Health. The task force was required to examine whether the Comptroller’s Office, the Office that currently regulates the alcoholic beverage industry and enforces the laws, is the most appropriate agency to carry out these activities or if another entity should perform this function. In its final report, the task force recommended establishing a new separate agency in charge of regulating and enforcing alcohol, tobacco, and motor fuel laws in the State.
House Bill 1052 (Ch. 12) implements this recommendation and establishes the Alcohol and Tobacco Commission (ATC). The commission is granted various powers and duties, including (1) educating the public on topics related to using and consuming tobacco products and alcoholic beverages; (2) ensuring that all alcoholic beverages sold in the State with an alcohol content exceeding 4.5% by volume bear a large and conspicuous label stating the percentage of alcohol content; (3) conducting certain studies; and (4) developing best practices for various topics related to alcoholic beverages regulation. The Act also transfers the Field Enforcement Division and the personnel of the division from the Comptroller’s Office to the commission. House Bill 1052 was presented to and vetoed by the Governor in late March. The General Assembly overrode the veto and the bill became Chapter 12 of the Acts of 2019.
One of Democratic Leadership’s legislative priorities, Senate Bill 280/House Bill 166 (Chs. 10 and 11) increase the State minimum wage rate to $15.00 per hour. For employers with 15 or more employees, this will occur in six increments until the full phase-in is reached on January 1, 2025. For employers with 14 or fewer employees, the wage rate reaches full phase-in after eight increments on July 1, 2026. The Board of Public Works (BPW), however, may temporarily suspend one scheduled increase in the State minimum wage for one year between October 1, 2020, and October 1, 2024, if it determines that the seasonally adjusted total employment is negative as compared with the previous six-month period. If total adjusted employment is negative, BPW may also consider the recent performance of State revenues in making its determination.
Senate Bill 280/House Bill 166 were presented to and vetoed by the Governor in late March. The General Assembly overrode the veto and the bills became Chapter 10 and 11 of the Acts of 2019.
The Blueprint for Maryland’s Future (Commission on Innovation and Excellence in Education – Kirwan Commission)
Senate Bill 1030 extends the term of the Kirwan Commission and establishes The Blueprint for Maryland’s Future as a policy to transform Maryland’s education system and align it with the recommendations in the commission’s January 2019 interim report. The fiscal 2020 budget provides funding for multiple programs and entities established under The Blueprint for Maryland’s Future: (1) $75.0 million for teacher salary incentive grants; (2) $65.5 million for the education of students with disabilities; (3) $54.6 million for concentration of poverty school grants; (4) $31.7 million to expand full-day prekindergarten for four-year-olds; (5) $23.0 million to provide transitional supplemental instruction grants; (6) $2.5 million for teacher collaborative grants; (7) $2.0 million to fund a full-time mental health services coordinator for each local school system; (8) $689,137 for an Office of Inspector General for Education; (9) $500,000 to expand MSDE’s direct certification IT system to include Medicaid data; and (10) $250,000 for outreach and training on The Blueprint for Maryland’s Future.
While provisions in the fiscal 2020 State operating budget, and in the Budget Reconciliation and Financing Act, House Bill 1407 (Ch. 16), restrict and direct funds to cover the $251.6 million increase in State aid (as well as other provisions), funding of these fiscal 2020 enhancements is at the discretion of the Governor. In total, approximately $255.0 million is made available through separate legislation to implement The Blueprint for Maryland’s Future in fiscal 2020, contingent on enactment of Senate Bill 1030. Section 47 of the fiscal 2020 budget bill restricts $100.8 million in Education Trust Fund (ETF) lockbox funds to specific purposes. It also expresses legislative intent that the Governor process a budget amendment to appropriate $134.5 million in special funds set aside in fiscal 2019 to implement the Commission’s recommendations.
Public School Calendar
On August 31, 2016, the Governor issued Executive Order 01.01.2016.09 (later amended by Executive Order 01.01.2016.13) requiring the local boards of education to open schools following the Labor Day holiday and conclude the school year by June 15, beginning in the 2017-2018 school year. During the 2018 session, legislation was introduced and passed to authorize a local board of education to extend the school year for up to five school days beyond June 15 without approval from the State Board of Education. Senate Bill 128, the Community Control of School Calendars Act, repeals the 2018 legislation and instead requires each local board of education to set start and end dates each year for public schools in the county. This again provides flexibility to the local boards of education to determine the start and end dates for the school year no longer complying with the Executive Order. Senate Bill 128 was presented to and vetoed by the Governor in late March. The General Assembly overrode the veto prior to the end of session and the bill became Chapter 13 Acts of 2019.
Environment and Natural Resources
Expanded polystyrene foam is often used in food product packaging. Senate Bill 285/House Bill 109 prohibit (1) a person from selling or offering for sale in the State an “expanded polystyrene food service product” and (2) a “food service business,” which includes specified businesses, institutional cafeterias, or schools from selling or providing food or beverages in an expanded polystyrene food service product. To ease the financial burden placed on business entities, MDE may grant to a food service business or school a waiver from the bills’ prohibition for up to one year if MDE determines that compliance would present an undue hardship or a practical difficulty that is not generally applicable to other food service businesses or schools in similar circumstances.
Maryland is the first state to impose a statewide ban on these products.
Senate Bill 516 increases the Renewable Energy Portfolio Standard (RPS) from 25% by 2020 to 50% by 2030. Effective October 1, 2019, the bill reestablishes the expired Tier 2 of the RPS as an additional requirement to include electricity from large hydroelectric sources for two years, in 2019 and 2020. New offshore wind capacity is required beginning with at least 400 megawatts in 2026, increasing to at least a cumulative 800 megawatts in 2028, and to at least a cumulative 1,200 megawatts in 2030, along with goals and reporting requirements for minority business enterprise and minority workforce participation. The carve-out for solar increases to 5.5% in 2019, with further annual increases until the solar carve-out reaches 14.5% in 2028. Electric cooperatives are exempt from any solar carve-out increase beyond 2.5%. To control ratepayer impacts, the bill reduces Tier 1 Alternative Compliance Payments (ACP) beginning in 2019; by 2029, solar and nonsolar Tier 1 ACPs reach parity. ACP revenue remains dedicated to supporting new renewable energy sources in the State, but under the bill, those new renewable energy sources also must be owned by or must directly benefit low-income residents.
House Bill 298 establishes in statute a network of five oyster sanctuaries (in Harris Creek, the Little Choptank River, the Tred Avon River, the St. Mary’s River, and the Manokin River) and prohibits catching oysters in or removing oyster seed from the five sanctuaries or those established in regulation by the Department of Natural Resources (DNR). The bill also establishes requirements and deadlines relating to restoration plans for the five identified sanctuaries.
House Bill 298 was presented to and vetoed by the Governor in early April. The General Assembly overrode the veto prior to the end of session and the bill became Chapter 17 Acts of 2019.
Prescription Drug Transparency and Affordability
House Bill 768 establishes a Prescription Drug Affordability Board to address issues of transparency and affordability. The board must conduct a study on the entire pharmaceutical distribution and payment system and policy options being used in other states and countries. The board must also collect publicly available information and data and enter into memoranda of understanding with other states to collect data in order to identify prescription drug products that may cause affordability issues. The board may conduct a cost review of each identified drug product. If the board determines that it is in the best interest of Maryland to implement a process for setting upper payment limits on prescription drug products, the board must draft a plan of action to implement the process and submit the plan to the Legislative Policy Committee (LPC) for approval. If LPC does not approve the plan within 45 days, the board must submit the plan to the Governor and the Attorney General for their approval. The board may not set upper payment limits before getting approval of the plan.
Opioid Treatment Services
House Bill 116 establishes programs for opioid use disorder screening, evaluation, and treatment (specifically medication-assisted treatment) in local correctional facilities and in the Baltimore Pre-trial Complex. The program begins in four counties and phases in to include all counties and the Baltimore Pre-trial Complex by January 2023. The State must fund the programs of opioid use disorder screening, examination, and treatment of inmates, and the bill establishes requirements for screening and treatment. By November 1, 2020, and annually thereafter, GOCCP must report specified data to the General Assembly from local correctional facilities.