Has Marylandʹs priority funding areas initiative constrained the expansion of water and sewer investments?

This paper provides a baseline assessment of one component of Marylandʹs Smart Growth legislation, the “priority funding area” (PFA) designation in combination with the stateʹs incentive program for water and sewer infrastructure. Marylandʹs Smart Growth legislation established urban boundaries areas and designated that state infrastructure funding would only support projects serving areas inside those boundaries. We use data on the location of water and sewer infrastructure investments between 1997 and 2002 to examine two questions. First, to what extent has Marylandʹs Smart Growth policy constrained investment to areas inside the PFAs, and second, what are the local conditions that affect county cooperation with state policy. As expected, there are variations across counties in their compliance with the Smart Growth initiative. Projects supported with state funds are primarily located inside PFAs. However, excluding projects where the precise service area could not be identified, 29% of state funds went to projects located outside of PFAs. This was a larger share than local funding, where only 25% of local funds went outside PFA boundaries. The statistical analysis indicates that the faster the countyʹs population growth rate and the stronger the local tax base, the more likely projects will occur outside the PFA. The greater the state subsidy in a project and the higher the countyʹs per capita income, the more likely a county will comply with the state initiative and concentrate water and sewer projects inside their PFAs.