Budgeting for Opportunity: Racial Equity Analysis as a Tool to Advance Justice through Fiscal Policy

This publication was made possible by an award provided by The Leadership Conference Education Fund.

State policymakers make hundreds of choices each year that have the potential to affect our daily lives, but the clearest reflection of what leaders in Annapolis are prioritizing is in the state budget. A policy or program can’t achieve its intended purpose if we don’t provide the necessary resources to make it a success.

These choices about how we use our shared resources can determine whether or not your child gets a good education, shape whether your family and community have the things they need to thrive, and affect public health and safety. Decisions about the state budget also have the potential to affect who has access to opportunity in Maryland. Even choices that appear neutral on the surface can interact with historical and ongoing forms of discrimination to either obstruct or assist Marylanders of color as they seek to contribute to a thriving state.

To advance racial justice through policy, decisionmakers must be guided by good information. Racial equity analysis and data disaggregation are essential tools to make this possible:

• Racial equity analysis involves using data and information gained from engagement with directly affected communities to predict how policy choices could affect members of different racial and ethnic groups, with the goal of remedying the harms of historical and ongoing racism.
• Data disaggregation refers to the practice of calculating, examining, and presenting data on population characteristics for subgroups in addition to the aggregate whole. Data disaggregation is one essential component of racial equity analysis. For instance, disaggregated data on median hourly wages would include medians for workers of different racial and ethnic backgrounds, genders, disability statuses, or other characteristics.

Good intentions cannot advance equity on their own. To move Maryland toward a just, prosperous future, policymakers must understand the inequities that characterize the status quo and the historical forces that got us here. They must also have tools for predicting and measuring the impacts of their decisions.

Nowhere is that more important than for fiscal policy. From harmful education cuts following the Great Recession to the major benefits of Medicaid expansion, fiscal policy choices have enormous power to advance or obstruct racial justice. No less important are the tax policy choices that determine how much we can invest in Maryland communities and how much each of us contributes.

As Maryland’s budget process undergoes its most significant reform in 100 years, we should build on this progress by formally incorporating racial equity analysis into our budget process, either as part of the Department of Legislative Services’ agency budget analyses or in a similar venue.

The Whats and Whys of Equity Analysis and Data Disaggregation

Racial Equity Analysis

Race Forward, an organization focused on movement building for racial justice, defines racial equity impact assessments as “a systematic examination of how different racial and ethnic groups will likely be affected by a proposed action or decision.”[i] These assessments (also known as racial equity tools or racial equity analyses – the term used throughout this policy memo) “are used to minimize unanticipated adverse consequences” of policy choices and are valuable for “identifying new options to remedy long-standing inequities.”

The goal of racial equity analysis is to move our society from a state of racial inequity – in which your race and ethnicity affect your chances in life and can be used to statistically predict outcomes like income or life expectancy – to a state of racial equity in which people of all racial and ethnic backgrounds have an equal shot and race and ethnicity are statistically unrelated to outcomes.[ii] Racial equity can be thought of as a partial measure of racial justice, a vision of a world without racial hierarchy in which past harms have been remedied and all communities share power fairly. Policy choices can be considered racially equitable to the extent that they move us toward a state of racial equity, and inequitable to the extent that they move us in the wrong direction or leave achievable gains unrealized.

Maryland’s systems of racial injustice are complex, benefiting the dominant white group at the expense of people of all other racial and ethnic backgrounds. At the same time, our nation’s history of slavery, segregation, and discrimination has imposed particular burdens on Maryland’s approximately 2 million Black residents. For this reason, this policy memo at times gives particular emphasis to inequities faced by Black Marylanders, but not to the exclusion of other groups harmed by racial injustice.

Likewise, race and ethnicity are not the only dimensions of injustice in our society. Gender including gender identity, sexual orientation, disability status, and immigration status also influence a person’s access to opportunity under current policies, and these characteristics interact in important ways with race and ethnicity. This policy memo focuses on race both for the sake of concision and because of the unique role racism plays in the United States.

Racial equity analysis is necessary because essentially no policy decisions are racially neutral:[iii]

• Even choices that appear neutral on the surface can interact with historical and ongoing forms of discrimination to either obstruct or assist Marylanders of color as they seek to contribute to a thriving state.
• As just one example, consider transportation policy. Historical and ongoing policies and practices have pushed Black Marylanders into segregated neighborhoods, held down their incomes, and led to longer average commute times than for their white counterparts.[iv] When policymakers decide how much to invest in transportation infrastructure, where to target those investments, and whether to prioritize highways or public transit, those choices can either advance opportunity for Black workers or further heighten the barriers they face.
• Equity analysis is necessary because good intentions cannot advance equity on their own. When done well, equity analysis provides an accurate, data-informed picture of the current situation, how we got here, and how much different policy choices might move us toward or away from a state of equity.
• Equity analysis is also an important tool for transparency and accountability. Even if policymakers are aware of their decisions’ likely impacts, public-facing equity analysis forces them to acknowledge these impacts and gives the state’s residents an opportunity to weigh in.

Data Disaggregation

Data disaggregation is one essential component of racial equity analysis. Data disaggregation refers to the practice of calculating, examining, and presenting data on population characteristics for subgroups in addition to the aggregate whole. For instance, disaggregated data on median hourly wages would include medians for workers of different racial and ethnic backgrounds, genders, disability statuses, or other characteristics. A more detailed disaggregation would break down the population by multiple characteristics at the same time, such as workers of different races with and without a disability.

Disaggregated data are necessary to understand the current state of Maryland communities. For example, the overall (or aggregate) median wage gives us important information about Maryland’s labor market, but tells us nothing about racial equity. Data disaggregation allows us to compare median wages across racial groups. If workers in different groups have different median wages, we can conclude that the hourly wage distribution is inequitable.

More detailed, or intersectional, data disaggregation can shed light on why inequities exist and how we can advance equity through policy. For example, if race can help predict median wages even among workers at the same educational level, we know that education is not the only factor responsible for inequitable wages (even though it may be one contributor), and that improving educational outcomes for workers of color will not eliminate wage inequity (though it might help).

Data disaggregation is only one part of racial equity analysis. For example, analysts must also interpret the data, research the historical context, and engage with subject matter experts, especially directly affected communities.

Fiscal Policy Can Be a Powerful Tool for Advancing Equity

All policy choices have the potential to advance or hinder racial equity, and fiscal policy choices – those embodied in the annual state budget as well as legislation with significant fiscal impacts – are no different. Maryland’s budget provides the clearest reflection of our priorities as a state. Choices about where we invest our shared resources – and how much we invest – can help or hinder children’s education, economic security for families and communities, and public health and safety. And these choices are never neutral:

• Policymakers chose to lean primarily on budget cuts rather than revenue increases to balance the books in the aftermath of the Great Recession, resulting in a massive hit to education funding as well as other public investments. These cuts harmed students in every part of Maryland, but the damage was not evenly spread. By 2015, more than half of Black students in Maryland went to school in a district that was underfunded by 15% or more, compared to only 8% of white students.[v]
• Soon after taking office, Gov. Hogan abruptly canceled the planned Red Line light rail project, sacrificing a large sum of federal funding and diverting state funds to highway construction.[vi] The Red Line would have improved transportation options for predominantly Black communities in western Baltimore, a metropolitan region where an average resident can access only 8% of jobs by transit in an hour or less.[vii] Black workers in Maryland are three times as likely as their white counterparts to rely on public transit to get to work, and face higher average commute times as a result.[viii]
• Neither of these choices explicitly mentioned race, but both had profound impacts on racial equity. Incorporating racial equity analysis into the policymaking process would have made these impacts clear up front. Perhaps this analysis would have pushed policymakers toward better choices. At very least, it would have forced them to acknowledge the harmful impact of their decisions and enabled the public to hold them accountable.

Fiscal policy choices have just as much power to advance equity as to hold it back:

• Maryland policymakers’ decision to expand Medicaid under the Affordable Care Act improved health insurance access for Marylanders of all backgrounds, with the largest gains for Marylanders of color. While the federal government bears most of the cost of Medicaid expansion, the state contributes more than $200 million per year.[ix]
• The share of white Marylanders without health insurance fell by 2.3 percentage points from the three-year period before Medicaid expansion took effect (2011–2013) to the three-year period following expansion (2014–2016).[x] During the same period, the corresponding improvements for Marylanders of color ranged from 3.1 percentage points among multiracial Marylanders to 8.0 points among Marylanders identifying with a racial group not listed on U.S. Census Bureau forms.
• In this case, policymakers did the right thing without the benefit of transparent racial equity analysis. However, such analysis could have strengthened lawmakers’ confidence in the wisdom of their decision and helped highlight these benefits to the public.

Further discussion of the importance of fiscal policy choices for racial equity can be found in earlier installments of the Maryland Center on Economic Policy’s Budgeting for Opportunity series.[xi]

While the examples above concern spending decisions, revenue policies have just as much power to advance or hinder equity:

• Maryland’s tax code includes loopholes that allow big corporations to artificially lower their tax responsibilities, costing the state more than $200 million per year.[xii] Because of an array of structural barriers built into our economy over hundreds of years, corporate stock is overwhelmingly held by white households nationwide.[xiii] These loopholes allow a small number of wealthy white households to avoid paying their fair share toward the public investments we all rely on.
• Decisions about how much revenue to raise are just as consequential. By the mid-2010s, Maryland’s support for public schools was deeply inadequate and deeply inequitable. We are now on a path toward a more effective, more just education system thanks to the Blueprint for Maryland’s Future.[xiv] Much of the funding for this plan comes from updates to the sales tax to more closely reflect today’s e-commerce-heavy economy.[xv] Unlike corporate income taxes, sales taxes are primarily borne by working families of all racial and ethnic backgrounds.[xvi] At the same time, these reforms helped the state rebuild education funding along more adequate, more equitable lines.

Routine, built-in equity analysis would help policymakers understand the consequences of tax policy decisions, in terms of their impact on both public investments and the distribution of tax responsibilities.

2020 Ballot Amendment Is an Opportunity for Improvement

This is an especially opportune time for lawmakers to incorporate racial equity analysis into the state’s budget process. Thanks to a voter-passed 2020 amendment to the Maryland Constitution, beginning in 2023 lawmakers will have a more meaningful say in the state’s budget than they have in more than 100 years. The new, more balanced process puts Maryland in line with the vast majority of other states and opens the door to more meaningful public participation in conversations about how to use our shared resources.

To make the most of this opportunity, lawmakers should work to make Maryland’s budget process as transparent and inclusive as possible, and racial equity analysis is one of the most powerful tools available to do so.[xvii] As lawmakers consider the governor’s proposed budget and move money to fund their priorities, racial equity analysis would ensure that they understand how increasing or decreasing a given state investment might build or erode opportunities for Marylanders of color.

This analysis should be done both globally for the state budget as a whole and in more detail for individual agencies or budget functions. Agency budget analyses published by the Department of Legislative Services would be one natural venue for this analysis.

Guidelines for Effective Equity Analysis

Adherence to several best practices can help ensure that equity analysis is relevant, accurate, and effective in moving policy in an equitable direction.[xviii]

Equity analysis must start from a strong foundation:

• The state should adopt specific, accurate definitions of core concepts such as equity, data disaggregation, and structural racism. Policymakers and staff should have a clear, shared understanding of these concepts.
• Equity analysis must always be informed by historical context on the policies, practices, and ideologies that produced present inequities.
• Equity analysis must focus on using policy proactively to move society from the current state of inequity toward a state of equity – not equal dollar investments or procedural “colorblindness.”

Equity analysis should be systematic:

• Choices across essentially all policy domains have equity implications. Ideally, equity analysis should be part of the process in all policy areas, not just a few. In the context of the state budget, this means conducting equity analysis for all agency budgets or budget functions.
• The office with primary responsibility for equity analysis should be independent of the governor or legislative leadership. This is to ensure that equity analysis is done honestly and informs policymakers, rather than simply reflecting their preexisting priorities. The Department of Legislative Services is one potential home for such an office.
• While there is value in having a separate office specifically devoted to equity analysis and staffed with subject matter experts, all policy staff should be trained in equity concepts and should apply them in day-to-day policy work. If budget equity analysis were housed within the Department of Legislative Services, this would mean that dedicated, expert staff either would be responsible for equity analysis or would oversee it, while other analysts receive at least basic training and are expected to at least consider equity in their work.
• Equity analysis should occur throughout the process of policy development and consideration, and is especially important in early stages. Conducting equity analysis early on allows it to inform later stages of the policy development process. Starting equity analysis early on helps ensure findings receive meaningful consideration and are not simply an afterthought. In the context of the state budget, this means equity analysis would ideally occur within state agencies and the Department of Budget and Management during budget development. During the legislative session, publishing equity analyses not later than each agency’s budget hearings would ensure that this analysis can inform lawmakers’ budget actions.
• The state should adopt a uniform, standardized tool to simplify the process of equity analysis and promote consistency. The side box entitled “Racial Equity Resources” lists several existing tools that could serve as starting points. Common themes across equity analysis tools are discussed in an appendix. Analysts should also have access to supportive resources such as technical assistance from subject matter experts.
• Effective equity analysis requires significant staff time, training, and likely adding staff with specialized expertise. The body responsible for budget equity analysis – either the Department of Legislative Services or another office – must have adequate staffing and funding to do the job thoughtfully and effectively. Adding to the responsibilities of existing staff without additional resources would do little to promote better policy choices.
• Lawmakers should codify requirements for racial equity analysis and data disaggregation to ensure that these practices continue across changes in administration and political climate.

Equity analysis must center marginalized communities’ perspectives:

• People who are directly harmed by racial injustice are experts in their own experiences. They can provide insight into the causes of inequities as well as experience with policies that have been tried before. Quantitative data alone cannot substitute for directly affected communities’ knowledge.
• Community engagement should start early and continue throughout the equity analysis process. Starting early ensures that community members’ perspectives can inform the rest of the process.
• Analysts should seek out input from people who are marginalized along dimensions other than race. Racist systems generally have different impacts on people of different genders, disability statuses, or other characteristics. Analysts should consider at least the following dimensions:
  • Gender including gender identity
  • Sexual orientation
  • Disability status
  • Immigration and citizenship status
  • Income level
• Meaningful community engagement must address barriers that might prevent people from participating. Participation should not be limited to in-person events, which may be inaccessible because of transportation, child care, work hours, health conditions, or other factors. Participation should also be possible in languages other than English.

Equity analysis must be backed by high-quality data:

• Disaggregated data lie at the core of equity analysis. Simply put, it is impossible to assess whether we are moving forward or backward on equity without disaggregating data by race and ethnicity. Wherever possible, public agencies should collect and publish racially disaggregated data. The state should adopt thoughtful, uniform data disaggregation standards for use in all agencies. These standards may include reasonable flexibility to account for issues with data availability and quality, and should not prohibit agencies from disaggregating in more detail.
• The United States Office of Management and Budget (OMB) Standards for the Classification of Federal Data on Race and Ethnicity can serve as a foundation for uniform data disaggregation standards.[xix] OMB is in the process of updating these standards, with proposed changes including the introduction of a Middle Eastern/North Africa race category and consolidation of the race and Hispanic origin questions into a single question.[xx] Experts expect these revisions to improve the quality of race and ethnicity data. In all cases, federal standards should constitute a floor, not a ceiling, on the state’s responsibility to thoughtfully disaggregate data.
• Data should generally be disaggregated at the finest level of detail possible. Because racist systems affect different communities in different ways, finer-grained race and ethnicity categories will generally yield a more accurate picture than broad or heterogeneous categories.
• Intersectional disaggregation will also yield more valuable insight than data disaggregated along only one dimension at a time. This is true both because racist systems interact with other systems of marginalization and because data disaggregated by multiple characteristics can shed light on the causes of unequal outcomes. Analysts should consider the same characteristics for data disaggregation as for community engagement.
• It is not always possible to analyze or publish fine-grained, intersectionally disaggregated data. Sample or population sizes may be too small to draw statistically meaningful conclusions, or detailed disaggregation may run up against privacy protections. In general, it is best to collect data in the most detailed form possible and if necessary use less detailed categories in analysis and publication. When presenting less-detailed data, analysts should include a brief explanation for why more-detailed data are not available and what limitations this introduces to the analysis.
• Surveys may sometimes be necessary to collect relevant disaggregated data. In these cases, analysts should consider oversampling certain populations to facilitate more detailed disaggregation.[xxi] Statistical weighting can ensure that oversampling does not bias whole-population statistics.
• Federal data requirements are a floor, not a ceiling. In many cases, state agencies disaggregate data to comply with federal requirements, but only collect and report data for a few required categories. State agencies should collect more detailed data when necessary for equity analysis, augmenting federal funding with state dollars as necessary.
• State agencies must provide relevant data to offices tasked with conducting equity analysis. High-quality, racially disaggregated data are essential for the state government to fulfill one of its core moral obligations. Toward this end, lawmakers should require state agencies to provide relevant data for racial equity analysis, with appropriate privacy protections as necessary.

Equity analysis findings should be prominent and accessible:

• For equity analysis to inform policy, policymakers must see it, whether or not they are seeking it out. Equity analysis should be integrated into general-purpose policy documents, not published separately or as an appendix. In the context of the state budget, the Department of Legislative Services’ agency budget analyses would be one natural location for equity analysis to be published. This does not preclude also publishing the collection of equity analyses separately.
• For equity analysis to promote transparency and democratic accountability, it must be publicly accessible and easy to find. This could be accomplished by including prominent links to equity analysis on the Department of Legislative Services, Maryland General Assembly, and Department of Budget and Management websites.
• To further advance transparency, state agencies should make racially disaggregated data available to the public whenever consistent with privacy protections. Links to these data should be prominently displayed on agency websites. Ideally, detailed, machine-readable data files should be provided along with summary reports.

References and Notes

[i] Terry Keleher, “Racial Equity Impact Assessment,” Race Forward, 2009, https://www.raceforward.org/sites/default/files/RacialJusticeImpactAssessment_v5.pdf

[ii] Racial equity definition based on Julie Nelson, Lauren Spokane, Lauren Ross, and Nan Deng, “Advancing Racial Equity and Transforming Government: A Resource Guide to Put Ideas into Action,” Government Alliance on Race and Equity,” 2015, https://racialequityalliance.org/wp-content/uploads/2015/02/GARE-Resource_Guide.pdf

[iii] For further discussion of the importance of fiscal policy choices for racial and ethnic equity in Maryland, see earlier installments of the Maryland Center on Economic Policy’s Budgeting for Opportunity series, https://www.mdeconomy.org/budgeting-for-opportunity

[iv] Christopher Meyer, “Budgeting for Opportunity: How our Fiscal Policy Choices Can Remove Barriers Facing Marylanders of Color and Advance Shared Prosperity,” Maryland Center on Economic Policy, 2018, http://www.mdeconomy.org/budgeting-for-opportunity-health-education-transportation/

[v] Meyer, 2018.

[vi] Luke Broadwater and Michael Dresser, “In West Baltimore, Frustration over Red Line’s Demise,” The Baltimore Sun, June 26, 2015, https://www.baltimoresun.com/maryland/baltimore-city/bs-md-ci-red-line-loss-20150626-story.html

[vii] Andrew Owen and Brendan Murphy, Access Across America: Transit 2019,” Center for Transportation Studies, 2020, https://access.umn.edu/research/america/transit/2019/documents/AccessAcrossAmerica-Transit2019_sm.pdf

[viii] Christopher Meyer, “Budgeting for Opportunity: Maryland’s Workforce Development Policy Can Be a Tool to Remove Barriers and Expand Opportunity,” Maryland Center on Economic Policy, 2021, http://www.mdeconomy.org/budgeting-for-opportunity-workforce

[ix] In 2019, Medicaid spending attributable to the Affordable Care Act expansion group in Maryland totaled $2.74 billion. At a 90% federal medical assistance percentage (FMAP), this indicates about $274 million in state spending.

State Health Facts: Medicaid Spending by Enrollment Group (2019), Kaiser Family Foundation, https://www.kff.org/medicaid/state-indicator/medicaid-spending-by-enrollment-group

[x] MDCEP analysis of IPUMS 2011–2016 American Community Survey microdata.

[xi] https://www.mdeconomy.org/budgeting-for-opportunity

[xii] For discussion of corporate tax loopholes, see Christopher Meyer, “Closing Corporate Tax Loopholes Is Still the Right Choice for a Thriving Maryland,” Maryland Center on Economic Policy, 2020, http://www.mdeconomy.org/corporatetax/

Senate Bill 360 of 2022 (the Corporate Tax Fairness Act) would have raised $221 million in fiscal year 2024 by closing two corporate tax loopholes. The lower revenue estimate for FY 2023 reflects revenues from only half the fiscal year. Robert Rehrmann, Fiscal and Policy Note: Senate Bill 360, Department of Legislative Services, 2022, https://mgaleg.maryland.gov/2022RS/fnotes/bil_0000/sb0360.pdf

[xiii] MDCEP analysis of 2019 Survey of Consumer Finances. White families own 90% of the “stocks” asset class. The “pooled investment funds,” “retirement accounts,” and “other managed assets” classes also likely include stocks as well as bonds and other asset types. These assets are also heavily concentrated among white families.

[xiv] Danielle Gaines, “With Override Votes, Senate Passes Landmark Education Reform and Digital Ad Tax Bills into Law,” Maryland Matters, 2021, https://www.marylandmatters.org/2021/02/12/with-override-votes-senate-passes-landmark-education-reform-and-digital-ad-tax-bills-into-law/

[xv] Chapter 735 of 2019 requires marketplace facilitators (such as Amazon) to collect sales tax on behalf of third-party vendors that use their platform. Chapter 38 of 2021 updated the sales tax base to include digital goods such as streaming video. Lawmakers initially directed the majority of revenue from these reforms to the Blueprint for Maryland’s Future Fund. Under 2022 legislation, the Blueprint Fund will instead receive a percentage of sales tax revenue from all sources. The 2019 and 2021 reforms increased revenue enough to divert a portion to the Blueprint Fund without reducing resources available for other services. See discussion of legislative history in Department of Legislative Services “Major Issues Review: 2019–2022,” https://mgaleg.maryland.gov/Pubs/LegisLegal/2022rs-session-major-issues-review.pdf#page=246

[xvi] As in most states, sales and excise taxes are the most distributionally upside-down piece of Maryland’s tax code. As of 2018, Maryland families with less than $24,100 in annual income (20% of all families) paid 5.9% of their income in state and local sales and excise taxes, compared to only 0.7% among the wealthiest 1% (those with annual income over $534,800). Meg Wiehe, Aidan Davis, Carl Davis, Matt Gardner, Lisa Christensen Gee, and Dylan Grundman, “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States,” Institute on Taxation and Economic Policy, 2018, https://itep.org/whopays/

[xvii] For further discussion of ways to improve Maryland’s budget process, see Christopher Meyer, “To Make the Most of Maryland’s 2020 Budget Reform, Focus on Transparency, Inclusion, and Prudence,” Maryland Center on Economic Policy, 2022, http://www.mdeconomy.org/to-make-the-most-of-marylands-2020-budget-reform-focus-on-transparency-inclusion-and-prudence/

[xviii] This section draws on recommendations from Race Forward, the United Kingdom’s Equality and Human Rights Commission, and the Government Alliance on Race and Equity.

[xix] The National Institutes of Health has published brief explanation of the standards, including a link to the full regulation, available at https://orwh.od.nih.gov/toolkit/other-relevant-federal-policies/OMB-standards

[xx] Karin Orvis, “Initial Proposals for Revising the Federal Race and Ethnicity Standards,” U.S. Office of Management and Budget, 2023, https://www.whitehouse.gov/omb/briefing-room/2023/01/26/initial-proposals-for-revising-the-federal-race-and-ethnicity-standards/

[xxi] For further discussion of oversampling as a tool for data equity, see Gwynne Evans-Lomayesva, Jae Lee, and Cara Brumfield, “Advancing American Indian & Alaska Native Data Equity: Representation in Federal Data Collections,” Georgetown Center on Poverty and Inequality, 2022, https://www.georgetownpoverty.org/wp-content/uploads/2022/11/AdvancingAIANDataEquity-Nov2022.pdf