City feels the pinch as its citizens' incomes drop

September 29, 1992|By Michael A. Fletcher | Michael A. Fletcher,Staff Writer

Buffeted by the recession, Baltimore saw a drop of about 0.25 percent in the amount of taxable income its residents earned between 1990 and 1991 -- a 25-year first that could hold troubling implications for the financially strapped city.

The amount of taxable money earned in the city fell from $4.86 billion in 1990 to $4.85 billion in 1991. Statewide, taxable income crept up from $55.4 billion to $56.4 billion between 1990 and 1991. The income figures are contained in a draft of a report being developed by the state's comptroller's office.

While the growth rates of taxable income and tax revenues in the city have lagged behind state averages for years, the decrease in taxable income from one year to the next is the first since the so-called "piggyback" income tax was imposed in 1967, city budget officials said.

"This reflects the effects of the recession and the effect it has on a structurally weak city economically," said Doug Brown, public policy analysis supervisor for the city Department of Finance. "But we have not seen this even during other recession periods."

"We've seen decreases in the amount of income tax revenues on a couple of occasions, but those usually could have been explained by tax law changes. What we have never seen before is a drop in taxable income," Mr. Brown added. Taxable income is the amount of a person's earnings reported for state taxes. It includes gross income, minus any tax deductions.

The drop in income is further evidence of the city's weakening tax base. Budget officials said part of the income drop is certainly attributable to the recession, which has flattened income growth throughout Maryland. But the decrease in Baltimore also is evidence of continued middle-class flight, which has continued mostly unchecked for 30 years.

"There have been fewer and fewer and fewer tax returns coming from the city, which is related to the flight to the suburbs," said Marvin Bond, a spokesman for state Comptroller Louis L. Goldstein.

The weakening tax base erodes Baltimore's financial independence, and leaves the city looking to the state for help.

Baltimore was only one of four subdivisions in Maryland where taxable income decreased between calendar years 1990 and 1991. Kent, Somerset and Talbot counties were the other subdivisions that experienced similar drops. State officials blamed the recession for the drops.

Statewide, the recession slowed taxable income growth to about 2 percent between 1990 and 1991.

The city's decrease in taxable income comes after income tax revenue slipped during the fiscal year that ended last June. The decrease is more serious for Baltimore because it had not experienced the robust growth in tax receipts that was enjoyed by many of Maryland's suburban counties during the relative boom times of the 1980s. The decline in tax revenue is directly linked to two factors: high unemployment and slow income growth among people who are working, officials said.

In 1990, there were 461,500 jobs in the city, according to the state Department of Economic and Employment Development. By 1991, that number had declined to 432,600. Likewise, unemployment in Baltimore swelled from 7.7 percent in 1990 to an average of 9.4 percent by the end of 1991, according to state figures. Currently, unemployment in the city is 10.4 percent.

Compounding the city's economic problems is that many of the best jobs in the city are held by residents of suburban counties, 200,000 of whom commute to jobs in the city each day. And, in Maryland, income tax receipts go to a worker's home county. The General Assembly has granted the city extra revenue assistance to help offset some of the lost income tax base. But the help is not enough.

"You would hope that it would be more positive than that," said City Finance Director William R. Brown Jr., when asked to comment on the taxable income numbers. "This has got to reflect the recession. But the trouble is, when [other subdivisions] slow down, we go backward."

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