Taxes and Schools: No Choices Left


January 29, 1995|By BRIAN SULLAM

Today's conventional political wisdom is that elected officials who call for higher taxes are guaranteed short political careers.

Carroll's last board of commissioners subscribed to that belief. The result? A county that desperately needs to construct schools but doesn't have the money.

To satisfy the expected enrollment increase, the school system's five-year construction plan calls for eight new schools -- four elementary, three middle and one high school. The plans also call for major renovations to Francis Scott Key High School and Sandymount Elementary. The total projected cost is $117 million.

The cost of the high school alone is $25.6 million. The entire capital improvements budget for the current year is $54 million, which includes roads, airport, solid waste and other projects.

Whether they like it or not, Carroll's three commissioners must seriously consider increasing the county's taxes to finance this ambitious program. The only honest question facing the commissioners is which combination of tax increases and borrowing will generate the money necessary to finance the construction projects.

In a community of conservative values, borrowing has a bad reputation. There is an ingrained belief that individuals, families, businesses and governments shouldn't borrow. The traditional guideline is if you can't pay cash, you obviously can't afford whatever it is you want to buy.

In keeping with that spirit, the planning commission has recommended for the next fiscal year that the county increase its pay-as-you-go capital improvements budget by 350 percent, to $8.1 million. While this may represent a substantial increase, the allocation won't be enough to finance the school construction program.

Floating more bonds is the only pragmatic method to raise the money to build the schools.

Borrowing is also the most equitable method for financing public works. Paying cash means that people living today bear all the costs of projects that will be used for a long time. Borrowing spreads the costs over time, so that future generations will have to bear a share of the public facilities they'll use.

At the moment, Carroll can't increase its borrowing without jeopardizing an AA bond rating. If the county wants to keep down its borrowing costs, it must maintain its excellent credit rating. Over the life of a 30-year bond, a fraction of a percentage point can mean millions in interest costs. It is in everyone's interest -- today's taxpayers and those in the future -- to keep borrowing costs as low as possible.

The only way the county can increase borrowing and maintain its creditworthiness is to increase its revenues, so it can service a higher level of debt.

Commissioner W. Benjamin Brown proposes doubling the county's impact fees. Unfortunately, bond rating agencies such as Moody's and Standard and Poor's don't count impact fees as revenue when calculating the amount of debt a county can service.

If the county is to increase its borrowing, there are two main sources of revenue: the real property tax and the "piggyback" income tax.

The property tax is the county's most politically sensitive tax. People resent the fact that their taxes increase automatically when assessed property values rise. They get doubly angry when the tax rate itself is raised.

The property tax is also the county's most important source of revenue. The tax this year is expected to generate $71.5 million, nearly half of the $144 million operating budget.

For the past five years, the tax rate has been $2.35 for each $100 of assessed value. Rising assessments have increased the total amount generated from this tax rate, but property values are leveling off -- and so are the revenues from the property tax. Increasing the rate is the only way to increase the yield.

At the moment, county budget officials estimate that a 1 cent increase will generate about $300,000 in additional revenue.

Given the fierce resentment against property tax increases from politically powerful constituents such as senior citizens, farmers and homeowners who don't have children in schools, raising the property tax rate takes considerable political courage.

The alternative is to raise the county's "piggyback" tax, an income tax collected by the state and passed back to the counties.

Carroll's current rate is 50 percent -- or half the state income tax paid. Last year, the tax generated $40 million for the county. It is projected to produce about $41 million this year.

Even though the economy is recovering from the last recession, county incomes are not increasing rapidly enough to generate more revenue from this tax. The General Assembly has authorized the counties to increase the rate to 60 percent if they want.

Carroll's budget officials estimate that each percentage point increase in the "piggyback" tax produces about $1.4 million in revenue. Increasing the tax the full 10 percentage points would generate about $14 million.

Since Carroll needs money to build more schools, the most efficient and equitable way to leverage more borrowing is by raising the "piggyback" tax.

The policies of the past haven't left these commissioners much other choice, nor much time.

Brian Sullam is The Baltimore Sun's editorial writer in Carroll County.

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