Ecker plan for roads questioned Gray says borrowing from tax fund could be dangerous

'It is cause for concern'

Council to begin reviewing executive's capital budget Monday

April 18, 1996|By Dan Morse | Dan Morse,SUN STAFF

Howard County Council member C. Vernon Gray is sounding an alarm over County Executive Charles I. Ecker's creative way of borrowing $71 million for road projects over the next four years.

On Monday, the council will begin reviewing Mr. Ecker's 1997 capital budget, which includes borrowing the first $18 million for the road projects.

The loans would be paid back by tapping a county excise tax fund -- built up with fees charged to developers -- to meet the interest and principal payments.

Before a change in state law passed in the recently concluded session of the General Assembly, the county had to chip in $2 for every $1 it took from that fund. Now, it may use the money without providing matching funds.

Mr. Gray is worried that Mr. Ecker's plan to pay off the road construction loans with the excise tax fund is based on overly optimistic assumptions about future interest rates.

If those assumptions prove wrong, Mr. Gray says, the county could be forced to spend day-to-day operating funds to service the road debt in years to come.

"It is cause for concern," said Mr. Gray, an east Columbia Democrat.

The proposed financing method has been praised in other circles.

"I think it's appropriate," said Lester Jones, assistant director of the Regional Economic Studies Institute at Towson State University. "Someone has to make the decisions for what's good for the county and what makes people's lives better.

"That's why they elected the man," he said, referring to Mr. Ecker.

Mr. Ecker and his budget officials say their interest-rate projections are conservative. They also gave themselves a $10 million cushion, said Raymond Wacks, the county budget administrator.

For the calculations to prove wrong, Mr. Wacks said, "we would have to hit a catastrophic interest rate. And, if that happens, we've got a lot of other problems, too."

Before the county can use the excise tax fund, Gov. Parris N. Glendening must sign the new legislation and the County Council must approve the change.

Mr. Ecker is seeking to use the excise tax fund because of a continuing problem for Howard: It has more debt per resident -- $1,469 -- than any other county in the state.

In a recent report, Mr. Ecker's Spending Affordability Advisory Committee advised him not to take on more debt unless he found a new spending source.

Committee member John Hollerbach praised the proposed use of the excise tax fund, saying, "I think it's a great idea. He's come up with a creative way to finance a need."

Mr. Ecker's proposed $75.2 million capital budget for fiscal 1997 is smaller than this fiscal year's $94 million capital budget.

To fund the $75.2 million in proposed capital projects, the county would have borrow about $46 million, which would be added to the county's total debt of $308 million.

As a result, Howard should continue as Maryland's debt king, a status that isn't all bad, experts say.

Howard's relatively high debt stems from its youth: The county is still building parks, roads and schools. But it is debt that the county can handle, county, state and national economists say.

"Howard County is one of the wealthiest counties in the nation," said Mr. Jones, the regional economist.

But Howard's debt seems to be approaching a limit, at least for Wall Street.

Of the three bond rating services, two gave Howard their highest marks this year. But they warned Howard not to go much further into debt, as measured by the annual cost of debt payments as a percentage of total revenue or operating expenses.

The third rating service, Standard & Poor's, cited Howard's debt as reason not to issue the same top AAA rating it gave to Baltimore, Montgomery and Garrett counties.

"Net debt burden is high," Standard & Poor's wrote in its March 11 evaluation of Howard.

The county is spending 12.2 percent of its annual revenue to meet the interest and principal payments on its $308 million debt, county officials say.

Councilman Charles C. Feaga says the county must avoid spending a higher percentage on its debt. "The ratings agencies have been good to us, but if it gets over about 12 percent I think they'll have a change of heart," he said yesterday.

By comparison, Baltimore County spends 7 percent of its revenue on debt, Carroll County spends 8 percent, and Harford County spends 3 percent, according to recent figures provided by officials in those counties.

According to a 1994 study, Howard County is spending a higher percentage of its revenue on debt than are Montgomery, Anne Arundel, Frederick and Prince George's counties, and the City of Baltimore.

Howard's $1,469 debt per capita is higher than Anne Arundel's ($727), Harford's ($219), Carroll's ($866), Montgomery's ($1,164) and Frederick County's ($576), according to Howard and Carroll officials.

In addition to Howard's $308 million debt from regular construction projects, the county has $119 million in debt from water and sewer projects, which is being paid off by user charges, and $10.8 million in golf course debt, which it plans to pay off through golf course fees.

Pub Date: 4/18/96

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