County should reduce buying on credit, too


November 29, 1998|By Harold Jackson

'Tis the season to be careful

Fa la la lala la la la la

Easy credit can be harmful

Fa la la lala la la la la

OK, so I'm not Ira Gershwin. But you get the message from my feeble attempt at writing song lyrics. With the official start of the holiday shopping season, all of us must take care not to overextend ourselves buying on credit.

Bills can be set aside, but eventually they must be paid. When you buy gifts on credit, you have to gauge your ability to pay the bills when they come due.

Howard County's new leaders, who will be sworn in next week, must be mindful of the same thing. The county has done a lot of buying on credit, so to speak. It needed to, to pay for schools and roads. But the result is the highest per capita debt in Maryland. That debt must be reduced.

Shelling out cash

The county's total bonded indebtedness exceeds $400 million. If its creditors demanded that the county's 238,000 residents pay that bill immediately, each person would have to come up with $1,680. A family of four would have to shell out more than $6,700.

Of course, that's not going to happen. Like credit card companies, the holders of Howard County's bonds prefer interest payments to payoffs. It adds up to much more, which is the best reason to reduce the county's debt. It will spend more than $60 million on debt service this fiscal year.

The AAA grades that Howard County has received from the Moody's, Standard & Poor's and Fitch bond rating agencies mean they believe it can afford that much debt. They figure Howard County's affluent population can pay higher taxes if that becomes necessary to handle the debt. But who wants to pay higher taxes?

In fact, County Executive Charles I. Ecker's departing gift will be a cut in the county's piggyback tax from 50 percent of the state income tax to 48 percent. That will save every taxpayer about $51, a pittance that some wanted to give to the schools or use to further reduce the debt.

Mr. Ecker thought otherwise, but that doesn't mean he has been a poor financial steward for the county. Under his leadership, the county stopped writing budgets anticipating revenue surpluses, which didn't always occur during the recession.

Any surplus is now put into a "rainy day fund." Whenever the FTC fund exceeds 7 percent of the previous year's audited expenditures, the county is allowed to spend the excess on one-time "pay-go" purchases, but not on recurring budget items.

The current budget includes more than $16 million in pay-go money. Using those funds to help pay for capital projects reduces the amount the county borrows. But each year brings new debt.

The county plans to borrow no more than $21.5 million this fiscal year, which is slightly below the $25 million ceiling recommended by the Spending Affordability Committee but way below the $69 million in general obligation bonds that the county sold in 1991.

I guess it would be as difficult for the county to go a year without incurring indebtedness as it would be for some of us. Needs arise that have to be met, and you can't always wait until you have the cash in hand to fill them.

That was particularly so for the county during the past 20 years, when the local population boom demanded new schools, roads and infrastructure improvements.

Howard hasn't finished growing yet, but its growth has slowed. The 1990 general plan predicted an increase of 2,500 dwellings each year, but construction is down to 2,000 units. The school population is expected to peak in about seven years.

The new council and executive will determine how much more development will be allowed.

They have said they intend to amend the general plan and the adequate public facilities law, which bases future development on the ability of roads and schools to handle it.

As they decide how many more houses can be built and what public facilities are needed to serve the additional population, they should also attempt to budget an annual reduction in the amount of money that the county borrows to provide for these needs.

Fact of life

Debt is a fact of life in America. The nation spends $300 billion a year to make payments on its $5.4 trillion debt. Our individual credit card balances total $500 billion. Add to that the nearly $4 trillion Americans owe in home mortgage loans, and you see why most of us expect to be in debt all our lives.

But we still approach those debts, even 30-year mortgages, as if one day we will pay them off. Similarly, the county needs to look at its indebtedness, not as a recurring item in the annual budget, but as a budget line that it expects to dissipate, if not disappear.

It's interesting that Mr. Ecker, as a fiscal conservative, is often compared to former President Reagan. Mr. Reagan left office with the nation's debt at an all-time high. Similarly, Mr. Ecker, who deserves excellent marks as a fiscal manager, is leaving Howard County with a lot of debt. His successors, too, must make debt reduction their goal.

Harold Jackson writes editorials about Howard County for The Sun.

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