Area officials warn of cuts in spending

Revenue dip deemed likely after attacks, economic downturn

September 30, 2001|By Larry Carson | Larry Carson,SUN STAFF

Baltimore-area governments expect the current economic downturn, combined with effects of the Sept. 11 terrorist attacks, to bite sharply into local tax revenues and public spending across the region.

With federal and state surpluses steadily shrinking, even in prosperous Howard County officials are warning that cuts in local spending may be needed before the current fiscal year ends July 1.

"We're looking at significant problems the rest of this year and serious problems next year," Howard County Executive James N. Robey told a citizens group recently after a briefing from Raymond S. Wacks, the budget director.

Local government leaders are not sure how much they will be affected because most planned for lower income tax revenues - especially from capital gains taxes on stock sales - but the signs are not good, officials said.

"We anticipate a slowdown. We have not attached a number as yet to the magnitude," said Douglas E. Brown, Baltimore's public policy analysis supervisor. A drop in tourism and resulting layoffs could hurt city revenues, he said, but it is too early to tell.

"High rollers sometimes fall farther," he said, referring to high-income places such as Howard County. The White House has lowered its federal budget surplus estimate to $120 billion - less than half the $281 billion originally predicted. Maryland, too, keeps lowering its sights. Comptroller William Donald Schaefer last week shaved $40.2 million off the latest state estimate.

Capital gains "is the big unknown," said John R. Hammond, Anne Arundel's budget officer.

He said he is nervously watching as airlines lay off thousands of employees - many of whom live in Anne Arundel County. With Baltimore-Washington International Airport in the county and Ronald Reagan Washington National Airport in Northern Virginia closed, there could be a rippling impact, Hammond said.

"Consumer confidence has just been rocked back on its heels since Sept. 11. Consumer confidence is flat on it's back" though real estate remains hot, he said.

Harford County is benefiting from cautious budgeting, a hiring slowdown and an increase in the local share of the state income tax, said John J. O'Neill, administrative officer.

In Baltimore County, where officials learned painful lessons from the 1991 recession, Fred Homan, the budget director, made sure that surplus revenues were used for one-time expenses, not new jobs or long-term programs.

"We have seen some impact" from declining revenues, said Elise Armacost, spokeswoman for County Executive C.A. Dutch Ruppersberger, but the county has been planning for a recession and expects an $8 million boost from unbudgeted surplus left from the last fiscal year.

"We're certainly at a time when we need to be very careful," she said.

Wacks' fear that capital gains revenues may virtually disappear is warranted, O'Neill said.

"We're seeing the same things he's [Wacks] seeing. The bottom was falling out of the stock market before Sept. 11 and certainly since."

Carroll County officials also see less revenue growth next year, but they are not sure of the impact. "The rate of growth is declining," said Steve D. Powell, director of the office of management and budget.

Howard County has enjoyed four consecutive years of year-end surpluses that have pumped $36 million in unbudgeted, leftover cash into school construction and other projects. But Wacks said he expects virtually nothing extra to be left from the fiscal year that ended June 30.

"People are generally not going to have capital gains income next year - or losses. As the economy slows, we're going to see impacts on our revenues," he said.

"Logic tells us there's going to be a downturn," he said.

The year-end surpluses have declined from $12 million in Robey's first year, to about $6 million left over from the budget year ended June 30 of last year.

Already, John R. O'Rourke, Howard's school superintendent, has requested $63.6 million in capital budget funding - $7 million more than was granted last year. School officials are striving to provide enough classrooms for Howard's burgeoning population of school-age children, but inflated construction costs are adding $6 million to the price tag, they said.

Officials say that operating expenses are bound to increase, too, noting annual pay increases and health insurance costs in most jurisdictions.

"Clearly there's been a big economic contraction over the last two weeks or so. Whether that continues or not, we'll see," Wacks said.

And his forecasts last November of a 40 percent drop in capital gains revenue now seems rosy, Wacks said, based on talks he has had with financial professionals.

Robey is cautiously considering the advice, he said, but has not decided on any particular belt-tightening measures.

"Right now, there's a concern. On the horizon, the clouds are darkening on the economy. Howard is doing well, but we have to be prepared to react," Robey said.

Robey said he has not briefed the County Council, but Chairman Guy J. Guzzone, a North Laurel-Savage Democrat, said he has been expecting bad news.

"It's predictable given what we're seeing in the overall economy," Guzzone said.

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