Howard County's tax revenues are projected to fall $18 million short in the current fiscal year, which ends June 30, likely forcing the first-ever use of the county's decade-old Rainy Day Fund to help close the gap.
The sharp fall-off in income tax collections was revealed by Raymond S. Wacks, the county budget director, yesterday at a meeting of the county's Spending Affordability Committee.
Wacks said it appears that this year will be the first since 1964 that Howard County income tax revenues will decline from one year to the next. The county collected $169.8 million in fiscal year 2001, which ended June 30, but expects to collect $168 million in fiscal 2002, the current budget year.
Revenues are expected to rebound during the next fiscal year, but not enough to cover steadily rising expenses, Wacks said. That situation will create a tough election year dilemma for County Executive James N. Robey.
When Robey works on a new budget in this spring, he must decide whether to sharply cut expenses or raise taxes - or both. With an operating budget 48 percent higher than it was four years ago, difficult choices will be required.
Because the county spends more than 50 percent of its income each year on education, the spending debate likely will focus on those costs.
"What's really killing us is the capital gains [income tax] bubble that's collapsed on us," Wacks said. A sharply declining market has cut deeply into stock sales that would have produced large capital gains.
The Spending Affordability Committee reviews the economic outlook each year to help the county executive decide how much the county can afford to borrow for capital projects and how much to spend on operations during the next budget year. Unlike similar committees elsewhere, however, Howard's panel does not set a recommended ceiling on spending.
Later yesterday, Robey said Wacks had briefed him on this year's budget crunch, which he described as worse than what anyone had expected. He said he's trying to save as much money as possible before considering the Rainy Day Fund.
"It's too early to tell [how much can be saved]. Everything's on the table right now," Robey said. "Last year, we talked about a basic budget because we saw a downturn coming. What surprised me most is how much a reduction there's been. That's the price we pay when we're a wealthy county," he said.
County Council Chairman C. Vernon Gray said he expects the situation to improve next year.
"Hopefully, the revenue loss will not be as much as it is this year. We'll be able to manage that. Everybody's predicting an upswing," Gray said.
In addition to limiting new hires and asking county department heads to save up to 10 percent of their budgets this year, Robey said he also has asked school Superintendent John O'Rourke to cut current spending. O'Rourke said he is scouring his budget for "discretionary spending of any kind" that won't hurt classroom instruction or cause layoffs.
Wacks said property taxes are likely to produce $1.8 million more than expected this year, but income taxes will yield $12 million less than budgeted. Investment income will be down $2.8 million, and revenues from other sources, including licenses and permits, service charges, fines funds from other agencies and items such as taxes on movie tickets are expected to fall $4.4 million short of budget.
The opening of Arundel Mills Mall with a 24-screen complex, combined with the closing of Columbia's two oldest movie theaters, cut sharply into those revenues, he said.
That adds up to the roughly $18 million shortfall in the current budget. Wacks said economizing measures that have been taken won't be able to offset that sum.
Since the county was caught without reserves during the 1991-1992 recession, it has built a Rainy Day Fund that must equal 7 percent of the operating budget, or $31.8 million this year. Wacks could not say yesterday how much of the fund might be needed to plug budget holes.
Under county law, the fund must be replenished to the 7 percent level from any later surpluses, which likely means less money next year for school construction and other capital projects. With O'Rourke seeking $63 million for school construction, capital spending will be another area of strain.
Pat Baker, an advisory committee member representing the county Parent Teacher Association Council of Howard County, said chances that the $63 million school capital spending request for next year would be granted were "slim and none."
County Chief Administrative Officer Raquel Sanudo gave the advisory committee an ominous report on the commercial real estate outlook for the county. She said that requests for commercial building permits are down 42 percent from July to November, and newly completed office buildings stand vacant.
"I think this is kind of a unique situation," said Wacks of the overall budget problem.
Peter Rogers, another committee member, said, "The income tax clearly accelerated way beyond what was anticipated."[jkl: MIKE, he's talking about the years during which the revenue was rolling in-but i'm not sure that's clear in the context. : ]
While millions in surplus revenues were spent during recent boom years on one-time projects such as school construction, the county also spent heavily on recurring expenses, such as hefty[jkl: : ] pay increases for teachers, police and firefighters. Health insurance alone will cost 15 percent more for county workers next year, Wacks has noted. Now money must be found to meet those commitments, he said.