Area counties wary of 2004 budget cuts

Funds used by state for 2003 unavailable

`We've been on a pleasure cruise'

Officials see new source of revenue as likely

May 19, 2002|By Andrew A. Green | Andrew A. Green,SUN STAFF

With some hefty belt-tightening, Baltimore-area counties have weathered a sharp drop in revenue in next year's budgets, but officials are growing nervous about 2004, when the state might again be forced to cut aid and pass on costs to the counties to close a projected $800 million deficit.

The state balanced its budget for the fiscal year that begins July 1 by using one-time windfalls and money from the rainy-day fund. That money won't be available in fiscal 2004, creating some hard decisions for a new governor and the General Assembly.

When state officials start talking about hard choices, county officials get nervous. The last time the state was in this situation, during the recession of the early 1990s, it cut hundreds of millions of dollars in aid to counties and passed on millions more in costs, forcing budget crises in local governments around the state.

"Since the mid-'90s, we have been on a pleasure cruise aboard a luxury liner," Baltimore County Auditor Brian J. Rowe said at a budget hearing this month. "Unfortunately, we just found out it's the Titanic."

In Baltimore County, the state cut $60 million in aid from fiscal years 1991 to 1993 and passed on $42 million in costs, most notably by forcing the counties to pay Social Security taxes for their teachers. That line item alone cost Baltimore County $20.6 million in fiscal year 1993.

Again, the state is faced with what's known as a "structural deficit" - which means projected expenditures for the next few years exceed any reasonable estimates for revenue. An economic recovery alone probably wouldn't be enough to offset the difference, said Rowe.

"The state has a lot of ongoing expenses that have been incurred over the last administration, and they're not going to go away," said John J. O'Neill, Harford County's director of administration. "So, yes, we're casting a wary eye on it."

Fred Homan, Baltimore County's director of budget and finance, said he thinks the state's use of rainy-day funds to balance the budget this year was appropriate. The state can use that money and maintain its high bond ratings, which save taxpayers millions in interest, he said, provided they show rating agencies they are willing to do what it takes in coming years to increase revenues or decrease spending.

"It's that second part that's missing right now," Homan said.

Area budget chiefs said the tea leaves from this year's legislative session seemed to indicate that state leaders would do what they could to avoid a repeat of the early-1990s cuts. But even the small cuts the state made this year - for example, in an incentive program to raise teacher salaries and in funding for community colleges - have hurt.

"That put a lot of pressure on us to pick up those costs," said Howard County Budget Director Raymond S. Wacks.

The suburban counties are generally in a position to absorb those sorts of cuts - for a while. Irving P. McPhail, chancellor of the Community College of Baltimore County, said that by rethinking expenditures, raising tuition and taking other steps, the school will be able to weather this year's cuts without jeopardizing its mission.

What gives county officials some hope is that the state never restored the aid it took away last time, and it never reassumed the costs it passed on. Most of what could be cut easily was.

"They can only take the cigarette tax revenue away from us once," said Anne Arundel County Budget Director John S. Hammond.

A few things, budget officers said, could still be cut - aid to local police departments, credits to offset a property tax break for utilities and highway user revenue among them.

Hammond said another thing that makes him hopeful is that the major new expenditure for the state this year was implementing the recommendations of the Thornton Commission, a plan for increasing education aid to the counties. It would seem pointless for the state to give money with one hand and take it away with the other, he said.

November's elections make the situation unpredictable, though. A new governor and legislature could bring different priorities or could be willing to explore new revenues. The consensus among county officials is that the state will find new revenues, either through a tax increase or legalized gambling.

"I haven't heard either [gubernatorial] candidate talk about the fact that the budget needs to be cut by a billion dollars. Have you?" Homan said. "I assume they're talking about other revenue sources."

Still, local officials say they're in better shape than they were 10 years ago. Area counties didn't all have rainy-day funds then. Now they do. And after the painful lesson of the last recession, the counties were less profligate in the boom years of the 1990s than they were in the 1980s.

Besides items such as water and sewer system expenses, over which they have little control, counties kept tight control on spending for the next year. In Baltimore and Howard counties, proposed general fund expenditures would decrease slightly from fiscal 2002 to 2003. Anne Arundel's budget is scheduled to grow by slightly less than 3 percent. Harford is anticipating a slight increase, largely because of an unexpected $14 million carryover from this year, and Carroll's general fund could grow by 2 percent.

The local budgets will become final by the end of this month.

"As far as the state is concerned and what might happen next year," Hammond said, "all we can do is worry about it."

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