Local budget surpluses pose a nice problem

Officials in Md. counties, Baltimore find many ways to use unexpected funds

April 24, 2005|By Lisa Goldberg | Lisa Goldberg,SUN STAFF

One year after dire economic forecasts forced local governments to rein in spending, city and county leaders in the Baltimore area are finding themselves suddenly -- and unexpectedly -- flush with cash.

With multimillion-dollar budget surpluses cushioning government treasuries, the region's county executives and Baltimore Mayor Martin O'Malley are planning for construction projects, replacing aging equipment or adding money to programs designed to spur economic development.

"This is an unusual, short-term opportunity for us, and we are not alone," said Ted Zaleski, director of management and budget for Carroll County, which is expecting a $21 million surplus. "It is happening across the state. But we can't get too comfortable. It can change quickly."

FOR THE RECORD - An article Sunday incorrectly identified one of the two area jurisdictions that are considering a reduction in the property tax rate. Baltimore Mayor Martin O'Malley and Harford County Executive James M. Harkins have each included in their proposed 2006 budgets decreases of 2 cents per $100 of assessed value.
The Sun regrets the errors.

Healthy revenue projections have also spurred two area government leaders to propose cuts in property tax rates.

The surpluses -- as high as $90 million in Baltimore County -- result in large part from a hotter-than-anticipated housing market and strong income and job growth, according to analysts.

Area budget directors say they deliberately low-balled projected revenues from real estate transfer and recordation taxes last year, figuring that with interest rates expected to rise, the market was bound to cool.

But long-term interest rates remained low, and sales continued at a frenzied pace even though housing prices jumped. Income tax revenues outpaced projections, and the combination of the two, along with expected growth in property tax revenues, left area leaders in an enviable situation as they prepared for the 2006 budget season.

The state also took in more money than it forecast this year because of higher-than-expected income tax revenues and other factors, allowing Gov. Robert L. Ehrlich Jr. and the General Assembly to put an extra $400 million into the state's rainy day account.

"Because counties and municipalities had anticipated gloom and doom, they held the line on spending," said Anirban Basu, chief executive officer of Sage Policy Group, an economic and policy consulting firm in Baltimore.

"All these things have conspired to leave local jurisdictions with a nice problem, which is how to deal with this surplus," Basu said.

The result was a more cheerful counterpoint to last year's predictions of fiscal ruin. As they introduced their spending plans recently, the region's government leaders sounded at times like Santa Claus as they detailed proposals to renovate schools, build fire stations and recreation centers, and beef up programs.

Catching up

In a tough economy, "one of the things you do is put off what you can put off," said Michael Sanderson, legislative director for the Maryland Association of Counties. This year, jurisdictions have been able to add those projects back into their budgets, he said.

But with uncertain economic times ahead, it also might be wise for local governments to boost their reserves, said Matthew Crenson, a Johns Hopkins University political science professor.

"For this year, it makes life much easier for county executives and mayors," he said. "But it's a case where it might be wise not to give away the store immediately."

The spending boon is also likely to be overshadowed in residents' minds by rising property assessments and could lead to calls for tax cuts, particularly in places such as Baltimore County, which has a healthy surplus account, Crenson said.

Proposed tax cuts

Baltimore and Harford counties have proposed 2-cent cuts in property tax rates in their 2006 spending plans, although the Harford plan has met stiff resistance from several members of that county's legislative body.

For the owner of a $250,000 home, the proposed cut would translate into $50 in savings.

Recent signs indicate that the market might have peaked, said John Hopkins, associate director for applied economics at Towson University's Regional Economic Studies Institute. Oil prices are high, and consumer spending seems to be slowing, he said.

Those indicators are not lost on area budget directors, who say they know this year's revenue boosts might be fleeting.

The officials say they are being conservative with some revenue projections for fiscal 2006 and are earmarking this year's anticipated surpluses mainly for one-time costs.

"Quite frankly, if you budget in a situation where you have a market like that, you've got to budget it conservatively" or risk a deficit, said Fred Homan, Baltimore County's director of budget and finance.

Baltimore County's proposed $1.45 billion general fund budget would use more than half of the county's expected $90 million surplus to help finish a systematic renovation of the county's middle schools, pay for an ice rink and soccer facility in Reisterstown and a soccer and lacrosse facility in the northeast area, and increase funding for road resurfacing, among other projects.

In this year's proposed budget, the county more than doubled the amount it contributes toward capital projects, from $45 million to $99 million.

Schools and roads

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