Board rejects property tax cut

Schaefer, Kopp oppose Ehrlich's 1-cent reduction

April 28, 2005|By Andrew A. Green | Andrew A. Green,SUN STAFF

In a rare disagreement with the governor, Comptroller William Donald Schaefer joined the state treasurer yesterday in rejecting the administration's plan to reduce the property tax rate by a penny.

The decision comes weeks after the state Senate rejected a House of Delegates plan to roll back property taxes for the same reason Schaefer gave: a concern that cuts now will leave the state short of cash in the next few years and force either unpalatable spending reductions or tax increases.

"What the governor is doing is right from the governor's standpoint. What I'm doing is right from my standpoint. We need the money," Schaefer said. "It's a good political move. They can go around all over the place saying they reduced taxes. If I were governor, I'd do the same thing."

Schaefer is usually a reliable vote for Gov. Robert L. Ehrlich Jr. on the three-member Board of Public Works, and the governor and his budget secretary, James C. "Chip" DiPaula Jr., made a spirited appeal at yesterday's meeting to change the comptroller's mind.

DiPaula acknowledged that the state has projected deficits in the next few years, but said they are far smaller than those Ehrlich has already resolved, making a 1-cent cut feasible.

Conservative projections for next year anticipate a deficit of about $500 million, well below the $1 billion-plus yearly projected deficits Ehrlich has dealt with in his first three budgets, DiPaula said. But based on the improving economy, the real figure may be as low as $200 million, he said.

"The anticipation was, in looking at the [fiscal] '06 and '07 budgets, resolving as much of that deficit as possible in '06 and leaving a manageable budget deficit in '07, the most manageable budget yet in the governor's term," DiPaula said.

Most of a homeowner's property taxes go to local governments, but a small portion -- 13.2 cents per $100 of a home's assessed value -- goes to the state to finance bond debt.

Until 2003, the state kept its rate artificially low by supplementing it with general tax funds to pay off its bonds, but that year Ehrlich proposed an increase from 8.4 cents to the present level in an effort to balance the budget.

The governor must submit and the General Assembly must pass a balanced budget, so projected cash shortfalls have to be erased through either spending reductions or revenue increases.

Schaefer said taking more general fund money to pay off bonds would cripple state agencies, which have been cut over the past few years as Ehrlich has solved the state's budget problems through one-time fund transfers and spending reductions rather than tax increases.

The property tax increase is the only general tax increase Ehrlich has endorsed during his term; other revenue measures he has supported have been classified as fees.

House Speaker Michael E. Busch said delegates thought this year was the right time to reduce property taxes to their original level because the governor had left millions more than the law requires in the state's rainy-day fund.

"The governor didn't fund $120 million in health care benefits for state employees and wasn't going to fund things like juvenile services or Medicaid adequately," Busch said. "We can't restore that funding, but if he was just going to leave a surplus lying around, we thought it was best to return the property tax rate to where it was."

Ehrlich said during the legislative session that he wanted to reduce the rate through the Board of Public Works. Busch said yesterday that the governor would have been better off working with the legislature.

A committee controlled by the governor makes recommendations to the Board of Public Works on the tax rate needed to address state bond obligations. The committee recommended a 1-cent cut, but Schaefer and Treasurer Nancy K. Kopp, who serve on both the committee and the board, disagreed.

Kopp, a Democrat, said at yesterday's meeting that a 1-cent rate cut would put the state's finances at risk in the future with relatively little benefit to taxpayers.

"Cutting a penny on the state property tax saves the average homeowner about $25 ... but at a cost of about $45 million to the state," Kopp said. "There are a lot of schools that can be built with $45 million in the annuity bond fund."

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