Tax cut puts school construction on hold

Budget analysts say prison programs could also be jeopardized

April 22, 2006|By JENNIFER SKALKA | JENNIFER SKALKA,SUN REPORTER

A state property tax cut pushed by Gov. Robert L. Ehrlich Jr. and approved by the Board of Public Works has delayed $16 million in school construction projects across the state, legislative budget analysts said yesterday.

The projects include $1.8 million for Baltimore, about $2 million for Carroll County and $8.4 million for a new high school in rural Allegany County.

An agency that gives final approval for construction was supposed to sign off on the spending this week. But because some state officials say the money needs to be used to support the tax cut, the agency delayed its decision.

"I can tell you that not having that $16 million has very grave consequences for some of the projects in the state," said David G. Lever, executive director of the Interagency Committee on School Construction.

Under Maryland law, the state property tax rate must be set at a level that generates enough money to repay bonds issued for capital projects. Because the public works board set a lower tax rate this week, the state will have less borrowed money than initially estimated to pay for school construction and other projects.

The school construction committee was able to sign off on approximately $306 million for projects approved by the General Assembly and the governor during the legislative session.

But the additional $16 million -- most of which was to come as a "bond premium," which is a bonus paid by investment banks when the state sells bonds -- remains in a holding pattern.

Legislative budget analysts say that up to $13.5 million of it must be used in the budget year that begins July 1 to pay for the property tax cut, which was approved last week by the three-member Board of Public Works. The cut will provide an annual savings of about $40 to homeowners with property assessed at $200,000.

This year, the General Assembly spelled out in the budget it approved just how the money should be spent -- including an additional $49 million for prison projects, which could also be in jeopardy.

With the bond premium going to pay for the tax cut instead, "they'll hold back projects," said Warren G. Deschenaux, director of the Office of Policy Analysis of the Department of Legislative Services. "They don't have much choice."

Cecilia Januszkiewicz, Ehrlich's budget secretary, said the administration is looking for the best way to address the matter, but she blamed the Assembly for unnecessarily promising the money. The tax cut, she said, is not the culprit.

"We will figure out a solution to the problem," she said. "At this point we are not as bereft as the staff of the General Assembly. The executive branch is very good at finding solutions."

With the backing of the Board of Public Works, which he leads, Ehrlich agreed to raise the state's property tax rate from 8.4 cents to 13.2 cents per $100 in assessed value as part of a budget-balancing move in his first year in office, when the state faced a fiscal crisis.

He had long promised to reverse the increase.

Still, Ehrlich, who is up for re-election this fall, was criticized this week by the campaigns of his Democratic rivals, who accused him of using the tax cut for political gain. Baltimore Mayor Martin O'Malley and Montgomery County Executive Douglas M. Duncan have also proposed tax cuts, however, in their respective jurisdictions.

The latest state cut -- to 11.2 cents per $100 in assessed value -- divided the two Democrats on the board. Comptroller William Donald Schaefer provided the second vote to approve it, while Treasurer Nancy K. Kopp voted no.

Some of those counting on the money for school construction said the tax cut seems hasty in light of their needs.

Del. George C. Edwards, a Republican whose district includes Allegany County and who lobbied hard for the state contribution, said Allegany can't afford to borrow any more money toward the construction of its first new high school in 50 years.

"We've worked on this thing too hard to let it go now," Edwards said of the planned Mountain Ridge High School in Frostburg.

Edwards noted that the school projects were approved during the 90-day legislative session that ended earlier this month. He said the need for a property tax cut should have been considered then.

"If they were going to cut this rate, they should've done it before we finished our work," he said. "People are counting on that money."

Carroll County could lose $2 million for public school construction, which was slated for two specific projects: the new Ebb Valley Elementary School in the Manchester area and repairs to a leaky roof at Sykesville Middle School. Baltimore City hasn't yet requested its $1.8 million, Lever said, so it will be set aside for future use.

On the Eastern Shore, Somerset County was banking on $1.5 million for the construction of a new intermediate school.

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