Owens warns of tax rise

Income levy may have to increase to pay for growing expenses

May 03, 2006|By PHILLIP MCGOWAN AND ANICA BUTLER | PHILLIP MCGOWAN AND ANICA BUTLER,SUN REPORTERS

Despite being handed a record surplus to spend next year on such initiatives as raising teachers' salaries and repairing roads and schools, Anne Arundel County Executive Janet S. Owens predicted yesterday that her successor might have to raise income taxes to keep up with rising expenses.

Given the county's revenue-tax cap, she questioned whether future executives can commit to the second and third years of promised teacher raises of 6 percent after she funded the 2007 request of some $26 million in her $1.37 billion budget proposal released Monday.

Although the county has collected a record $120 million in real estate taxes and will reap the benefits of thousands of jobs heading to Fort Meade over the next decade, Owens acknowledged a sense of uncertainty. Ten union contracts have to be negotiated next year.

"The next executive will deal with additional 6 percent raises for teachers," said Owens, who cannot run for a third four-year term this fall. "Police and fire will come with something comparable, although they will probably start [the negotiations] higher. You start talking those kinds of dollars, I don't know where that money comes from."

The current county income tax rate is 2.56 percent, the lowest in the Baltimore region and the third-lowest in the state.

Budget officials have projected that real estate revenues, made up of recordation and transfer taxes, will fall from $120 million this year to $105 million in fiscal 2007, citing a slowing real estate market.

Owens kept real estate tax revenue out of the operating budget, diverting it to one-time maintenance and construction projects for roads, schools, fire stations and other infrastructure.

She also funded the county's rainy-day fund - which could be used for serious budget shortfalls - at $42.7 million, it's maximum level.

"Things go in economic cycles," Owens said. "Looking back at that, it was so tough," referring to 2001, when she imposed a selective hiring freeze on county government, and 2003, when she laid off 16 new police officers and two clerical workers after the County Council rejected a salary freeze.

The county is flying high this year with larger streams of state revenue - nearly $50 million more than last year - and more property tax revenue generated through higher property assessments, even as Owens proposed lowering the property tax rate by 1.3 cents in the 2007 budget.

But given the flexibility that the $94 million surplus provided, a few council members wondered yesterday if Owens should have funded other causes, such as a new storm water utility or a cleanup fund for the Crownsville Hospital Center, or set aside money for escalating health care benefits and energy costs.

Councilman Ronald C. Dillon Jr., a Pasadena Republican, had hoped that Owens would devote money for the 648-acre psychiatric hospital complex that closed in 2004.

State officials have offered the county the land, but Owens declined, citing a $25 million environmental cleanup.

"If Crownsville is gone, it's gone forever. I would hate for it to fall into the hands of a developer," Dillon said.

Councilwoman Cathleen M. Vitale, a Severna Park Republican, said the county is struggling to handle the effects of storm water runoff. Given the county's surplus, she said it's "difficult to go to the citizens and ask them for more money" through taxes. She said the budget could have kick-started an initiative to create a utility, which could generate dedicated funding for runoff repair projects.

Owens set aside more than $5 million for restoration projects in the latest budget.

But Owens did not budget for a change in the way the county will fund health care benefits for current and future retirees. The change will take effect in fiscal 2008, and will require governments to report the size of their health care retirement commitments and to begin setting aside money for workers who have not yet retired. The county's bill is now about $100 million annually, said budget director John Hammond.

He told the council after Owens' address that the county can handle the additional debt.

Councilwoman Pamela G. Beidle, a Linthicum Democrat, said that holding additional money in reserve to prepare against a loss of real estate tax revenue might be a good idea, "but how long do the needs of school construction and road maintenance go unattended?"

Interim Superintendent Nancy M. Mann, who oversaw the drafting of the school system's $801.7 million budget request, said it represented only necessities. Nearly half of the county's budget - $516.5 million - was devoted to the Board of Education.

phill.mcgowan@baltsun.com anica.butler@baltsun.com

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