City girds for slowdown

Surplus expected to shrink as revenues decline

March 07, 2007|By John Fritze | John Fritze,Sun reporter

Baltimore's rosy finances, which have allowed the city to spend millions of extra dollars on school construction and children's programs, appear to be slowing down, an indication that the softer real estate market is catching up with City Hall.

The city is projecting a $7.8 million surplus for the current fiscal year, a significant drop from the $61 million surplus expected about the corresponding time last year.

Property tax revenue is coming in slightly below estimates, and other real estate taxes, such as recordation and transfer taxes, are also expected to decline.

Though the numbers indicate that the city is still on a strong financial footing, any drop in revenues will almost certainly play into this year's discussion about reducing the property tax rate, Maryland's highest. Revenue declines might also have implications for this year's election as Mayor Sheila Dixon drafts her administration's first budget.

"Things have leveled off. But I think what's important to note is that we have billions now in the pipeline, and it's really keeping the momentum going," Dixon said, referring to a number of major development projects under way. "We've got to do more, cutting back on city government and dealing with the overtime and the Police Department."

At a budget presentation to a City Council committee this week, Raymond S. Wacks, the city's budget chief, said Baltimore expects to collect about $104.9 million in recordation and transfer taxes in the current fiscal year, about $11.8 million less than in the previous year. Property tax revenue, which the city estimates will bring in about $590 million this fiscal year, would climb nearly 7 percent.

"We've been living these past couple of years through the best of times," said Wacks, who has been warning for more than a year that the real estate boom that was boosting the city's coffers would not last forever.

"One of the main drivers of our surplus has disappeared; that's the transfer tax. The others, while they're still there, are coming in at a lower level than they did in the past few years."

Revenue from Baltimore's local income tax appears to be exceeding earlier expectations and might be higher than in the previous fiscal year. Wacks attributes that in part to capital gains realized by real estate investors. The city projects $227 million in income tax revenue, up from $225.5 million the year before.

Several council members expressed skepticism that the city will post only a $7.8 million surplus and noted that the finance department sets its expectations low to be fiscally conservative.

A separate analysis prepared by the City Council staff found that the city has collected nearly $50 million more in taxes than it had at the corresponding point the year before.

"I respect their opinions and their analysis, but I feel they're being a little bit on the conservative side," said City Council Vice President Robert W. Curran. "I would hope there would be more than $7 million to deal with after-school programs, children's programs and one-time capital improvements."

Either way, the council appears to be gearing up for another showdown on police spending, a repeat of what has occurred in the past several years because the department has vastly exceeded its overtime budget. The finance department estimates that the police will spend $17.5 million to $23.8 million more than expected on overtime. The city had budgeted about $8.7 million for police overtime for the entire year.

Police officials have argued in the past that the money is needed to step up enforcement in high-crime areas, especially given the department's high vacancy rate. Others contend that because the department is consistently over its budget, the need for extra money should be anticipated.

"It just doesn't sit well with me," said City Councilman Bernard C. "Jack" Young, the budget committee's chairman. "I have not seen the crime drop in my district."

In April, Mayor Martin O'Malley announced that the city would realize a $61 million surplus and that the extra money would be spent on school construction and renovation, and on after-school programs.

This year, Dixon made no commitment to a 2-cent reduction in the property tax rate, which O'Malley had promised would be made every year for five years. Instead, Dixon created a panel to recommend more significant tax reductions. Because that panel's recommendations are not due until after the Sept. 11 primary election, it is unclear whether the tax rate would be cut in next year's budget.


Baltimore is projecting an increase in property tax revenue but a decrease in several other revenue sources that once fueled large surpluses in the budget. Figures are in millions of dollars.


FY06 Projected

Tax Revenue Revenue

Property $552.0 $590.2

Income $225.5 $227.0

Transfer $61.1 $52.0

Recordation $55.6 $52.9

Source: Baltimore Department of Finance

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