A wary eye on session results

City, counties brace for cuts in state funding

November 17, 2007|By Larry Carson | Larry Carson,SUN REPORTER

Hoping to dodge major revenue losses, local government officials across Maryland struggled this week to keep track of the fast-changing General Assembly special session called to address the state's budget deficit.

Although the full impact might not be clear until the regular, 90-day session votes next year on Gov. Martin O'Malley's budget for the 2009 fiscal year, some local officials are worried about potentially significant reductions in school funding, local income-tax revenues and money for road repairs.

A proposal to cut $152 million in Thornton education funding increases could cost local school boards millions, with potentially greater losses if the formula change continues in fiscal 2010 and beyond, officials said.

"The dust hasn't settled yet" at the special session, said David S. Bliden, director of the Maryland Association of Counties, which is trying to inform county officials of possible cuts and tax changes.

"We are extraordinarily worried," said Anthony McCarthy, Mayor Sheila Dixon's spokesman.

Dixon administration lobbyist Demaune Millard said Maryland's wealth-based formula for school aid could help the city weather the Thornton cut, but a plan to use sales-tax revenue for state transportation funding could hurt because it would reduce money for local highway repairs.

Unlike the counties, where the State Highway Administration maintains major roads, Baltimore is responsible for all its roads and bridges, Millard said.

Bliden's organization has calculated that local governments statewide could lose $82.4 million in income tax revenue if the higher personal exemptions suggested in a House bill become law.

The Maryland Association of Counties estimated that the higher exemptions could cost Baltimore City $9.4 million; Baltimore County, $12.2 million; Anne Arundel, $6.3 million; Carroll, $2.7 million; Harford, $4 million; and Howard, $2.9 million.

Baltimore County Executive James T. Smith Jr., a Democrat, noted that increasing the level of personal exemptions would not raise more money for the state. But it would reduce the taxable incomes that residents use to calculate how much in local income taxes they owe.

"My whole pitch down there [in Annapolis] is, basically, don't just transfer responsibilities to the counties," Smith said. "They have a whole menu of options available."

Overall, Baltimore County is facing $30 million to $33 million in potential cuts, Smith said. Officials from other counties were reluctant to discuss possible losses because the situation is rapidly changing.

"It's hard to say. Things keep emerging" at the special session, said Howard County Budget Director Raymond S. Wacks.

"The Senate has taken $30 million in local highway-user money. The House has taken a whole panoply of cuts, amounting to $40 million," Bliden said.

Some officials, however, said things could be worse.

"Clearly, it's much better than the doomsday, or cost of delay, budget, and I have always understood counties would have to be part of the solution," said Howard County Executive Ken Ulman, a Democrat.

If the state closes a corporate loophole that allows corporations to buy and sell property without transferring deeds - avoiding the real estate transfer taxes that homeowners pay - it could counteract much of the income tax loss, Anne Arundel Budget Director John R. Hammond said.

But Smith said he thinks the transfer-tax revenue estimates are too optimistic. "Let's face it, real estate transactions are down," he said.

Officials say they hope to avoid increasing local taxes to make up for lost funding.

"I made a commitment in my campaign not to increase property or income taxes," said Anne Arundel Executive John R. Leopold, a Republican.

But that doesn't mean he won't try to raise fees. "I'm going to try to secure revenues outside of property and income taxes," and by cutting expenses, he said.

"We will not raise taxes to make up the difference," said Robert B. Thomas, spokesman for Harford Executive David R. Craig, a Republican.

"We've informed the [school] board and others that if state funding is cut, to expect a reduction in funds that we provide," Thomas said.

McCarthy said Dixon, a Democrat, "has determined it's time to cut taxes," not raise them, and Ulman also said that his "hope is that we can absorb these cuts."

Smith said he would not likely raise taxes, though his successor might be forced to.

larry.carson@baltsun.com

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