County surplus off 40% in 2007

Even so, overage is sizable, helped Howard keep its AAA bond rating

November 30, 2007|By Larry Carson | Larry Carson,Sun reporter

Howard County's budget surplus is down 40 percent from the previous year's record high because of the slowing real estate market and slightly lower-than-expected income tax revenue.

But despite the decline from $38 million in fiscal 2006 to $22.7 million in fiscal 2007, which ended June 30, the surplus is sizable, and it helped Howard maintain its AAA bond rating as the county prepares to refinance $103.1 million in bond debt next week. The county's Office of Finance released the data Wednesday.

Howard's surplus is in stark contrast to Montgomery County, which is now facing a projected $400 million revenue shortfall.

"The number is an appropriate number. You want to be conservative in your projections," said County Executive Ken Ulman. The leftover funds represent about 3 percent of the county's total locally funded budget and is split between higher-than-expected revenues and lower-than-expected spending.

But with a huge debt for future retiree health benefits looming, Ulman said, "Really, in my mind, there is no surplus."

He has decided to earmark $15 million of the surplus toward next year's payment on the retiree debt, which is estimated $477 million, with the rest reserved for capital projects.

Last year's surplus became election-year fodder, as departing Executive James N. Robey, a Democrat, ran for the state Senate seat he ultimately won from Republican incumbent Sandra B. Schrader. She contended that the surplus showed Robey had raised taxes too high.

This year, with real estate cooling off, Ulman said he intends to be more cautious, though budget projections are always inexact.

"You never want to be under and come up with a shortfall. You can't be right on the last penny. To me, being slightly over is the prudent way to manage," Ulman said.

County Council Chairman Calvin Ball, an east Columbia Democrat, agreed. "This falls within what we ought to see," he said.

Greg Fox, the council's lone Republican, said he believes that reducing the county's debts, and funding major capital projects like Mount Hebron High School's renovations, should be the top priorities for the surplus - not new initiatives like "buying new recycling bins."

The pending bond sale produced glowing reports from the New York-based rating services.

Moody's Investor Service in New York reported that the value of the county's property tax base rose a whopping 70 percent since 2002, and that the county is prosperous, is attracting good jobs and has low unemployment.

"When I saw that, I went, `Wow!'" county finance director Sharon Greisz said about the increase in property values.

Greisz said the county collected about $330,000 less than expected from income tax revenues last fiscal year, and real estate recordation tax revenues were down $3.5 million. The saving grace was a $16.5 million boost in property tax revenues and $8 million in unspent funding.

"I think it shows we continue to be in good fiscal shape," Greisz said.

The county is to refinance 1998 bonds on Wednesday, Greisz said, and she expects to attract lower interest rates that will save $3.5 million in interest over the next dozen years, thanks to continuing top ratings from all three New York services - Moody's, Fitch's and Standard & Poor's. The AAA rating means investors face the lowest possible investment risk, which in turn produces lower interest rates on county bonds.

"Overall, the economic base, which is growing and diversified, is the key strength," despite problems nationally in the housing area, said Jessalyn Moro, a senior director at Fitch. Howard, she said, has a "moderate debt burden and a strong track record of financial management and performance."

Moody's analysis said the value of commercial property has increased 32 percent in the past three years, and the county gained 5,500 jobs during calendar year 2006, with more expected under the federal military base realignment program.

The report also noted "prudent management practices and policies, healthy fiscal operations and adequate financial flexibility," along with "conservative budget assumptions" and "strong revenue performance."

Slight changes in the timing of state distributions of income tax revenues may have contributed to the drop-off there, Greisz said, and the county knew real estate transaction revenues would decline, but property tax revenues and lower-than-expected spending saved the day.

"Part of it was that commercial construction went up and residential increased more than expected," she said, though the property tax estimate was less than 5 percent off. Investment interest was also higher than predicted, by $400,000.

larry.carson@baltsun.com

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