Officials: County's income tax revenue could decline

January 11, 2009|By Larry Carson | Larry Carson,larry.carson@baltsun

County officials expect a drop-off in income tax revenue from this fiscal year to next, something that's happened only once since the county began collecting the tax in 1964.

News of the possible decline in income tax revenue, the second-largest portion of general fund revenue, was delivered by county budget director Raymond S. Wacks last week during a meeting of state legislators and Ulman administration officials. County leaders are still awaiting word on whether another round of state budget cuts to local governments will materialize as Gov. Martin O'Malley works to solve the looming shortfall.

"It's scary," Wacks said after the meeting, noting that the last recession hurt revenues more than he expected. "We're trying to be careful [in budgeting] this time, but we don't know how bad it's going to be."

A decline in income tax revenue has occurred in prosperous Howard just once before, during the last recession six years ago. At that time, Wacks said, the sharp drop in high-tech stocks hit higher-income communities harder because of the loss in capital gains earnings. James N. Robey, a Democratic state senator who at the time was county executive, pushed through a 30 percent income tax rate increase. But that remedy is not available to County Executive Ken Ulman now because Howard is at the highest rate allowed by state law.

The gloomy forecast was presented to six of the county's 11 General Assembly members at a meeting Tuesday morning in the county's temporary office quarters in Columbia. Wacks gave a briefing on the outlook locally, using a metaphor built around modes of transportation.

The highs and lows of state sales taxes are like a fighter plane climbing and diving at top speed, Wacks said.

"It reacts very quickly to changes in the economy," he said.

Personal income tax revenues are more like a slower-but-still-speedy passenger airliner, which has lately been in a gradual descent. Property tax revenues are the slowest to change, resembling a giant ship, Wacks said.

The drop in income tax revenue seems slower this time, Wacks told the group, because there is a greater real estate component compared with the tech stock crash a few years ago.

The flip side, however, is that the more gradual decline is expected to be followed by a slower recovery, Wacks said.

Property taxes present a different outlook because state assessments lag behind actual market changes. The state uses assessments to value property, and local governments impose a tax rate.

State assessments show an overall 3.7 percent drop in values this year in the county's northeast corner, but that will take three years to be phased in. Meanwhile, because of the county's 5 percent assessment cap, most property owners will still see marginally higher tax bills in July.

"In fiscal 2010, we're in good shape, but in 2011 and 2012 we're going to see dramatically lower numbers," Wacks said, indicating that the downturn will affect county budgets for years to come.

To that point, Ulman told the legislators of a plan to save up to $200,000 by having the county take over conduction evaluations of soil conservation requirements that the county currently pays a state board to perform.

Also, county officials hope to reap some revenue from participation in the Regional Greenhouse Gas Initiative. By reducing their carbon footprint, members get a share of the proceeds for selling credits needed by companies that emit polluting gases. County environmental chief Josh Feldmark said the proceeds are divided according to a complex formula, though he's not sure how much the county might get.

Ulman said he is operating under the assumption that the county will have to absorb some additional state cuts to local governments.

"What we're fearful of are larger hits," he said, such as cuts in state contributions to teacher pensions. Taking over that expense could cost the county $50 million a year.

Ulman said the county has also prepared a list of "shovel-ready" construction projects in case federal money for economic stimulus comes through. Road resurfacing is the top priority, but the list includes request for fiber-optic communications upgrades for government operations, purchases of more hybrid Howard Transit buses, and money to aid development of Blandair and Troy Hill parks.

"We know your situation, and you know our situation," Robey said as the session ended. "We'll do the best we can for Howard County."

Other state elected officials in attendance were Sen. Edward J. Kasemeyer and Dels. Steven J. DeBoy, Guy Guzzone (the delegation chairman), Shane Pendergrass and Frank S. Turner, all Democrats.

breakdown

Sources of revenue for the county's general fund

* Property taxes: 46 percent

* Income taxes: 39 percent

* Other taxes (real estate sales, amusements, etc.): 3 percent

* Other income (grants federal and state aid): 12 percent

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