Howard budget director sees 'difficult years'

Committee eyes Rainy Day Fund, is likely to recommend continued borrowing

February 28, 2010|By Larry Carson |

Howard County's fiscal woes could spill over into the next three budget years even with stringent economizing, a committee considering spending and borrowing recommendations was told Thursday.

A computer model assuming only a 1.9 percent growth in education spending - which includes no teacher pay raises - would still result in red ink for fiscal years 2011, 2012 and 2013 before revenue is predicted to again outstrip expenses. And county officials are still trying to make up for a projected $13 million shortfall this fiscal year.

Falling property values, stock market volatility and higher-than-normal unemployment because of the recession are the reasons tax collections are down.

A 3-cent increase in the property tax rate would roughly fix the shortfall, but County Executive Ken Ulman, who hopes to be re-elected in November, has said he won't propose any tax increases for fiscal 2011. Howard County can't raise income tax rates, which are already at the state's maximum.

"We face a series of difficult years," county budget director Raymond S. Wacks told members of the Spending Affordability Committee. "We'll have to remain vigilant on spending," he said.

With state-mandated spending on education, annual interest on debt and normal inflationary cost increases for health insurance and utilities, Ulman is largely limited to cutting the 30 percent of the locally funded county budget he controls, Wacks said.

The computer model shows that continuing authority to borrow up to $100 million through bond sales will boost that debt service cost from $84.2 million next fiscal year to $95.3 million by fiscal 2014, when revenue is expected to rebound. But interest costs take several years to come due, so lowering the bond borrowing would have little effect any time soon.

Besides, Wacks said, capital budget requests now being reviewed by the planning board total $160 million from bonds, and state highway user funds have been cut more than 90 percent.

"What school do you not renovate? What road do you not pave?" he asked rhetorically.

The recession can also help, however. County finance director Sharon Greisz said the county sold $107 million in general bonds Tuesday at a 3.13 percent interest rate - compared with 3.93 percent the county got one year ago.

"That's probably less [interest] than we ever received," she said. Lower interest rates mean a savings in debt-service payments over a 20-year period.

But the larger problem is the length of the revenue downturn and the uncertainty about what else might happen.

"You're looking at huge long-term risks here that you can't control," said Richard Clinch, director of economic research at the University of Baltimore's Jacob France Institute, and a committee member. He referred to possible state funding shifts, growing public retirement obligations, the possibility of rising inflation and interest rates. As a high-income county, Howard can expect a heavier hit than less prosperous jurisdictions, he said. If the state shifted teacher pension costs, for example, Wacks said, it would cost Howard up to $60 million a year.

But Wacks mentioned another aspect of the problem.

"With the levels of reductions in budgets we've cut out everything we can without affecting services. Local government does very little that's esoteric," he said. Services such as trash collection, public safety and education are basic and expected by citizens.

While the county has a $48 million rainy-day fund, officials are reluctant to use it, especially for a multi-year stretch, though some committee members see it as a logical choice.

"I'm less likely to hit the rainy-day Fund," Clinch told the group. But Chris Myers of Glenelg, a local business owner, saw it differently; especially after Wacks said snow-removal costs from the two big February snowstorms are heading toward $4 million.

"My question is: 'When will it ever be raining harder than it is now?' " was the joking reply from another committee member, which brought general laughter. "Next year?" said Arnold G. Holz, an Ellicott City accountant.

That three-year forecast for up to $29 million in revenue shortfalls led Wacks to warn that using the rainy-day fund in a long-term situation could end in a structural deficit - a continuing gap between revenue and spending.

He also reminded the board that their role is to recommend borrowing levels and point out major elements for Ulman and the County Council, not choose specific remedies. That is the job of the elected officials, who are required by law to annually adopt a balanced budget, he said.

Wacks said he would draft a suggested report recommending continuation of $100 million a year in borrowing authority, and no committee members objected, though they can offer changes before the report goes to Ulman next month.

The executive presents his budget in April, and the County Council has until June 1 to make changes and adopt a spending plan that takes effect July 1.

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