Counties fret over raid of income taxes

Legislature cutting funds to balance budget

Friday, April 3, 2009

The Senate voted 40-7 on Thursday in favor of a $13.8 billion spending plan that preserves the local income tax fund, but cuts $60 million more in local highway user funds, which counties use for snow removal and to maintain local roads, than the House's $102 million reduction.

Both chambers' proposals force counties to shoulder a disproportionate share of cuts relative to other areas of the budget, local officials said.

The Maryland Senate cut about $100 million deeper into local aid than the House plan did, recommending approximately a $400 million reduction to counties.

But local leaders voiced particular concern for the seizing of local income tax revenues, known as the "piggyback tax," which ranges from 1.25 percent to 3.2 percent of state taxable income in Maryland's 24 jurisdictions.

The impact to St. Mary's County government would be a reduction of $947,000 in local income taxes due from the state, according to county officials. When he learned of that last week, Commissioner Daniel H. Raley (D) said, "When you take somebody else's money and you keep it, you go to jail for that."

The St. Mary's County income tax rate is 3 percent.

"As we look at the tough times we are facing, counties have to make tough decisions," said Calvert County Commission President Wilson H. Parran, who also serves as president of the Maryland Association of Counties.

If the legislature uses that pot of money to balance the state budget, counties might have to consider program cuts, employee furloughs or even laying off workers.

Parran (D) of Huntingtown called it "a major difference in the approach to balancing the state budget that's never been done before."

He said the state can still balance its books by using reserve funds.

But lawmakers said tapping the local income tax fund is not unprecedented, as a similar one-year transfer was approved during the early 1990s fiscal downturn.

The proposed reductions, which were determined by local wealth and local income tax effort, hit Montgomery, Anne Arundel and Baltimore counties particularly hard. Montgomery would lose $12 million, while Anne Arundel and Baltimore each face an approximately $9 million reduction.

That would put more pressure on local budgets that are already strained. Montgomery's revenue shortfall has grown in each of the last three years to almost $600 million in fiscal 2010, said County Executive Isiah Leggett.

And with the economy showing no signs of a quick recovery, there's no guarantee that the state won't take another whack at counties next year.

"I hope they will be temporary, but we have no idea what the future outlook will be," Leggett said.

To ease the financial burden, local governments are utilizing other rarely employed options.

St. Mary's County government plans to use $3.6 million in surplus funds to balance the revenue loss in the 2010 budget.

Eight counties met a Wednesday deadline to apply for waivers from the state board of education on a school funding requirement known as maintenance of effort, which mandates that counties spend at least as much on education per pupil as the previous year. St. Mary's does not plan to apply for that waiver.

Counties seldom seek the exemptions, but local leaders said the scale of the cuts, combined with declining local revenues, left them no alternative.

Anne Arundel County Executive John R. Leopold (R) said he was "extremely reluctant" to request a waiver because, as a state delegate in the mid 1980s, he strongly supported legislation to strengthen the maintenance of effort provision that ensured no reductions in education aid.

Calvert, Charles, Frederick, Montgomery, Prince George's, Wicomico and Worcester counties also were seeking waivers from the state board by Wednesday.

More counties may follow suit as the Senate added a provision in the Budget Reconciliation and Financing Act that pushes back the deadline to request a waiver to May 1 and gives the state school board until June 1 — 15 days later than usual — to act on those applications. MACo voiced concern in recent weeks that counties won't know whether they can meet the maintenance-of-effort obligation until the General Assembly finalizes the state budget.

"Our deficit seems to grow weekly," said Worcester County Commissioner Judith O. Boggs (R) of Ocean Pines. "Every day is a new adventure."

Anne Arundel is currently projecting a $144 million deficit for fiscal 2010 and Leopold plans to dip into the county's $48 million rainy day fund for the first time ever to help balance the budget, which he acknowledged being hesitant about because it could endanger the county's AAA bond rating.

Already, Leopold said he has ordered three separate hiring freezes, curtailed the use of take-home county vehicles, halted the purchase of new equipment and consolidated the workforce in an effort to reduce spending. He called potential furloughs and layoffs of county employees "the option of last resort," but said they are on the table for fiscal 2011 if the economy doesn't improve.

abrody@somdnews.com

Staff writers Jason Babcock and Janel Davis contributed to this report.