Although Howard County is starting to emerge from the economic recession, officials must remain cautious when preparing the budget for fiscal year 2013, the county's budget director told the County Council Monday, Nov. 14.
Ray Wacks' annual briefings to the council and other government departments serve as the unofficial kick-off to county's budget season. County Executive Ken Ulman will be holding his first budget hearing Dec. 7 at 7:30 p.m. in the George Howard Building. He has to send his capital and operating budgets to the council in April for approval by June 1.
Wacks uses revenue projections to advise the executive and the council on how much the county can spend each fiscal year.
Property taxes, which make up half of the county's revenues, are projected to be flat, Wacks said. Coping with the lack of growth in property tax revenues has been an issue the county has struggled with over the past few years, as assessment values declined with the recession.
Though many areas of the economy are starting to improve, Wacks said, the housing market has lagged behind and assessment values are not expected to improve for at least another three to five years.
Three years ago, homes in the northeast area of the county saw an 8 percent decline in assessments. That area is being reassessed this year, and Wacks said it's expected to see an additional 10 percent decline.
Despite declining assessments, property tax revenues are expected to remain level, Wacks said, because of the county's 5 percent cap on property taxes.
Between fiscal year 2005 and fiscal year 2009, assessment values increased between 10 percent and 20 percent. But homeowners can only be taxed an additional 5 percent each year between assessments, which occur every three years. That created a gap between the assessable value and the taxable value of a home.
For people who have been living in their homes for more than 10 years, that gap has become so great that despite recent declines in the assessed value of their homes, they are still not being taxed what the home is worth. Thus, the county is still seeing growth in property tax revenues from those long-time homeowners.
Meanwhile, income tax revenues, which make up more than one third of the county's general fund, were higher than projected for fiscal year 2011. With the unexpected revenue, Wacks said the county should be able to pay for some projects in the upcoming fiscal year with pay-go funding (one-time cash funding) instead of through bonds.
Despite the unexpected increase in income tax revenues in fiscal year 2011, which happened across the state, Wacks said income tax revenues are only projected to experience small growth over the next few years.
Together, income tax and property tax revenues make up 87 percent of the general fund.
"Those are the two that really drives what happens," Wacks said.
Also affecting the county's financial prognosis this year is the federal budget debate. If Congress cannot reach a deficit reduction deal, Howard County and other jurisdictions especially reliant on federal spending are at risk of having their credit ratings downgraded. A downgrade would cause the interest rate the county pays on bonds to increase, thus making it harder for the county to pay off its debt.
Moody's, one of the three major credit rating agencies, this summer put Howard County on negative outlook, meaning the county is at risk of a future downgrade. That negative outlook was reaffirmed even as Moody's, and the other two rating agencies, last month awarded Howard County a AAA credit rating for the 14th consecutive year.
Wacks said county officials held a telephone conference with Moody's recently, explaining that because most federal spending in Howard is tied to the growing cyber security industry, the county is not at risk of major loss should negotiations in Washington fail.
"They were very non-committal," Wacks said of Moody's response to the county's request to be taken off the negative outlook list.
After Wacks's briefing, council Chairman Calvin Ball said
the council will be "cautiously optimistic while still being fiscally responsible" in its budget review.
"We still need to be careful," he said.