Economist: Howard incomes headed up in turbulent recovery

Prospects for rising income tax revenues are improving for Howard County, an economist told the county panel that will recommend spending and borrowing decisions for the next county budget, though dangers of a renewed decline remain potent.

"For the next two years, off a low base of incomes, this county looks pretty good, we think," economist Anirban Basu told the county Spending Affordability Committee on Wednesday morning at the George Howard Building. "That doesn't mean the county should go on a spending frenzy … but things will be less worse."

Income tax revenues are critical, county budget director Raymond S. Wacks told the group of residents and officials, since property tax receipts will remain nearly flat for at least the next three years. The county has also lost millions in state highway funds and interest income, he said.

"That's really the issue," Wacks said about income tax receipts. The committee will wrap up its work Wednesday after a final meeting and discussion of the outlook for the county budget, due to be announced April 20 by County Executive Ken Ulman.

Basu, who heads Sage Policy Group, predicted growth rates for personal income in Howard County of 4.95 percent for the year ending June 30, rising to 5.3 percent in fiscal 2012. That's compared to an anemic .81 percent growth in fiscal 2009, the height of the recession. If the predictions come true, he said, the growth would be the best since the 2007 fiscal year, when the recession began.

People are asking for pay raises after several years of sacrifice, he said, and arriving federal defense jobs at Fort Meade are improving the job market, while increased consumer spending, especially at high-end stores, reflects an increase in confidence. In addition, he said, the stock market has soared, benefiting many people who, while not buying homes, are buying cars, electronics and clothing.

"The next rung on this consumption ladder is housing," he said, predicting an improvement in Howard County real estate sales starting this spring as buyers seek to beat rising mortgage interest rates. He also expects growing numbers of home mortgage refinancings.

Howard's high education rates and cadre of government employees have shielded it from the downturn's worst, Basu said. Bolstered by continuing Bush-era tax cuts, "the top 30 percent of Americans are doing very well, and they live disproportionately in Howard County."

He said he could not understand people who profess anger about paying taxes, since "they've been getting tax breaks for years."

Todd Snyder, a committee member, suggested some of that anger might be because "gas prices are going up. Food prices are going up," while wages aren't rising as much.

"But that's not taxes," Basu replied.

Kevin Bell, a committee member who owns an auto dealership in Clarksville, asked about cuts made by state governments as they struggle to balance yearly operating budgets.

"It seems to be a huge cloud with a massive negative impact," Bell said. Basu said that although that is a problem and federal stimulus spending has run out, "the economy can still grow, even as government is downsizing."

Basu noted, however, that the recovery has been slow and often erratic, and significant dangers remain.

"America is poised for some turbulent times in the year ahead," he said.

Basu warned that those higher prices for things like energy and food, a "fragile" bond market subject to decline and a possible stock market "correction" or sharp decline, all have the ability to derail his expectations."The downside potential is much more powerful than the upside," he said.

Ulman, meanwhile, is backing General Assembly proposals for a rise in state gasoline and alcoholic beverage taxes as a way to help ward off further state cuts to local governments.

"Something has to change," Ulman said as he entered the county building after the committee session ended. "The state has to find some money to support local governments." As president of the Maryland Association of Counties this year, Ulman said, it is his role to help suggest ways to help the state budget and prevent more local cuts in aid.

Unlike state government, which felt the recession's effects quickly with reduced sales tax and income tax revenue, county revenues didn't decline as quickly because of lingering increases in property tax collections as homeowners' annual bills slowly caught up with rising home values. But now that benefit has faded, though the county's AAA bond rating allowed it to sell bonds last week at a low 3.9 percent interest rate.

Basu also discounted the short-term effect of any federal government shutdown or budget reduction, saying those possibilities would not affect the local economy much. The argument between congressional Democrats and Republicans is over a potential $61 billion in cuts. Compared to the total federal budget and the $1.5 trillion deficit, "that's like you and me arguing over 61 cents," he said.

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