Amid gloomy predictions about a slowdown in the housing market, local governments in the Baltimore area have reduced by millions of dollars the amount they expect to collect in taxes from the sale of real estate.
Although real estate sales taxes are typically dwarfed by what income and property taxes produce for local government, "this is still important," said Keith Dorsey, Baltimore County budget director.
Property transfer taxes are often dedicated to specialized uses, which could be harmed if the money collected continues to decline. Counties use transfer tax money to help pay for things such as school construction, agricultural preservation and interest on debt, Harford County Treasurer John R. Scotten said.
With a total budget of more than $2 billion, Baltimore County collected $118 million from transfer and recordation taxes in fiscal year 2007, which ended June 30. For the fiscal year that began July 1, Dorsey is projecting $103.8 million in real estate tax revenues. That's compared with $139.2 million collected in fiscal 2006.
Baltimore City collected $116.7 million from the two taxes in fiscal 2006 - nearly double what was predicted. Collections dropped to $105.4 million last fiscal year, and are projected to be $94.7 million in 2008.
"We couldn't believe that these numbers would continue," said Raymond S. Wacks, Baltimore's chief of the Bureau of Budget and Management Research, explaining the $66.8 million estimate for fiscal 2006.
The slimmed-down budget projections for the coming year seem to be mostly accurate. Less than two months into fiscal year 2008, revenue from property sales is slightly ahead of predictions in some jurisdictions and slightly behind in others, according to area budget officials.
"So far this year, we are close to projections. Because we projected a continued decline, it has not affected our budget," Wacks said.
Budget officials caution that it's too early to judge whether their income projections will hold up based on just a month to six weeks of revenue collections.
But even if the transfer and recordation taxes come in as expected, they still will be lower at a time when funding for local governments could be cut severely as the General Assembly moves to fix a $1.5 billion state budget shortfall.
Despite the lowered revenue projections, not everyone buys the pessimistic outlook for home sales.
"I think the fundamentals of our market are very positive," said William L. Yerman, president of the Greater Baltimore Board of Realtors.
"We've got opportunities with a good job base and BRAC [base realignment and closure]" expected to bring thousands of good-paying jobs.
"The difficulty has been that sellers are still expecting 2005 prices. If it's listed for the right price out of the gate, the house sells," sometimes with multiple offers, he said.
But Daraius Irani, director of applied economics at the Regional Economics Study Institute at Towson University, sees continuing problems.
Hampered by tightening mortgage credit, the home market "is likely to limp along for the next year and a half, which obviously will wreak havoc with the real estate taxes," he said.
Recent sales figures appear to back him up. Sales of existing homes in the Baltimore metropolitan area were down 12.4 percent in July and 13.9 percent in June, according to statistics recorded by Metropolitan Regional Information Systems Inc.
"We've had 16 consecutive months where recordation revenue has been less than the same month the previous year," said Carroll County budget officer Ted Zaleski. Carroll has a recordation tax but no transfer tax.
The key to avoiding harm is conservative planning, say area budget officials. "With revenues, you want to be conservative going in," said Kurt Svendsen, Anne Arundel County's assistant budget officer.
The amount of real estate sales taxes paid in at least one county has been a pleasant surprise. In Howard County, transfer tax collections from July 1 through the first half of August totaled $3.1 million, compared with a forecast of $1.8 million, but the budget year is so young that those figures could be deceptive.
"I think it's a little early to be making predictions, but it seems like homes are still selling. They're on the market longer, but they're still selling," said Gale Benson, assistant Howard County budget administrator.
Anne Arundel County collected $109 million last fiscal year - $4 million more than projected. Despite that, the fiscal 2008 projection shows a decline to $100 million by June 30, 2008. Anne Arundel collected $129.9 million in fiscal 2006.
So far this year, collections are going the way county officials expected, Svendsen said. "One month in, we're glad we dropped [projected revenue.]"
Carroll County is predicting $20.5 million in real estate tax revenues for this fiscal year, $1.6 million more than was collected last year. But collections in July, if sustained all year, would leave the county $3.1 million below what is budgeted.
Still, Zaleski said, the prospect of state cuts to county funding due to the projected $1.5 billion shortfall is "potentially a much bigger situation for us."