While state gains, counties lose

The Baltimore Sun

Yesterday's early-morning votes by the Maryland General Assembly special session may be pushing state revenues higher, but some decisions will have the opposite effect on local government budgets.

Starting on New Year's Day, personal exemptions for state income taxes are to increase by $800, which translates into a $41 million local revenue loss statewide by June 30, and $82 million for the 2009 fiscal year.

"That's going to be pretty significant for counties," said Michael Sanderson, legislative director for the Maryland Association of Counties.

Overall, he said, it appears that because of the special session local jurisdictions will lose about $250 million next year, of which $150 million will come in a slowdown in the rate of increases to school funding.

But due to a series of small changes in the legislation, Baltimore's schools will be $11 million better off after the legislative action than under Gov. Martin O'Malley's earlier plan, said Andres Alonso, the system's chief executive officer.

"It's still far short of full Thornton funding," he said, and will force city schools to cut about $33 million from next year's budget. That will all come from administrative, not classroom areas, he said.

Still, local governments came out ahead on some special session actions, including a measure that will require more transfer taxes to be paid on the sale of commercial properties. In addition, some localities will get impact aid if slots are approved in or near them.

"From our perspective, the legislative proposals dinged local governments more than the governor's plan would have," Sanderson said. If the General Assembly had not acted, however, "we could have seen a doomsday budget" that would have hurt local revenues much more.

By raising the income tax exemption, the state will lower taxable income, which is the basis for calculating the local share of income tax. During the current fiscal year, which ends June 30, that will cost Baltimore City about $4.6 million; Baltimore County $6.1 million; Anne Arundel $3.1 million; Harford nearly $2 million; Howard $1.4 million, and Carroll $1.3 million.

Baltimore County Executive James T. Smith Jr. tried to substitute a tax credit for the higher exemption, said spokesman Don Mohler.

"That would have been more palatable to locals," Mohler said.

Many of the changes to education and transportation funding were complicated, and had local officials hustling to calculate their exact losses late yesterday.

"We're all around the table right now, going through that," said Demaune Millard, Baltimore City's chief lobbyist in Annapolis.

County school officials also said they weren't sure yesterday exactly how much education aid they would lose, though Harford school board President Thomas Fidler worried about money for programs designed to help struggling students.

"That's where funding hits home quickly," he said.

The final General Assembly votes left another $550 million in cuts for O'Malley to make in the fiscal 2009 budget that he is to propose in January, which also concerns local officials.

"We think the cuts are about $9 million or $10 million, but that's before the governor spells out the $550 million. I'm assuming some portion of that will come from counties," said Howard County Executive Ken Ulman.

"There's still another shoe left to drop," Sanderson said.

Anne Arundel County Executive John R. Leopold pointed to one positive tax change - elimination of a loophole in the transfer tax laws that allowed large companies to buy and sell commercial properties without transferring the deeds, escaping real estate taxes that homeowners pay.

"It's only a matter of equity," said Leopold, a Republican. "It will definitely help," despite the current real estate slump and fears that the last-minute changes may have created new loopholes, he said.

Leopold was upset, though, that the General Assembly stole an idea he has pushed as a local revenue source - a higher rental car tax.

"I proposed a car-rental tax on out-of-state residents," that could have raised $5 million a year for the county, he said, but the Arundel delegation of state legislators rejected the idea.

Instead, the state will now impose a tax on all renters, including Maryland residents, and keep the proceeds to help pay for a new Chesapeake Bay restoration fund.

If voters approve slot machine gambling next year, several jurisdictions where slots would be located and their neighbors would benefit.

Baltimore Mayor Sheila Dixon has said that the city would rent an 11-acre warehouse site in South Baltimore for a slots casino, and use the receipts to reduce property taxes and build new schools.

Some local governments would split impact aid from slots locations. Slots at Laurel Park, for example, would mean impact aid would be split among four jurisdictions: Anne Arundel would get 70 percent, Howard 13 percent, Prince George's 5 percent, and the city of Laurel 12 percent.

"I fought tooth and nail to get 13 percent," Ulman said.

Other slots locations would be in Allegany, Cecil and Worcester counties.

There was also a difference of opinion on the timing of the special session.

Leopold said he appreciates that the decisions were made before local governments' annual budgets are prepared.

But one Carroll County commissioner was annoyed that the state waited so long to address a long-running problem.

"In general, I'm not thrilled with the idea of getting expenses shifted from the state, or the people in Carroll paying higher sales taxes," said Carroll Commissioner Mike D. Zimmer.

Carroll tries to plan budgets six years in advance, he said, unlike the state "under multiple governors of both parties."


Sun reporters Sara Neufeld, Madison Park and Arin Gencer contributed to this article.

Higher exemptions to cut revenue

The increase in personal income-tax exemptions approved by the special session of the General Assembly is expected to reduce revenue to local jurisdictions, according to estimates from the Maryland Association of Counties:

County Annual Revenue Loss

Allegany $1,144,500

Anne Arundel $6,251,000

Baltimore City $9,355,600

Baltimore $12,215,200

Calvert $1,186,700

Caroline $517,200

Carroll $2,700,900

Cecil $1,549,400

Charles $2,092,900

Dorchester $492,300

Frederick $3,480,700

Garrett $451,400

Harford $3,973,000

Howard $2,935,100

Kent $300,100

Montgomery $11,152,200

Pr. George's $15,298,200

Queen Anne's $657,200

St. Mary's $1,532,900

Somerset $354,700

Talbot $434,700

Washington $2,348,900

Wicomico $1,587,700

Worcester $373,700

Total $82,386,200

These estimates are for calendar year 2008. Because jurisdictions operate on a fiscal year starting July 1, the impact on budgets for fiscal year 2008, which ends June 30, will be half the estimated annual revenue loss. The full effect will be reflected in fiscal 2009 budgets. Source: Maryland Association of Counties

An article in yesterday's editions of The Sun about the effects on local government budgets of General Assembly action in the special session made an incorrect reference to rental car taxes. The General Assembly did not increase the rental car tax. It voted to divert the revenue from the existing tax to help pay for a new fund to clean the Chesapeake Bay.THE SUN REGRETS THE ERROR
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