Are tax hikes on the table in Baltimore County? New executive Olszewski inherits a sobering financial forecast

When Johnny Olszewski Jr. takes the oath of office Monday as the new Baltimore County executive, he’ll inherit a financial forecast for the county that could force him to consider raising taxes.

A new advisory report on county finances warns that Baltimore County cannot sustain its current rate of borrowing money for infrastructure projects.

Without significant changes — such as scaling back borrowing, raising taxes or forgoing pay raises for county employees — the county government risks having its credit rating downgraded, the report warns.

A ratings downgrade would make it more expensive for the county to borrow money to pay for construction of roads, schools, parks and other public projects.

This latest warning comes in a report prepared by Public Resources Advisory Group, a New York firm that evaluates county borrowing patterns.

The report says that if current patterns continue, Baltimore County’s outstanding debt could increase from about $2 billion now to nearly $3 billion by 2024.

That works out to about $2,500 for every resident in the county now; and more than $3,500 per resident in 2024.

And under that scenario, money that’s set aside in the county’s general fund for savings would fall below targeted levels in 2023 and 2024.

The report echoes warnings given earlier this year by the county’s own Spending Affordability Committee — a panel that offers suggestions on how much money the county can spend. Officials also heard similar warnings from outgoing county administrative officer Fred Homan, who is retiring at the request of Olszewski.

On the campaign trail Olszewski frequently said that raising taxes would be an option of last resort — but he never ruled it out entirely.

In a statement Sunday in response to questions from The Sun, Olszewski did not address whether tax increase might be necessary.

“There are clearly tough challenges that we must face head on, but we will work with council members to address these challenges together,” Olszewski said in the statement.

He suggested having an “open dialogue” that involves “finding efficiencies and identifying innovative ways to do more with less.”

Taxing alternatives

There are two options for raising taxes: the county’s property tax and the local income tax.

Baltimore County’s local income tax rate is 2.83 percent, while several other large Maryland counties charge the maximum rate of 3.2 percent.

Raising the local income tax to 3.2 percent would generate $95.5 million more per year.

The county could also consider raising the property tax, currently set at $1.10 per $100 of assessed value. The owner of a home valued at $250,000, for instance, pays $2,750 under this formula.

Raising the property tax rate to $1.20 — which would still be lower than Baltimore City’s $2.248 but higher than most other surrounding suburbs — would generate another $86.2 million per year, according to county figures.

Neither tax rate has been changed in more than 25 years.

Baltimore County Councilman Tom Quirk said the county is overdue for raising taxes. The county has been pouring money into school construction projects, which he said has been needed but set the county’s finances on a wrong trajectory.

“If people want new schools and want improvements for their roads, and police officers and firefighters and teachers, well, we have to pay for it,” said Quirk, an Oella Democrat who works as a financial planner. “We cannot kick the can down the road any farther without an immediate [credit rating] downgrade.”

Quirk said all the reports on the county finances only cover already-planned spending — and not the promises of replacement buildings for Dulaney, Lansdowne and Towson high schools, which some have been clamoring to add.

A new high school generally costs at least $100 million.

Quirk said raising taxes, cutting other spending and squeezing more school construction money out of the state likely won’t be enough to get the county back on its financial targets while also building three high schools.

Warning signs

Last month Homan told council members they should consider raising the local income tax.

“The county has lived up to spending affordability and debt affordability to the best of its ability,” Homan said at his final appearance before the council. “What we have right now is a revenue problem.”

The county currently has a coveted AAA rating from the three major ratings agencies. If that rating slips, the county would pay greater interest rates on its bonds.

“You’re simply borrowing the same amount of money you’d otherwise borrow, except you’re doing it at a higher cost,” Homan said.

Homan said county officials and auditors have spent years “scrubbing” the budget of unnecessary spending. That means there’s not much left to trim, he said.

That “scrubbing” should continue, Homan said, but “the returns to be received are very small compared to what the county is facing.”

The county Spending Affordability Committee raised red flags about the county’s finances back in February, issuing a report predicting “immense challenges.” That committee is chaired by Quirk and includes council members and local financial professionals.

Council Chairman Julian Jones said “everything is on the table,” including raising taxes.

“It would be foolish not to talk about additional revenues,” said Jones, a Woodstock Democrat.

He said the county also needs to look at where it is spending its money and which government services residents value most.

“We will have to work and do whatever’s necessary to accommodate their needs,” Jones said, though he warned that “tough decisions” are ahead.

Councilman David Marks, the longest-tenured Republican on the council, said he thinks the county can avoid tax increases. He thinks a combination of more school construction money from the state and spending more wisely on school projects could keep the county out of a financial jam.

The state owes the county a little more than $200 million for its share of school construction projects, according to the county. Marks is hopeful Olszewski can rely on relationships from when he was a state delegate in Annapolis to get that money, and then some.

“I think he wants to avoid tax increases as much as we all do,” Marks said of Olszewski. “Hopefully he’ll be able to leverage his relationships with the state government to find the resources to build the high schools.”

Councilman-elect Izzy Patoka, the only new member of the council, said he’s reluctant to consider raising taxes.

“That is a last-resort measure,” said Patoka, a Pikesville Democrat. “It’s not something I would consider.”

Councilmembers Wade Kach, a Cockeysville Republican; Cathy Bevins, a Middle River Democrat; and Todd Crandell, a Dundalk Republican; did not respond to requests for comment.

pwood@baltsun.com

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