Friday, May 23, 2008

Income tax rate, real estate fee will rise

Prince George’s County Council OKs $2.7 billion budget, warns more cuts may be needed

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The Prince George’s County Council adopted a $2.7 billion budget Wednesday, raising the income tax rate and making cuts to most government departments in fiscal 2009.

‘‘Like most of you in your homes, we continue to struggle with the declining real estate market, with the increased costs of gas,” Council Chairman Samuel H. Dean (D-Dist. 6) of Mitchellville said after approving the budget.

Council members called the budget one of the toughest they have had to pass and said they will likely have to make changes throughout the year to keep up with funding challenges.

‘‘We know tough decisions are not popular,” Dean told an audience of county officials and media in Upper Marlboro. ‘‘But they are undoubtedly necessary.”

County officials have said the stalled real estate market helped create a $121 million deficit this year that Prince George’s is struggling to cover.

Nearly $1.7 billion, about 62 percent, of the budget goes to pay for the county school system. The new budget, which takes effect July 1, represents a 1.3 percent increase from the current one.

Council members approved the increase in the income tax and real estate recordation fee with no debate Tuesday.

The increase in income tax from 3.1 percent to 3.2 percent, the highest allowed under Maryland law, will cost the average resident about $40 more each year. The recordation fee, applied to the cost of a home sold in the county, will rise from $2.20 to $2.50 for every $500 of a home’s value.

The two increases are expected to bring in $11.9 million more next fiscal year.

Except for schools and select public safety agencies, departments across the county will be placed under a hiring freeze, with County Executive Jack B. Johnson (D) getting to approve new hires on a case-by-case basis. The budget does not include employee layoffs, though officials said they could become necessary if the economy declines further.

‘‘These are good employees, and we don’t want to jeopardize them,” Dean said. ‘‘That said, everything is possible. ... But it is the last thing we will do.”

County employees will receive a 2.5 percent pay increase for the cost of living, as well as merit raises, council members said.

Some residents had called for the increases to be decided by voters, pointing to a county law that requires local tax hikes to be approved by referendum. Last year, when Johnson proposed an increase in the county’s telecommunications tax — stating the tax was a state regulation so it did not fall under the charter — council members went against him and put the increase to referendum, which is set for November.

Johnson’s staff has said the increases approved Wednesday do not fall under the charter restrictions either, since the income tax rate is set by state law and the recordation fee only applies to home sales, not to every resident.

After the council met to approve the budget, Hyattsville resident Judy Robinson, who has fought against tax increases in the past, said she and other residents may try another change to the county charter to prevent future increases.

Dean said that lawyers advised the council that the income tax increase does not fall under charter referendum limits. That same office recommended the referendum on the telephone tax last year.

The County Council set aside $20 million — about 0.7 percent of the budget — to address potential hiccups during the year. The budget also sets aside about $216 million in reserve.