Friday, June 15, 2007

Big Five talk budget strategy

Executives say state should not balance its budget on the backs of the counties

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Chris Rossi⁄The Gazette
Baltimore Mayor Sheila Dixon talks with Baltimore County Executive James T. Smith Jr. (left) and David S. Blinden, executive director of the Maryland Association of Counties as heads of the state’s largest jurisdictions gathered Wednesday at the Music Center at Strathmore in North Bethesda.
Leaders of five of the state’s largest jurisdictions — Anne Arundel, Baltimore, Howard and Montgomery counties and Baltimore city — met Wednesday in North Bethesda on Wednesday to discuss the state’s projected $1.5 billion deficit and how it will affect local governments.

‘‘Local jurisdictions are beginning to truly appreciate the dimensions of the problem the state has,” said Baltimore County Executive James T. Smith Jr. (D). ‘‘We’ve recognized that we should start playing a proactive role rather than sitting back and seeing what others do.”

To that end, the Maryland Association of Counties has held two budget worksessions, inviting county and Baltimore city budget officials ‘‘to mount a credible defense to efforts to pass the buck off to the counties,” executive director David S. Bliden said.

Prince George’s County Executive Jack B. Johnson (D) and Harford County Executive David R. Craig (R) did not attend Wednesday’s meeting, hosted by Montgomery County Executive Isiah Leggett in at the Comcast Lounge of the Music Center at Strathmore.

It was the executives’ first meeting since the General Assembly’s 2007 session ended without addressing the state’s fiscal problems.

The executives said they do not want a repeat of the early 1990s when the state took county income tax revenues to make up for shortfalls in the state’s general fund. If that had not happened, the 23 counties and Baltimore city would be getting $750 million more from the state than they do now, Bliden said.

‘‘There has to be vociferous resistance to [repeating] that,” he told the executives on Wednesday.

How did we get here?

There are differences between the current budget situation and the shortfalls the state faced during the national economic recession of the early 1990s.

‘‘This is not an economically driven problem as the state deficit in the early 1990s was ... this is a policy-driven problem,” Bliden told The Gazette after the meeting.

Among the policies that precipitated next year’s deficit are the $1.3 billion Thornton school funding plan and a 10 percent income tax cut that was phased in by 2002.

State aid to local governments accounts for $5.8 billion of the $14.4 billion general fund budget for fiscal 2008, which begins July 1.

‘‘That’s a huge part of the state’s budget, and the counties’ concern is that it will be hard [for the governor and legislators] to avoid at least looking at how to constrain those costs,” said William S. Ratchford II, former director of the state Department of Fiscal Services, who is now a consultant to Baltimore Mayor Sheila Dixon (D).

Solutions should have been sought years ago, Craig said in a telephone interview. Craig did not attend Wednesday’s meeting.

‘‘A structural deficit starts years ago, some even four-to-eight years ago,” said Craig, a former state senator and delegate. ‘‘For example, the legislators shouldn’t have passed Thornton without a funding stream, or found a funding stream first.”

One aim of Thornton was to give counties a better chance of recruiting and retaining teachers by sweetening their salaries. But if the counties are forced to bear the burden of state budget cuts, teacher pay raises could be in jeopardy, Bliden said.

‘‘The frustration is if this [budget] reconciliation turns out to be raising property taxes and punishing public employees,” he said, adding that such an outcome would be ‘‘to the detriment of the public because you wind up losing teachers and police.”

Recruitment and retention are also ‘‘very challenging” for police and sheriffs departments, said Bliden, citing the Baltimore city’s recent graduation of 23 police officers recruited from Puerto Rico.

The executives say they are also worried that they could be asked to replace any cuts in state support for teacher retirement contributions, which totaled $602.4 million in fiscal 2008.

If that happens, Smith said, ‘‘Local government would have a basis for saying, ‘If we’re going to be paying retirement, we should have a say in the investment portfolio and management as well as management of the retirement system itself as far as benefits are concerned.’”

If the state reduces income tax payouts or payments for county employee retirement, local governments would be forced to make up the difference by raising property taxes, Bliden said.

Back to the future

That kind of tax shift has been done before.

In fiscal 1994, the state shifted the responsibility of about $152 million in Social Security payments for school board, library and community college employees to the counties, according to MACo. At the same time, the state gave counties the authority to increase income taxes. Most counties took advantage of that authority.

The message from the state was: ‘‘We’re going to cut you, but give you the privilege of raising income taxes,” Bliden said.

This time, local governments’ options are limited, he said. ‘‘Now the only option available ... would be the property tax.”

Prince George’s, Anne Arundel, Wicomico and Talbot counties do not have the option of raising property taxes because they have voter-imposed tax caps.

‘‘It’s a challenging message because, unfortunately, the reality is [that] in order to properly address the state shortfall, the state leaders have to revisit their income tax cut decision,” Bliden said.

That includes ‘‘new [General Assembly] members who didn’t get the good press” from the original tax cut ‘‘and are now being called upon to participate in the fix,” he said.

County officials are not anxious to make more tough decisions in order to cover for the state, the executives said.

Howard County Executive Ken Ulman (D)said he was part of the decision to increase taxes four years ago when he was a county councilman. At the time, residents were angry about the increases, he said, but with Howard’s economy now on track, the anger has subsided.

‘‘I understand that the state has a significant deficit but I would want the counties to be held harmless,” Ulman said. ‘‘We make tough decisions at the local level and didn’t make the decisions that caused this [state deficit].”

Closing the deficit

So how can the state solve the problem and close the deficit?

‘‘It depends to whom you talk,” Ratchford said. ‘‘Some say cut anywhere; some are concerned about certain programs. The governor’s $200 million in cuts doesn’t get you what you want, but it’s a start, especially if they are true cuts.”

Ratchford said the solution involves finding permanent savings from more efficient government and eventually increasing revenues.

Various remedies have been suggested ranging from cutting employees and services to legalizing gambling.

At the state level — with only about 25 percent of its budget allocated to administration — there is little room left to cut jobs, Ratchford said, adding counties allocate 75 percent to 80 percent of their budgets for employee pay and benefits. And legalizing slot machines would not be pay-off in terms of revenue for about three years, he added.

‘‘It takes time to go through the legislation, select places, get people hired ... this is not something that happens quickly,” Ratchford said. ‘‘In Pennsylvania, they passed their legislation almost three years ago [in July 2004], and nobody’s put a nickel into a machine yet.”

Most of the executives at Wednesday’s meeting said they prefer a special legislative session on solving the state’s deficit.

‘‘I believe a special session is needed in the fall,” Dixon (D) said. ‘‘We are going through the process of collaborating with the other counties.”

Dixon added that the city is working with MACo on solutions and will wait before talking with the governor.

But while he’s waiting for the governor and legislative leaders to make a move, Craig said, his county is doing what it can now to brace for any state cuts ahead, including re-evaluating priorities and delaying new hiring.

Harford’s Craig said that unfortunately any cuts coming from the state would be of significant consequence to his county as it gears up for the military’s Base Realignment and Closure process, which is projected to bring about 11,000 new jobs and 6,500 families to the county. He estimated that Harford County will need about $1 billion to build schools and expand its water and sewer system. Another $1 billion will be needed to expand its roads.

Anne Arundel County, also gearing up for 5,700 new jobs at Fort Meade by 2010, is predicting it will need $5 billion in infrastructure improvements, making any state money stripped from road projects — which are not included in the general fund — all the more urgent.

Anne Arundel County Executive John R. Leopold (R) continues to support a ‘‘constitutional firewall” that would require money taken out of special funds, such as Program Open Space or the Transportation Trust Fund, to be repaid within a specified time.

‘‘This is to make sure that these state solutions are not at the expense of these special funds that go to the counties,” said Leopold, a former state delegate.

In Montgomery County, Leggett’s fiscal 2008 budget did not fully fund any agency’s request and delayed some hirings until January 2009.

‘‘For Montgomery County, our concerns are especially with the possible effects on funding education and with the retirement issue,” Leggett (D) said. ‘‘The huge part is education.”

With each county bringing its own needs to the table, budget negotiations could be challenging, the executives said.

It was not always so tough.

Ratchford said he remembers in the 1960s when state officials increased revenues by $300 million.

‘‘In the ’60s, you could do that. It was still a time of John F. Kennedy and ask not what your government could do for you, but what you could do for your government,” he said. ‘‘I haven’t heard anybody saying that for the past 30 years. In recent years, unfortunately, the public says we want the government to do a lot, but we don’t want to pay for it.”

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