Counties and cities throughout Maryland continue patching together budgets as the COVID-19 pandemic grinds the nation’s economy to a near halt, forcing local governments to overhaul spending plans.
The coronavirus outbreak arrived at a precarious time for local governments already prepping proposed spending plans for approval before the start of the 2021 fiscal year on July 1. Now, governments are reassembling those budgets in the face of sharp revenue declines and uncertainty of how long the pandemic will last, and what resources will be available to help recover.
“If this shutdown drags on for six to nine months then counties are going to be devastated,” Harford County Executive Barry Glassman said. “We may be in the same boat a lot of businesses are today and looking at furloughs and so forth, making cuts to get out budgets balanced.”
The primary concern among local governments, both large and small, stems from the loss of income tax revenue, which provide local government’s second-largest income stream.
More than 126,500 Maryland resident filed for unemployment benefits the past two weeks, a historic high. That figure is expected to grow substantially again Thursday when the state releases its tally of the previous week’s first-time unemployment filings.
Baltimore, with a population of roughly 600,000, is projecting revenues for the current fiscal year and next year to decrease by a combined $170 million.
Carroll County, which has a $400 million general fund budget and a population of nearly 168,000 residents, is losing about $4 million a month, largely from the loss of income tax revenues, during the COVID-19 shutdown.
Complicating matters for local governments is that, even when restrictions are lifted, it will be difficult to predict how quickly revenues will return to normal when no one knows what normal will look like once the pandemic recedes.
“It’s unlikely that every business that closed right now will open back up again. People who lost their jobs, how many of them will not be able to walk back out into a job again,” Carroll County Director of Management and Budget Ted Zaleski said.
Anne Arundel County, one of the so-called “big eight” jurisdictions in Maryland, as a result of those losses, reduced projected revenues for fiscal year 2021 by $63 million.
County Executive Steuart Pittman said the jurisdiction is “lucky” in that it, like Baltimore County, raised income taxes last year. If officials hadn’t made that decision, he said, the county would be without another $50 million in revenue.
“I guess you could say it’s a silver lining,” Pittman said.
While loss of income tax revenues remains the most pressing matter for local governments there’s other, even larger streams of funding, potentially in danger of sharp drop-offs.
The biggest of those concerns is whether the shutdown creates a long-term economic recession that damages the residential real estate market. Property taxes are the single-largest revenue source for local government.
Recordation and transfer taxes from property sales also represent the third-largest revenue source for most jurisdictions.
“In the short term that doesn’t seem to be a concern … At some point you have to think this impacts future reassessments and that can have a major impact on us,” Zaleski said.
Another prominent concern is whether state government, facing its own budget challenges as a result of the COVID-19 outbreak, reduces support to counties.
A decade ago, during the Great Recession, the state balanced its budget in part by reducing state aid to local governments and handing off large costs such as teacher pensions to the counties. That aid for the most part has not returned to pre-recession levels.
“The state often balances their budget on the backs of the counties. So we’re concerned about additional pressure (on local governments) coming from the state pressure to balance their budget,” Pittman said.
During recent meetings on budgets local leaders provided blunt assessments of their jurisdiction’s financial situation.
In Baltimore County Executive Johnny Olszewski Jr. warned residents of the state’s third-largest county of uncertain and austere times ahead during a virtual budget town hall Tuesday.
“Yes, we will have to tighten our belts and we will have to make difficult decisions,” Olszewski said Tuesday night during a live-streamed public hearing.
During previous meetings, Olszewski said, residents asked for more money for land preservation, transportation, schools and road resurfacing. That was before the pandemic.
Since then, the county has lost “tens of millions” in revenue at the same time the county has had tens of millions in direct COVID expenditures. The county has already started lowering revenue projections for the coming fiscal year.
“My commitment to transparency goes beyond just showing up,” he said. “It also means telling you the truth and that truth is we are in uncharted territory.”
Most jurisdictions were in advanced stages of budget preparation for the coming fiscal year, which starts in July, when the pandemic forced most residents to stay at home starting in early March.
Glassman’s budget was already at the printer when the effects of the response to the pandemic started to land. At the time the county projected a 3% increase in revenue for a budget just shy of $1 billion.
“By the second week of March, we’d already wiped that down to maybe 1% growth in the next fiscal year,” said Glassman. “If this lasts longer than two quarters, I think we’ll be looking at making revisions to the budget midyear.”
To offset those declines, the county will likely dip into reserves, including a $22 million unallocated surplus and possibly its own rainy day fund.
Last week Baltimore presented its proposed budget to the Board of Estimates in order to stay on pace to pass a budget in the time allotted under the charter.
Those figures, however, were essentially useless because they don’t take into account the city’s “optimistic” projection of losing to $100 million in revenues.
“It’s mostly irrelevant because it’s going to change so drastically,” Budget Director Bob Cenname said.
The federal government authorized some relief for local governments. Maryland is slated to receive about $2.3 billion in direct aid from the federal government in the most recent round of COVID-19 stimulus spending.
Counties will receive about $1 billion of that funding, but the lion’s share will go to jurisdictions of 500,000 or more — nearly twice the size of Harford County. Even so, that money can only be used for expenses directly attributable to the response to the pandemic. It cannot be used to offset declining revenue.
Some local leaders, however, were skeptical about the Trump administration’s ability to provide aid to city and county governments.
“Our biggest fear is the people the president has hired to run these agencies don’t have much experience in the field they’re operating (in)” Pittman said, pointing out problems rolling out the Paycheck Protection Program for small businesses. “It’s hard to have confidence that the direct funding our county is supposed to get will come soon, and come in a way that we can use it.”
While local governments are facing unprecedented budget challenges, Zaleski said, what’s being discussed is more than just dollars and cents tracked on a spreadsheet.
“The thing people forget sometimes when we’re talking about spending money we’re talking about providing services,” he said, “Those are the things people care about. Is the library open? Is my road paved? How many kids are in my child’s class?”