Cecil County Budget: Current Budget Year on Fiscal Track Despite Drop in Income Tax Revenue; Water/Sewer Funds Still Lag Behind Costs

But the county’s so-called “enterprise funds”—such as water and sewage treatment accounts that are supposed to be self-supporting by fees paid by users of the services—are still costing more than they bring in from user fees. As a result, those funds are incurring IOUs to the county’s general funds that are supposed to only support countywide services to all taxpayers.

County Director of Finance Winston Robinson told the Council on Tuesday that although revenues from the state’s pass-through of the county’s share of income tax revenues is about $1 million off previous projections, increased revenues from other sources have offset much of the slack.

“I feel happy and thrilled,” Robinson said, that his department’s projections were so close to the mark.

Cecil County’s unemployment rate is still higher than the state average, and job growth here is often stymied by the lack of infrastructure that attracts new businesses to other nearby areas. The income tax revenue projections included in the current budget are about $1 million below anticipated levels. (Income tax revenues account for about 30 percent of the overall revenues supporting county government operations.)

However, in her March 2014 budget announcement for her new fiscal plan, County Executive Tari Moore attributed predictions of rising income tax revenue as a key underpinning for her budget and a positive sign for the county’s economic picture.

But on Tuesday, Robinson downplayed the job aspects of the much lower than anticipated income tax revenues in the current budget year, saying that it is hard to predict income tax receipts from capital gains—the profits of individuals who sell stock investments or businesses with activities that qualify for the lower capital gains tax rate that is significantly below tax rates on most earned income.

Instead, Robinson saw it as a positive sign that the county’s revenues from the personal property tax—which in Maryland is imposed on business inventories—took a healthy jump in the current budget year and was about $1 million over projections.

Although Robinson didn’t mention it, national and regional economic trend forecasts have suggested that as the economy begins to improve, businesses are beginning to build back their supply inventories that they had pared to the bone during the depths of the economic recession. Rebuilding such inventories does not necessarily signal economic growth, but a gradual rise in business confidence in the future prospects for their operations to begin to get back to pre-recession levels.

Overall, the current budget projections’ falling short by just $25,000 amounts to “really hitting the bull’s-eye,” said County Council President Robert Hodge (R-5).

Meanwhile, some other budget shortfalls have been offset by tapping the county’s “fund balance,” or unassigned reserve funds that the county has accumulated over the years. County Executive Moore has tapped the fund balance in both the current budget and her new proposed Fiscal 2015 budget so as to provide some spending increases while still freezing the county’s property tax rate for homeowners.

Her Fiscal 2014 budget originally projected use of over $4 million from the fund balance but the County Council cut about $600,000 from her budget, sending that amount back to the reserve account. Then the county executive recently requested tapping additional reserves to cover the costs of snow removal and pothole repairs—although a last minute promise from the state to cover part of the pothole fixes trimmed back her supplemental spending request.

So now, Robinson told the Council, including the snow costs, the county is projected to use about $2.6 million of the county’s fund balance by the end of the current fiscal year on June 30.

In her new Fiscal 2015 budget that is currently under consideration by the Council, Moore proposed using an additional $4.1 million in “fund balance” reserves to balance her budget for the fiscal year beginning on 7/1/14. [SEE Cecil Times report on Moore’s new budget here: http://ceciltimes.com/2014/03/cecil-county-exec-moore-proposes-new-budget-to-freeze-property-tax-rates-again-boost-schools-aid-and-target-drug-abuse-programs/

Meanwhile, the county’s “enterprise funds” are still showing lagging revenues versus the costs of providing services. In particular, the wastewater (sewer service and sewage treatment services) fund is costing more than it brings in from user revenues. Moore proposed significant increases in hook-up fees in her current budget but the Council, led by Hodge, scaled back her proposals significantly and even the modest increases the Council agreed to were retroactively delayed after some developers—especially the Clark Turner development operation—objected.

In her new budget, Moore did not try again to boost sewer fees to reflect service costs. (Once burned, second time reluctant?)

As a result of the refusal to boost fees, the wastewater/sewage funds are lagging far behind the costs of operation versus the fees paid by users of those services, Robinson conceded on Tuesday.

“The rates still don’t pay for the operation,” said Hodge—who quickly added, “But I’m not suggesting raising the rates.”

Robinson’s accounting showed that the wastewater/sewage fund was over $1 million in the hole, compared to Fiscal 2013. And connection fees for new development or users dropped by about $771,000 below projected levels for the current Fiscal 2014.

In the next few weeks, the County Council will be making crucial budget decisions about the county executive’s budget for the upcoming fiscal year. Next week, the Council will listen to the public at a 4/29/14 public hearing on the budget before holding several worksessions to deliberate on the budget.

Already the Council has been hearing from advocates of capital projects for the county public schools and a cadre of sports groups that support a multi-million dollar construction project for a regional park at Calvert for limited-use sports fields that its backers claim will attract out-of-county sports events willing to pay for the use of Cecil County fields constructed by local taxpayers.