Montgomery County could face a shortfall of as much as $400 million in the next fiscal year as lower income tax returns and a sagging real estate market put county leaders in a budgetary bind.
As a result, Montgomery’s top elected official wants all county government departments to shave 2 percent off their operating budget this year in anticipation of what is projected to be the largest-ever budget gap for the county in the fiscal year that begins in July.
Current revenue estimates for the county are about $178 million lower than previous estimates for the upcoming year.
Leaders attribute much of the deficit to a “slowdown in the county’s real estate market” that is expected to result in $71 million less for county coffers from transfer and recordation taxes, both of which are associated with home sales.
A memo from County Executive Ike Leggett says the county expects $107 million less from income taxes than leaders had initially expected.
Treasury Division Chief Rob Hagedoorn said the surprise came from the state’s November distribution of income tax revenue owed to counties from late filers.
According to Hagedoorn, late filers tend to be wealthy residents with more complicated tax paperwork.
The Examiner previously reported that Montgomery has seen a drop in its share of the state’s wealthiest residents.
In 1998, Montgomery residents were responsible for 41.3 percent of Maryland income tax returns from people earning more than $200,000 in adjusted gross income. In 2005, the county was generating only 37 percent of those returns.
Hagedoorn, however, said, late-filer income tax revenue is often volatile, and the county saw an “unusual bump up” in last year’s income tax receipts from late filers.
“Things are not falling apart,” Hagedoorn said. “They are just weaker than they were a few years ago.”
Leggett’s memo to council members said he was leaving all options on the table – including cuts in services and raising taxes, to address the budget shortfall.
He said, however, that he was “reluctant” to consider those options given the state’s recent changes to income tax structure,
which raised tax rates for people earning more than $150,000 a year, many of whom live in Montgomery.
Although Leggett does not have to submit a 2009 operating budget until March 2008, he said he wants to reduce current spending by $23.7 million for county government and by $64.1 million for all agencies combined to lessen concerns in the spring.
Office of Management and Budget Director Joseph Beach said that nonetheless, county finances are in “good shape.”
“The idea wasn’t to scare everybody, but to help everybody understand better that the economy is changing, the housing market is changing and not to have the same expectations they had in the past,” Beach said.
