Maryland may need 56-percent property tax hike to cover state debt, report says
Maryland lawmakers will either have to raise property taxes by 56 percent over the next five years, or take away $1.1 billion from classrooms, police, and other core state services to cover record state borrowing, budget analysts said Friday.
The dire predictions come from a combination of bills coming due on Maryland's long-term debt, plus falling property tax revenues, which have traditionally covered the costs.
The approach Gov. Martin O'Malley (D) took to blunt years of recessionary budget problems is partly responsible, according to a report released Friday afternoon by the state's nonpartisan budget analysts.
In the last three years, O'Malley has accelerated a decade-long practice in Annapolis of shifting expenses once paid entirely with cash to the state's capital budget, which is funded with bond money repaid with interest over 15 years.
The approach allowed Maryland to increase spending on school construction, as well as to continue robust funding for Chesapeake Bay restoration, open-space and other environmental programs during the worst years of the downturn. But it will come at a cost, the report said.
Over the next five years, principal and interest payments on state debt will rise from $835 million annually to over $1.1 billion in 2016.
During the same time, state property taxes and other revenues set aside for debt are expected to shrink, from $954 million to $715 million annually, according to the report.
Save tax increases, the budget lawmakers are now preparing will be last in years in which existing property tax rates and other special revenues would cover Maryland's annual debt costs, the report said.
Beginning in 2013, $132 million from the state's general fund will be needed to cover the debt payments. The yearly cost would rise to $398 million by 2016.
Those costs would eat away at Maryland's $13-billion general fund, which pays for education, Medicaid, public safety and other costs, and is already projected to suffer from major shortfalls for most of the rest of the decade.
The report by the Department of Legislative Services said that to keep the state's operating budget whole, Maryland's current property tax rate of 11.2 cents would need to increase annually, to 17.5 cents by 2016. The rate is set on $100 of assessable base.
Maryland's increasing debt costs raise the specter that O'Malley, who in last fall's election railed against his predecessor, former Gov. Robert L. Ehrlich Jr. (R) for supporting a previous property tax increase, could be forced to make a similar move.
O'Malley spokesman Shaun Adamec said in an e-mail that he doubted the governor would go in that direction.
"Funds are allocated each year to keep the property tax rate where it is and I don't suspect we would discontinue doing so going forward."
O'Malley this year has already proposed reducing the overall size of the state's capital budget to $925 million from $1.1 billion after a commission said Maryland was too close to its state's debt limit of 8 percent of revenues.
Aaron C. Davis
| January 28, 2011; 7:17 PM ET
Categories: Aaron C. Davis, Maryland State Budget
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