Revenue from taxes, fees linked to real estate slip as market drops

Or the trails and playground planned at Western Regional Park in Woodbine could be pushed back.

Howard’s parks stand as one example of how taxes and fees dependent on a slumping real estate market can result in less revenue for capital projects, including those involving parks, roads and schools.

After a bubble a few years ago, the real estate market is “going down pretty fast,” said Howard County Budget Director Ray Wacks.

“So far this year, we are receiving somewhere between 10 and 20 percent less each month [in revenue] than we received the previous year,” he said.

“We had already projected a decline, but not that much of a decline.”

The taxes generating less revenue include:

» State transfer tax. In the past three years, Howard’s share of state Program Open Space funding, which comes from a portion of the state transfer tax, plunged from more than $9 million to less than $2 million.

» Local transfer tax. Funding is projected to drop from about $30 million in fiscal 2007 to $22 million in fiscal 2008, according to county estimates.

» Recordation tax. Funding is expected to drop from more than $22.5 million in fiscal 2007 to $17.5 million in fiscal 2008.

Final figures will be available after FY08 ends June 30.

Because the revenue tied to real estate fluctuates with the market, most of it is dedicated to capital budget needs, such as roads and schools, said Michael Sanderson, legislative director with the Maryland Association of Counties.

“The last thing you want to do is take something that is very cyclical and connect it to an ongoing expense” such as police salaries, he said. The operating budget is funded mainly through income and property taxes.

Funding for roads

Other development-related revenue streams are the road and school construction excise taxes, in place of the more common impact fee used in other counties.

Revenue from excise taxes can be used anywhere for projects, setting it apart from the impact fee, which only can be used for improvements in the specific area of a new development.

The road tax revenue is used for work on major thoroughfares, because most traffic is passing through the county on commuter routes between Baltimore and Washington D.C.

“Spending road money in a neighborhood,” which would occur if impact fees were in place, “wasn’t necessarily where the money needed to be spent,” Wacks said.

Howard brings in about $13 million a year from both excise taxes, but county officials are seeing a

20 percent decline this year,

Wacks said.

That dip doesn’t have an immediate effect because the funds are used to pay down debt on bonds for county projects.

Limits on development

For Howard, planning for development has been key in better predicting and targeting the need for new services, such as roads and schools.

Howard caps building permits for houses and apartments at 1,850 per year to cushion the county from wide revenue swings from new development. While in some jurisdictions, strong revenue from building permits may be a sign of a strong economy, that is the less the case in Howard.

This year has seen a slight drop in revenue from building permits by about 3.5 percent, Wacks said.

A slowing real estate market has forced county officials to tighten spending, which could mean delaying some projects or consolidating programs.

For the county’s parks, not every one of Howard’s nearly two dozen parks projects under way can move forward, said Recreation and Parks Director Gary Arthur.

“We have to determine which ones go forward and which ones languish in our capital budget,” he said.

smichael@baltimoreexaminer.com