BALTIMORE (Map, News) - Freezing new hires in most Anne Arundel government departments.

Suspending numerous take-home vehicles for county employees.

Increasing the cost of a restaurant getting its operating license from $300 to $500.

Anne Arundel has taken these measures, among others, to reduce the county’s spending in the face of slowing revenues — fewer dollars coming from taxes on home sales and state funding.

“The challenges are significant as there is an undeniable need to secure the maximum amount of revenue for our infrastructure needs,” County Executive John R. Leopold said.

Anne Arundel will unveil its operating and capital budgets Thursday for the upcoming fiscal year, but officials have long said declining revenues and rising costs are going to make for some tough decisions.

“It’s going to take a combination of reducing expenditures and certain revenues [such as income tax] doing well to make up for any shortfall,” said John Hammond, the county’s budget officer.

Property tax is the single largest source of income for Anne Arundel. But unlike other counties that simply raise property taxes to meet the needs, Anne Arundel has a cap on how much property tax revenue it can raise.

While it makes for low tax bills, the cap limits how the county can serve its residents and forces officials to find creative ways to fund programs.

“It hurts every year. We can’t be overly generous in our negotiations or do certain capital improvement projects,” said Councilman Ed Reilly, R-District 7.

“It is an automatic discipline tool for us to examine and justify every penny.”

HISTORY OF THE CAP

In 1994 the tax code was changed to limit the rate of property tax revenue growth to be the lesser of either the rate of inflation or 4.5 percent to appease the fiscally conservative county residents. The county is using the rate of inflation, which is about 3 percent.

Thus, the tax rate could go down if property values go up.

The only exception to the tax cap is revenue collected during the first year of newly constructed developments, which allows the county to boost its revenue based on growth.

The intent of the cap is to make the county more conservative with its spending, though Anne Arundel can increase other revenue sources such as impact fees, income tax and real estate taxes if needed.

As a result, Anne Arundel residents have the lowest tax burden among the surrounding counties.

“By having the cap, citizens are forcing the county to start watching its Ps and Qs when it comes to their money,” said Dee Hodges, president of the Maryland Taxpayers Association.

“[Anne Arundel’s] cap is one of the better ones in the state.”

Other counties have tax caps but can go around them. In Montgomery County, the County Council can override its tax cap.

Hammond said property tax revenues in fiscal 2008 do not appear to be declining and could come in as projected.

Yet other revenues, particularly those affected by the stumbling housing market, are seeing notable reductions, which put a strain on the county’s already tight budget.

WORKING AROUND THE CAP

Leopold has said he is “continuing the commitment to not raise property taxes” but hasn’t revealed much more about the budget.

To work around the cap, Anne Arundel could raise other taxes, such as income, transfer and recordation taxes, as well as various other fees to account for any losses and pay for expenditures, such as Leopold’s promised pay raise to public school teachers.

But the most recent Anne Arundel Community College’s Center for the Study of Local Issues survey showed a majority of county residents would rather see spending cuts than higher taxes to pay for the raises.

Past attempts to alter the cap have failed due to this kind of mentality, officials said.

Declining revenues could mean the school system won’t get its entire $100 million request for additional funding, most of which goes toward negotiated contracts with teachers and school system employees, officials said.

“That means we’re going to have to look at a variety of items for consideration and how we are going to balance the budget,” said Susan Bowen, director of budget and finance for the county school system.

The county’s Spending Affordability Committee is calling for a budget increase no larger than 5 percent, the typical growth rate of the county, due to steadying revenues.

“If you don’t tax people enough to meet expenses, you’re going to end up out of balance,” committee Chairman Daniel Scholfield said.

“But to raise taxes, well, that makes it harder to get elected.”

jflanagan@baltimoreexaminer.com