Tax relief could reopen budget gap in Prince George's, Md.

By Jonathan Mummolo
Washington Post Staff Writer
Sunday, April 25, 2010

At the close of the Maryland General Assembly session this month, the fiscal prospects for Prince George's County were looking up. County Executive Jack B. Johnson said that schools would be better funded and that there would be no need to furlough or layoff county employees, thanks in part to a hard-won increase in state aid of $18 million.

But a bill awaiting Gov. Martin O'Malley's signature complicates that scenario, and also puts the governor in a political bind, because it would mean a loss of tax revenue in the county -- to the tune of about $18 million.

The bill would place a cap on taxes that county residents pay to the Maryland-National Capital Park and Planning Commission, an agency that serves Prince George's and Montgomery counties. The cap, because of the way it would be applied, would cost the commission $18 million in the next fiscal year, and Prince George's has been relying on the commission to supplement its operating budget.

If O'Malley (D) signs the bill, he could reduce the revenue available to the county in a tough budget cycle. If he vetoes it, he takes a tax break away from a populous county in an election year -- a risky move when his Republican opponent, former Maryland governor Robert L. Ehrlich Jr., has made cutting taxes a central plank of his campaign platform.

A spokesman for the governor said right after the legislative session that O'Malley would sign the measure. But when asked this week, another aide said O'Malley was still weighing the "pros and cons."

"The governor is still reviewing that particular piece of legislation," said O'Malley spokesman Rick Abbruzzese. "There are pros and cons to this bill, the pros being, obviously, the tax cut for the residents of Prince George County, and that needs to be balanced with the loss of revenue."

County Council Chairman Thomas E. Dernoga (D-Laurel) said he and the other council members -- who have final say over the commission and county budgets -- are discussing options for dealing with the potential revenue loss.

"It certainly complicates getting to zero furlough days and fully funding the education budget," Dernoga said of the projected revenue loss. "The concern that Park and Planning has raised is whether they will be able to come up with the full amount of funding the executive has put in his budget. . . . Getting $18 million in one hand to deal with our budget woes while giving up $18 million on the other hand, we don't end up being any closer to solving our problem."

The bi-county park and planning agency has separate budgets for its Montgomery and Prince George's operations, and Montgomery has had a cap on commission taxes for years. The commission's budget for Prince George's is also separate from the county government's budget, but the loss of revenue could still affect county finances.

The county budget proposed by Johnson (D) includes more than $60 million from the Prince George's side of the commission. If the commission takes an $18 million hit, it might be hard-pressed to provide that assistance without changing plans for projects that include improvements to parks and athletic facilities throughout the county. The agency might have to borrow money for projects or delay or scuttle them, officials said.

Lacking a tax cap, the commission accumulated large surpluses during the real estate boom, when property assessments -- and tax bills -- soared. That surplus has led the county to rely increasingly on commission funds for its budget, a practice that recently drew negative attention from a Wall Street rating agency.

In a letter Thursday to Dernoga, Johnson responded to the projected revenue loss by recommending that the commission reduce or forgo pay increases, new jobs and program enhancements and use bonds to fund capital projects rather than cash.

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