Montgomery County, faced with lower-than-expected revenue and millions in tax refunds triggered by a Supreme Court decision, is preparing to cut the 2016 operating budget that council members approved just five weeks ago.
In a memo released late Friday afternoon, the chief administrative officer, Timothy L. Firestine, ordered department heads to prepare 2 percent reductions in spending for the fiscal year that begins Wednesday. The “savings plan,” as Firestine called it, would shave about $25 million from the $5 billion operating budget, county officials estimated.
Firestine said the reductions would be submitted to the County Council for action before the summer recess that begins after its July 28 session.
The cuts are necessary, Firestine said, in part because the county’s most recent distribution of income tax revenue from the state fell $21.4 million short of projections. In addition, costs associated with last month’s Supreme Court decision in Comptroller of the Treasury of Maryland v. Wynne may run higher than estimated.
The court ruled 5 to 4 on May 18 that Maryland’s income tax law is unconstitutional because it does not provide a full credit to residents for income tax paid outside the state. A portion of state income tax revenue is returned to the counties.
The court said the law created improper double taxation.
Since the decision, the comptroller’s office has been validating claims for refunds filed by taxpayers who have challenged withholding of the full credit over the past several years. The amount of the refunded taxes will be withheld by the state in future distributions to the county.
Montgomery officials said early estimates showed the county losing $10 million in fiscal 2016. But new projections put the cost of refunds at closer to $15 million. Losses for fiscal 2017, originally estimated at $55 million, might be closer to $76 million, Firestine said.
In his memo, Firestine said that County Executive Isiah Leggett “is aware of the disruption and difficulty this action creates and greatly appreciates the ongoing efforts . . . to provide services in the most efficient and cost effective manner possible.”
It was not clear whether the budget reductions would reduce or eliminate the likelihood of a property tax increase in fiscal 2017. Leggett said in the spring that he came close to recommending an increase for 2016 but decided against it.
At a March 16 news conference, Leggett said that an increase is “almost unavoidable down the line.”