Tuesday, February 19, 2019

Fiscal realities are hitting home in Baltimore County

For decades Baltimore County grew by leaps and bounds while the City shrank. Finally the County surpassed the City in population. Today the County has about 200,000 more residents than the city, yet its overall General Fund is with just over $2billion only slightly larger than that of the City with $1.88 billion. Much of the County's growth came from the City drawing many of the City's educated and mobile people. But already some 30 years ago some voices warned that the "inner ring suburbs" would face a similar fate to that of the City. Now the time has come where revenue and expenses are on opposite trajectories. The new County Executive told me this morning: "I had no idea it was that bad". In his transition team press conference this morning he mentioned a $81 million shortfall for the coming fiscal year not counting additional money the school system needs. (See the transition team report here).
The graph of trouble: Sinking revenue and rising expenditures (screenshot)
Wide streets, SUVS, double garages and fake Colonials: White Marsh

The matter isn't all that surprising but the confluence of conditions is especially unfortunate now. Or as the County's Spending Affordability Committee report published by the County Council last Friday states:
Under ordinary circumstances, the County would curb its future spending commitments to align with such moderate revenue growth [...] For FY 2020 though, the challenges  [...] are not ordinary- they are extraordinary- because for far too long, the County has been under-investing in our public schools and in our other needs. Our facilities are literally and symbolically overflowing, as we can [...] see our aging drainage system failing [..] and our children filing in and out of the "learning cottage" trailers encircling our schools. 

When Dutch Ruppersberger was County Executive and David Fields was Planning Director an office of community conservation was created to pay attention to livability and to make sure that new development on green-fields wouldn't cannibalize the County's older suburbs.
Increasing debt (expressed in relation to assessed property
values (from SAC report FY 2020)
Alas, in spite of all the State's smart growth talk, outward growth continued at a rapid clip and Baltimore County, which as the only county in the State,  had enacted a real growth boundary, began running out of options for those who looked for affordability via the longer commute. Some call the entire post-war US suburban growth bonanza a Ponzi scheme in which Peter always robbed Paul.
We often forget that the American pattern of suburban development is an experiment, one that has never been tried anywhere before. We assume it is the natural order because it is what we see all around us. But our own history — let alone a tour of other parts of the world — reveals a different reality. Across cultures, over thousands of years, people have traditionally built places scaled to the individual. It is only in the last two generations that we have scaled places to the automobile.(Charles Marohn,Strong Towns)
It was only a matter of time until Baltimore County would face a fiscal reckoning not unlike the one the City has known for a long time. The writing has been on the wall for years: Most central Maryland counties outperformed Baltimore City and County when it came to household income, increases in property values, educational attainment, job growth and school performance. This are the very same metric which have put the City under pressure for decades and forced the shrinking of Maryland's largest incorporated city. With shrinking incomes, populations and property values came the steady rise of City taxes, until they were almost twice as high as those in the County. For a long time it was enough for the County to have low taxes and "not being the City".
Olszewki addressing his transition team

The County Executives down the line to Kevin Kamenetz held on to those trademark features by holding property tax rates stable, deferring major investments and by keeping affordable housing largely out of the County. Meanwhile schools aged, infrastructure crumbled and the federal department of housing (HUD) enacted a housing consent decree. An urban renaissance washed the well educated young people back into cities, bypassing the suburbs where their parents lived and which they knew all too well as the place where not much happens.  By 2030 more people over the age of 60 will live in Baltimore County than under the age of 18.
Historic Catonsville: Inner ring suburbs and failing infrastructure

Any local jurisdiction by law forced to balance its budget faces the question of how to pay for its operations, services and capital projects. In Maryland the main local revenue sources are the income tax and the property tax. That income system works as long as the population either grows or gets richer and as long as growth or rising property values swell property tax revenues. Slowing population growth, lower incomes and low property appreciation all spell trouble, especially when those trends coincide with the time where schools, roads and pipes need their first round of serious maintenance.

Personal income growth: Mostly lagging behind the State averages
State (blue) and Baltimore County (red)
Baltimore City responded with taxing its shrinking population higher and higher, what will Baltimore County do now it is its turn to face the piper?

Not that the County is yet shrinking, but thanks to diminished growth in the key categories, it is showing financial stress nevertheless. There is already a lot of public hand wringing whether it is finally time to raise taxes. "Are tax hikes on the table in Baltimore County"? asks the Baltimore SUN in bold letters. The SUN asked the question again this morning in Olszewski's press conference and the Executive once again stated that "everything is on the table" but that "taxes are the last option". The already noted  report by the County's Spending Affordability Committee (SAC) uses unusually frank language describing a County which prided itself for years for its fiscal stewardship.
Further, as the availability of General Fund infusions to the Capital Budget diminished, debt reliance escalated, the County's practice of forward -funding school construction projects became less feasible. In the County's 2018 budget message, the Council drew attention to these concerns and restated prior requests by both the Council and the Spending Affordability Committee for a long-term financial plan, but the Administration was non-responsive to all such requests. (SAC report)
One of the possibilities is to hike the County portion of the income tax which has been held at 2.83% while most more urbanized counties went beyond the 3% mark (the limit is at 3.2% per State law). Another is to charge developers impact fees (as many jurisdictions do) or at least bring back the stormwater fees which had been washed away under Hogan's misleading label as "rain tax". (Stormwater expenses now far exceed collected income).
Falling revenue from property taxes

Before going ballistic over the possible prospect of the County raising taxes or fees, it is worth considering that Baltimore County has remained in the bottom portion of combined local property tax rates compared to not only the City but also to high tax outposts such as Princess Anne in Somerset County, Bladensburg and new Carrollton in Prince George's, all at over $1.90 per $100 of assessed value. Not only are the rates comparably low, people in Baltimore County are also not particularly wealthy. The per capita taxable income of $29,480 ranks far below Montgomery County ($41,270), Howard ($39,221) and also below Talbot, Frederick, Queen Anne's and Calvert Counties. The poverty rate in the County doubled from 1990 to now.

Baltimore County revenues: Combined revenue still rising
(Blue=Property taxes, Green income tax)
Accordingly, County services don't rank in the top either. School funding, the new County Executive's main focus, is relatively low if expressed as per pupil funding. Baltimore County ranks far below Worcester (the leader of the pack), Baltimore City, and below Howard and Prince George's on rank 11 statewide in per pupil spending. Expressed as total expenditures on education of libraries the County even ranks below Baltimore City on rank 21 of 24. (these and many others rather not so well known facts about Maryland's counties can be found in this document published by the Department of Legislative Services.
Funding per student 

The current fiscal situation should be an opportunity for the County to re-position itself in the metro region. In a time of urban renaissance and young adults flocking back to the City because they rediscovered human interaction and the beauty of well designed public spaces and parks,  in a trend that favors experience over consumption and favors quality over quantity. Defining oneself as "not the city" is clearly no longer sufficient.

While there will always be people who prefer the quiet anonymity of a suburban home over the hustle and bustle of  a city, the trends go in the other direction. Baltimore County's most authentic communities such as Pikesville, Essex, Arbutus, Dundalk and Catonsville hold the promise to attract people who care for community character. But those communities are aging, suffer from failing infrastructures and schools in need of repair and haven't seen the amount of attention they need.  Its historic district rules are weak.  Gritty, creative and innovative reuse of old factories such as the American Can, Tide Point or Clipper Mill is still elusive in all of Baltimore County. The impressive reincarnation of the former Segram whiskey facility by British beer giant Guinness on a 62-acre campus Baltimore County is an interesting start, but it doesn't support local business and remains entirely isolated.

Only slowly, and without County goverment's doing, does the County offer the brewpubs, bakeries, bikeshops and events millennials like. The County yet has to designate an arts and entertainment district. The County's anchor institutions such as Towson University and UM at Baltimore County remain isolated and do little to revitalize their neighboring village and town centers. Transit is largely absent, Baltimore County is one of the few large Maryland counties which does not run its own transit system and relies entirely on MTA. Attempts of new urbanism or transit oriented development are woefully inadequate compared to what the Washington suburbs have done.
County revenues FY 2019

The newly elected County Executive Johnny Olszewski has started office with a lot of promise, energy and openness. His has rightly embraced regional collaboration and addressed most of the noted shortcomings in his campaign. He himself says that the problems of Central Maryland do not know jurisdictional boundaries, whether it is transportation, water, sewer, trash or bad air. The counties around Baltimore City won't succeed if they continue the bad politics of the past in which each competes against the other and all together against the City. It will take courage to favor investment over austerity, but that is exactly what the County needs to reverse the downward trajectory of its revenue and the upward course of expenses.

Klaus Philipsen, FAIA

The author was a member of the transition team on the committee for Sustainability, Infrastructure and Transportation.

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