FY 25 Harford County Government Proposed Operating Budget

Executive Summary

The Spending Affordability Advisory Committee (“Committee”) has concluded that the local

economy and the county’s revenue appear to be diverging . At this time last year there was a consensus

that the economy was slowing. Recession seemed likely as Covid stimulus funding was winding down

while interest rates were increasing to combat rising inflation. One year later and the economy is more

resilient than originally thought, and the optimistic hope of a soft landing is not so far-fetched.

Unemployment is at record lows; inflation is reduced, and the stock market is soaring. And yet, County

revenues, particularly income tax, are showing signs of stress. Now it should be noted that revenues

are still expected to grow for next year. The Committee projects growth of 3.65% in the Net Adjusted

General Fund Budget from FY 2024 to FY 2025. This overall increase is largely driven by property

tax, which is benefiting from rising assessments brought on by the most recent housing boom. Income

tax, which has been the County’s strongest revenue source in the last decade, is now becoming a drag

and is in large part responsible for the reduced expectations for next year.

Income tax has proven the most difficult for the Committee to project in addition to accounting

for the overall economy. Income tax is significantly affected by the mechanics of how the State

Comptroller distributes this revenue to the County, as well as the timing of individual filing decisions

made by a relatively small number of high-income earners. As stated above, much of the economic

data is favorable, however actual income tax collections are down. As of the writing of this report in

early March, income tax is $12.6 million less than at the same time last year. To some extent we

expected income tax to drop this year as last year’s distribution most likely contained some one -time

revenues; however, the drop that we are seeing exceeds those expectations. Withholding, which is

typically very stable and grows every year outside of recession, has been down over the last two

quarters. Is that indicative of a slowing economy or is it related to the State’s distribution system ? The

committee cannot determine that, so to that end it was decided the use of long-term growth averages is

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