FY 26 Proposed Operating Budget Book

HARFORD COUNTY SPENDING AFFORDABILITY ADVISORY COMMITTEE REPORT TO THE COUNTY EXECUTIVE

FOR FISCAL YEAR 2026 Members of the Committee

Bryan Kelly, Chair Jennifer Ensor

Wayne Goddard

John J. O’Neill, Jr. John R. Scotten, Jr. Lee Tayson Steven Wiseman

Harford County Government Staff Robert F. Sandlass, Jr., Treasurer Rick Pernas CPA, Deputy Treasurer Benjamin Lloyd, Chief, Budget & Management Gail DiPietro, Administrative Specialist

Executive Summary

The Spending Affordability Advisory Committee (“Committee”) has concluded that the local economy and the County’s revenue outlook is in a period of flux and transition. At this point last year, the consensus was that the economy was proving to be more resilient to interest rate hikes and wage pressures than we originally thought. As unemployment was at record lows and the stock market at record highs, County revenues, however, were lagging. This year, the opposite is true as revenues exceed our expectations and the budget. The economy, particularly the Maryland economy, appears to be on the cusp of recession. The Trump Administration’s Department of Government Efficiency (DOGE) is reducing government spending at unprecedented levels. According to Moody’s no other State’s total employment is as reliant on federal jobs as the State of Maryland. This divergence has led to practical difficulties in forecasting revenues, especially in the short to medium term where this Committee is most focused. After much debate and discussion, as well as a desire to factor in the very real likelihood of a recession in Maryland, the Committee projects growth of 6.15% or $44.4 million in the Net Adjusted General Fund Budget from FY 2025 to FY 2026. This overall increase is somewhat misleading as this growth rate would normally be characterized as strong. It should be stated that this increase is budget-to-budget growth, and more than half of it, $23.1 million or 3.2%, was realized in the current year and therefore it is more about a change in the baseline as opposed to actual growth. This baseline adjustment in FY 2025 is almost entirely due to income tax. While the forecasted actual revenue growth in FY 2026 versus that revised FY 2025 baseline is $23.1 million or 2.9%, and it is primarily due to property tax. 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 pointing in the wrong direction, however actual income tax collections are up. As of the writing of this report in early March, income tax is $28.7 million more than at the same time last year. Our original expectation at this time last year was that income tax was establishing a new baseline after years of volatility. This is due to both changes regarding the deductibility of state and local taxes at the federal level combined with the winding down of Covid stimulus. The Committee, recognizing the limitations of forecasting

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