FY 27 Proposed Operating Budget

Executive Summary

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

economy is strong and somewhat resilient to the economic headwinds, particularly the reductions in

federal domestic spending that are challenging the State of Maryland. The revenue outlook on a

budget basis exhibits strong growth, but on an actual basis versus the current year we expect a slower

rate of growth. The primary reason behind this difference is income tax, particularly how local

income tax is distributed to the county from the State Comptroller. The county is most likely

overdistributed, meaning income tax belonging to both the State as well as other counties was

distributed to Harford County in FY 2025 and FY 2026. This overdistribution will be corrected in

FY 2027, next year’s budget.

After much debate and discussion, the committee projects growth of 8.3% or $63.3 million in

the Net Adjusted General Fund Budget from FY 2026 to FY 2027. This increase is budget-to-budget

growth, but 70.0% of it, $44.3 million or 5.8%, 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

2026 is almost entirely due to income tax. The forecasted actual revenue growth in FY 2027 versus

that revised FY 2026 baseline is $19.0 million or 2.5%, and it is primarily due to property tax.

Over the past twenty-five years income tax has grown on average by about 6.0% a year. In FY

2025 income tax grew by 15.3% and in the current year growth is conservatively estimated at 7.7%.

While some of that growth is due to economic factors, such as rising personal income, capital gains

and population growth, we also know that it 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 the county is overdistributed, we should see a reduction in income tax in two ways. First,

as the distribution pie is recalculated, and Harford County’s share of that pie decreases, our quarterly

distributions will be smaller than they otherwise would have been. This is an important distinction

because it does not necessarily mean that the quarterly distributions will decrease in absolute terms.

The committee’s expectation is that quarterly growth will be at 2.4% for the remainder of FY 2026

and all of FY 2027. This is the same growth rate the State of Maryland has for their income tax in

FY 2027, and the c ommittee’s belief is that Harford County’s growth rate would revert to the

statewide average after being above that average the past two years. Secondly, the reconciling

distributions received in FY 2027 will revert to their seven-year average after being significantly

above that mark in the past two years. The past two years the reconciling distributions have been

approximately $65.0 million, whereas the seven-year average is approximately $49.0 million. The

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