FY 27 Proposed Operating Budget

Comptroller’s Office has informed the Treasurer that Harford County’s overdistribution is currently

identified at $11.6 million and is likely higher. This insight gives support to our expectation of a

significant reduction in this component of income tax.

This methodology results in an income tax projection of $385.0 million in FY 2026, an increase

of 7.7% from FY 2025 actuals, and $377.0 million in FY 2027, a decrease by 2.1% from the revised

FY 2026 forecast. On a budget basis, income tax in FY 2027 is expected to grow by 10.3% or $35.0

million over the FY 2026 budget. The committee also looked at long-term averages of income tax

and performed regression analysis. Thus, weighing the results towards a more conservative outlook

achieved a similar estimate.

As property values are continuing to rise in the county, the committee believes property tax revenues, based

on the current tax rate should increase 5.4% from FY 2026 budget to FY 2027. This year Group 2, which is

primarily the central or Bel Air portion of the county, was reassessed and grew at 10.7%, which will be

phased in over the next three years. This represents the third double-digit reassessment in many years.

Group 1 grew by 19.8% last year and Group 3 was up 22.0% the year before and is an indication of the

vibrant housing market in all parts of the county. However, it is also apparent that the increases are slowing

and that the Covid/low-interest rate assessment boom has largely played itself out. Fortunately, the phased

in nature of property tax assessments along with the mitigating role of the Homestead Tax Credit should

provide the county with predictable growth for the next couple of years. After that it is likely the county

will return to limited growth.

One area of particular concern for the committee over the past few years is the structural deficit

of the county. It appears that the county has corrected this issue. At end of FY 2025 the fund balance

grew for the first time in three years, meaning that revenues exceeded expenditures. The committee

knows this reversal wasn’t easy and required tough decisions on the part of the County Executive and

the County Council to bring our fiscal plan into alignment. It is the c ommittee’s understanding that

the credit rating agencies have expressed satisfaction with the c ounty’s path, but they have concerns

particularly related to the c ounty’s relationship with the State of Maryland and future cost shifts onto

local government. If the county expects to maintain its AAA bond rating, it is imperative that the

county leadership view fiscal policy not just as a year-to-year endeavor but a multi-year commitment.

There is a connection between structural deficits and revenue volatility. When revenues exhibit

strong growth, it is easy to assume that the abundance will last forever and that on-going expenditures

can rise to these new levels. What we know from looking at the data is that our revenues,

particularly income tax, are becoming more volatile. The problem is that government spending is not

easily suited to that volatility. School funding, for example, is subject to Maintenance of Effort laws

that make cutting spending only possible when enrollment drops. Even in those areas that do not

have restrictive laws, practical concerns make spending reductions challenging.

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