County Budget Update

CIPs & Elected Officials Considered

The Commissioners are staring down tough decisions as they move through the FY26 budget process. Capital Improvement Projects (CIPs), the Board of Education (BOE) budget, and requests from elected officials were covered across the last two budget work sessions (BWS). Some CIPs were removed or altered to reduce their budget impact, but by and large the Commissioners were not in a position to approve allocations to the BOE or elected officials. For now, they await State and Federal budget deliberations which will greatly impact what the county is able to afford.

Starting from February 25th’s BWS, budget documents showed the county’s outstanding debt increasing from $187.2M in FY25 to $290.5M by FY30. Recurring revenues, from property and income taxes, are projected to increase from $323.4M to $379.7M during the same time frame. A county policy sets a 10% limit on debt service as a percent of revenue, and by FY31 that number will reach 7.41%. By then, the county will need nearly $29M to make the annual principal and interest payment. County debt is financed through bond purchases each year. The Commissioners request bond authority from the State, every year or two, to finance anticipated projects. 

But this year, their ask was reduced by the St. Mary’s County Delegation. The Commissioner’s initial request of $86M in two-year bond authority was limited to $71M, after Delegate Matt Morgan questioned the county’s soaring debt projections. Commissioner Hewitt has pushed back against the notion of borrowing too much, citing the county’s recently upgraded AAA bond rating. Hewitt said the Commissioner’s conservative fiscal management, combined with climbing property and income tax revenues, demonstrates a strong financial position. But, with a lower bond authority, the Commissioners needed to make some decisions.

The Commissioners decided to:

• Remove $3M from FY31 for design of the Sheriff’s Office firearms facility

• Shift construction of the Sheriff’s Office new headquarters by two years, to FY28-29, delaying expenditure of over $26M

• Reduce the more than $7M set aside for the Sports Complex, funding only ongoing studies

• Remove $179K for an electronic entrance sign at the animal shelter

It’s possible the Commissioners could ask for additional bond authority next year if there is a need for additional flexibility when allocating funds toward future CIP projects. 

Next, was the BOE budget brief. (Read this for previous coverage). The BOE is asking for an additional $5.37M from the county, a 4% increase and in line with what the Commissioners expected for county departments within their own budget. More challenging will be if the State pushes down costs, increasing the BOE’s funding ask to $9.17M. Superintendent Scott Smith said it was a “doomsday scenario” for their budget along with other Blueprint-related cuts proposed by Governor Wes Moore. The Maryland General Assembly is negotiating the State’s budget, which is expected to extend the legislative session for another month. 

At the March 4th BWS, the Commissioners considered alterations to several local taxes. The Homestead Tax Credit (HTC) remains at 3%, after the Commissioners unanimously decided the county couldn’t afford losing $1.78M in revenue–the cost of reducing the credit to two percent. The HTC limits the amount of assessment increase a homeowner pays on property taxes–so if the increase is 5%, they only pay 3% on their principal resident property. A decision on eliminating the Energy Tax, deadlined in June, was delayed after a lack of consensus. 

John Houser, deputy county attorney, reviewed the three senior tax credits available in the county. They are:

• Senior Matching Tax Credit: a local supplement to the state Homeowners Tax Credit, passes on the tax credit to the homeowner received by the county from the state. Those aged 70+, a number set by the county, and making a maximum household income of $60K per year, set by the state, are eligible. This returns approximately $221K to eligible seniors.

• Senior Cap Tax Credit: Seniors 70+, with an income of $80K or less, who apply at or after age 70 will have their property tax at the level it was the year they applied. This has the largest fiscal effect on the county budget. Houser said the Commissioners can change the eligible age and income level.

• 65/10 Senior Tax Credit: This credit is valued at 10% of the current county tax on the property, and is available for a period of 5 years to seniors 65+ who have lived in their home for at least 40 years. The home must be valued at $400K or less, and the maximum household income allowed is $80K. This has the least impact on the budget, with only $33K claimed last year. The Commissioners have the authority to change the eligible age, home value, and time lived in the home.

Various ideas on adjusting qualifications and simplifying the taxes were discussed. Commissioner Ostrow was interested in adjusting the 65/10 tax credit so the maximum home value is $500K and lowering the length of residency requirement. Commissioner Hewitt agreed with the $500K home value, but suggested lowering the maximum income to $60K per year while eliminating the residency length stipulation. Hewitt also asked if the three credits could be combined into one to make it easier for residents to qualify. The Commissioners directed Houser to look into simplifying the taxes and examining the impacts to residents and the county budget with help from the department of finance.

Moving on, Chief Finance Officer (CFO) Vanetta VanCleave, told the Commissioners there is a shortfall of over $16M in the budget. Projected FY26 revenue is $335.89M, with budget requests totaling $351.92M. New funding requests include:

• New vehicles for the Sheriff’s Office, and county departments including IT, Emergency Services, Rec & Park, and Public Works, totaling $3M. Purchasing these outright using county fund balance rather than financing over 5 years would save $1.895M. 

• Replacement portable radios for Emergency Services totaling $5.1M

• Approximately $7.9M for county employee compensation adjustments

• Approximately $5.51M, included as a worst case scenario for costs pushed down from the state

The next BWS is March 11, when the Commissioners will review budget requests from each county department. Commissioners made clear over their last two work sessions that final decisions wouldn’t be made until more information is known about State and Federal budgets. Losses of revenue from State and Federal sources, and potential costs forced on the county from the State level, creates a situation where the Commissioners will face either using accumulated fund balance, find additional revenue, or deny requests for additional funding.