SALISBURY – A shortfall in estimated Wicomico County jobs has created a shortfall in anticipated income tax revenue that county officials hope to fill by pulling funds from the Roads Department.
According to Director of Finance Andy Mackel, income tax revenue estimates are based on a formula derived from the statistical relationship between the number of county citizens who are employed during the calendar year and the income tax receipts distributed to the county during the succeeding full fiscal year. For example, employment levels in calendar year 2013 will determine revenue in fiscal year 2015. Eighty-one percent of the change in income tax revenue is explained by changes in employment, Mackel said.
The income tax revenue estimate for FY14 was constructed last year in February. At that time, employment growth had been strong for 26 consecutive months at 2 percent per year for a total of 2,076 jobs. The upward trend appeared to be moderating, so the FY14 growth was estimated at 1.1 percent for a total increase of 540 jobs, which mirrored the growth rate between the years 2000 and 2003.
The resulting revenue estimate that is in the budget today is close to $42.6 million, which includes the effects of an income tax increase, as well as the Wynne tax case loss of $200,000 that will be recognized in FY14 and 2012 General Assembly revenue enhancements
The problem is what appeared to be a moderation of growth rate in February and March turned into a steady decline through November 2013. The FY14 budget was based on reaching a 12-month average of 49,000 people employed by December 2013, but it appears the county will end the year with an average of about 47,600, which is a miss of 1,400.
Since December 2011, 1,200 jobs in Wicomico County have been recovered after 3,400 jobs were lost from June 2007 through December 2011. The key sector supporting job growth has been education and health services followed by government and leisure and hospitality. Job losses in construction, finance, other service and information remain a significant drag on recovery.
Mackel furthered, for FY14 a reduction in employment of 1,400 translates to a potential loss of $3.47 million.
The county has spent less than the budgeted amount for the last 13 consecutive years. The smallest variance in that time was 1.4 percent, or $1.4 million in FY03. The largest percent variance was 4.9 percent in FY01 at $4.7 million. The largest variance in terms of dollars was in FY09 at $6.1 million or 4.7 percent. The FY14 budget totals $127 million. A 1-percent variance would be nearly $1.3 million.
Mackel explained, roads have been a Special Revenue Governmental Fund, however, due to the loss of Highway User Revenue the county must merge roads into the General Fund beginning with the FY15 budget cycle.
For FY14, the Roads Department has been appropriated $6.8 million from the general fund, which includes $4.5 million for operating support, $1.3 million for heavy equipment and $1 million for road maintenance. Roads have a separate fund balance with a projected value at the end of FY14 of $2.7 million.
Mackle proposed to amend the current FY14 Roads budget to increase prior year fund balance by $2.7 million and decrease the inter-fund transfer from the general fund by the same amount, thus depleting the roads fund balance prior to merger with the General Fund.
County Executive Rick Pollitt will not transfer $2.7 million of the $6.8 million appropriated in FY14 from the General Fund to Roads thus creating a substantial cushion against the anticipated shortfall in income tax revenue.
The Roads Department will continue with a fully funded operating and capital budget as appropriated in June for FY14 enabling the one-time reinvestment in heavy equipment and $1 million in road resurfacing envisioned by the FY14 budget.
“We are half way through our current fiscal year, am I looking at this correctly that we need the $2.7 million to keep this fiscal year budget balanced?” Councilwoman Stevie Prettyman asked.
That is the worst case scenario, County Executive Director of Administration Wayne Strausburg responded, but it is still unclear if the jobs being lost are actually tax paying jobs or not tax paying jobs.
”We believe it is prudent for us to have a plan to address a potential shortfall of that magnitude,” he said. “We certainly would not simply continue along executing the budget as appropriated knowing what we are seeing trending that we don’t have a handle on.”
Prettyman pointed out in the past when revenue sources fell short a freeze on spending was put in place.
“We put a freeze on capital spending,” Strausburg said. “From an operational standpoint there is no way to freeze spending unless you are going to eliminate work force … Nearly 80 percent of our budget is public safety and education, so we can’t get close to $3 million in cutting operating expenses unless we are going to begin to core services.”
Another presentation will be given along with the proposal in legislative form before the County Council next month.