City Council considers tax hikes

September 24, 1998|By JULIE E. GREENE

Hagerstown City Council members, in an effort to avoid future budget deficits, are considering property tax and user fee increases and service reductions, but most say other steps could be taken first.

The city posted a $216,829 general fund deficit - its first in 11 years - for the budget year that ended June 30, 1998.

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The city faces several years of steep revenue shortfalls and projected deficits of from $1.7 million in fiscal 1999-2000 to $3.2 million in fiscal 2003-2004.

The deficit projections do not include funding for a new baseball stadium or convention center.

City Council members will in the coming months search for ways to cut expenses and increase revenues.

The main reason for the belt tightening is flat property tax revenues, a problem faced by communities across the state, City Finance Director Al Martin said.


Property tax revenues have increased an average of 7.4 percent a year from fiscal 1984-1985 to fiscal 1996-1997. Those revenues are expected to increase by an average 3 percent a year as the city enters the next millennium, Martin said.

Property tax revenues are forecast to go from $10.4 million in fiscal 1999-2000 to nearly $11.8 million in fiscal 2003-2004, according to the finance department.

Property taxes account for about 57 percent of the general fund's revenues. The general fund is the main operating fund that pays for operations such as fire, police, public works and the finance office. This year's general fund is expected to be $20.4 million.

Property taxes

Since most general fund revenue comes from property taxes, Councilwoman Susan Saum-Wicklein said the city must study tax information to determine trends.

"Where are we eroding? With the amount of growth we're seeing, our assessable base should be growing, not stagnant," Saum-Wicklein said.

The city has lost some property tax revenue from tax credits it gives to attract new businesses and to encourage existing businesses to stay and expand.

Approximately 1,400 acres in the city are in enterprise zones, where businesses get property tax credits for up to 10 years. These areas include downtown, Wesel Boulevard through North Burhans Boulevard and the Hagerstown Business Park off South Burhans Boulevard.

Credit is given in varying percentages on the increase in the property's assessment, Martin said.

The city is compensated for 50 percent of the credit from the state, so in fiscal 1997-1998 the city lost $127,548 due to tax credits in enterprise zones, Martin said.

In fiscal 1994-1995, the city began phasing out over a 10-year period its tax for manufacturing machinery and equipment.

Because of this, the paper recycling plant formerly known as 1st Urban Fiber, paid $22,278 in fiscal year 1997-1998, Martin said. The full tax would have cost the plant's owner $1.6 million. Martin said the plant would not have been built here if the owner had been charged the full tax.

The plant, which had a grand opening in October 1996, shut down in August 1997 when company officials cited a depressed market for recycled paper. The plant is now in receivership.

Martin said he couldn't say exactly how much revenue the city has lost because of that tax being phased out because the state doesn't provide a detailed breakdown, but said it could be several hundred thousand dollars.

If officials had eliminated the tax in one year instead of phasing it out, the city would have lost at least $500,000 in revenue, Martin said.

Martin said that phasing out the equipment tax as well as giving out tax credits helped attract some of the city's largest taxpayers, including the paper recycling plant and Wal-Mart Stores, which includes Sam's Club.

Deborah Everhart, the city's economic development coordinator, said there were businesses that wouldn't consider locating in the city because of the tax.

Other options

"I don't think it's all gloom and doom," said Councilman William M. Breichner.

While property tax revenue projections are flat, Breichner said he expects to see modest increases in the tax base from developments such as the $40 million Centre of Hagerstown shopping center to be built on the west side of the city.

"I think there's some belt tightening and efficiency improvements that need to be done before we look at increasing the property tax rate again," Breichner said.

Breichner wants to know the cost effectiveness of current services, such as the pool, curbside mixed paper recycling pickup and trash collection, which he thinks could be reduced to once a week, at least in the winter.

Councilman J. Wallace McClure said he wants to see more council members say "no" to financial requests once the budget is set.

"When involved with a budget deficit like this, everyone has got to suffer," McClure said. "When you start having financial problems you batten down the hatches."

If the council said "no" more often, residents might in time agree to higher taxes, McClure said.

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