ANNAPOLIS — The Maryland Board of Public Works voted Wednesday to keep the state property-tax rate at its current level, but one member warned that increases could come soon if the state doesn't tighten its belt.
The three-member panel — comprised of Gov. Martin O'Malley, Comptroller Peter V.R. Franchot and Treasurer Nancy K. Kopp — voted unanimously to continue charging property owners 11.2 cents a year per $100 of their property's assessed value.
But Mr. Franchot said there could be "significant problems" in coming years due to the state's increased borrowing for capital projects.
State property-tax revenues are used to pay off debt on bonds sold by the state to fund capital projects such as schools, hospitals, prisons and other public infrastructure.
Mr. Franchot, a Democrat, cited a report saying the state will take on an additional $1.4 billion in bond debt over the next five years and suggested that officials have overspent on capital projects, forcing taxpayers to soon pay the cost.
"We need to remain very, very careful in coming years to distinguish between responsible investment and unnecessary, frivolous spending," he said.
Maryland has not raised the property tax since 2003, when a board helmed by then-Gov. Robert L. Ehrlich, a Republican, voted to raise the tax from 8.4 cents to 13.2 cents.
The same board lowered the tax to its current rate of 11.2 cents in 2006, which was Mr. Ehrlich's last year in office.
The state now services its debt primarily using property-tax dollars with some small help from bond-sale premiums, federal subsidies, transfer taxes and other receipts.
It is expected to pay $922 million in debt in the upcoming fiscal year.
The state also has the option of using money from its general fund but has not done so in several years, Mrs. Kopp said.
A report this month by the state's Commission on State Debt, however, found that anticipated debts are fast outgrowing property-tax revenues to the point that the state could need as much as $246 million in general funds to help pay its debt service in fiscal 2014, which starts in July 2013.
An alternative to using general funds would be to raise the property-tax rate from 11.2 cents to 15 cents — an increase of 34 percent.
Projections show the state could need $440 million in general funds to make ends meet in fiscal 2017, with the alternative being a hike to 17.9 cents.
State officials could close the gaps using general funds, tax hikes or a combination of the two, but Mr. Franchot lamented the situation, saying he expects taxpayers will be on the hook regardless.
"The trajectory is set in stone," he said. "Obviously there is flexibility, but I suspect that the taxpayers will see a 60 percent rate hike over my strong objections."
While the comptroller expressed his doubts about capital spending, Mr. O'Malley and Mrs. Kopp were reluctant to show as much worry.
The governor and other state officials have long championed capital projects as a way to create jobs and improve residents' quality of life through better schools and facilities and have said such projects come at low costs and interest rates due to the state's AAA bond rating.
Mrs. Kopp acknowledged that rising debt costs should be monitored, but she called the debt projections conservative. She added that the state would likely look to plug any gaps with general funds before considering a property-tax increase.
"It may be that we'll again have to share between the property tax and the general fund. The system is built on that," she said. "We'll continue to look seriously at it, but Maryland will continue to make prudent investments in our future."
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