Officials: $61M budget surplus for past fiscal year ‘an anomaly’

An audit of Howard County’s Comprehensive Annual Financial Report has found that the county saw a revenue surplus of $61.2 million for fiscal 2020, which exceeded officials’ expectations.

The increased revenue does not, however, reflect the true economic reality of the county, according to Holly Sun, the county’s budget administrator.

“The best way to explain [the increase is] it’s unique, it’s unexpected and it’s driven by one-time factors,” Sun said.

The revenue increase is driven by a one-time occurrence of delayed payments related to a federal tax law change from a couple of years ago, according to Sun. In most cases, she said, the Tax Cuts and Jobs Act of 2017 reduced tax rates for businesses and individuals, but many taxpayers at the state level ended up paying more.

Sun said it took time for those effects to trickle down to local governments.

In previous years, the county’s surplus was nowhere near the fiscal 2020 amount; in fiscal 2018 the surplus was $1.2 million and $13.3 million in fiscal 2019.

County Auditor Craig Glendenning said that since he’s been with the county, he’d never seen the surplus this high.

However, similarly to Sun, he cautioned the county cannot base the next fiscal year on this revenue increase.

County expenditures also came in $10.5 million less than budgeted for fiscal 2020, according to the audit.

The county originally budgeted just over $1.16 billion for expenditures and encumbrances, and it ended up spending $1.15 billion.

Sun said the county asked departments to tighten their belts as the coronavirus pandemic began in March, ultimately leading to expenditures coming in below budget.

There was a hold on hiring new employees and a hold on procurement, delaying anything that wasn’t essential, she said.

That’s likely to continue in fiscal 2021, according to Sun, which began July 1. “We don’t know additional needs or work, so we have to be very prudent in [fiscal 2021],” she said.

Sameer Sidh, chief of staff to County Executive Calvin Ball, also called fiscal 2020 an “anomaly.”

“The measures we’ve taken in [fiscal 2021] would be budgeted for, so we wouldn’t have a variant,” Sidh said. “We’re fortunate to have this level of surplus at this point.”

Sun said the pandemic months are not truly reflected in income tax data for those months since there were only three months of crossover between fiscal 2020, which ended June 30, and the pandemic.

“[The surplus] surprised not only us and other counties, but the state’s controller’s office,” Sun said.

Increased revenue and decreased expenditures will not necessarily translate in fiscal years 2021 or 2022, according to Sun.

“The growth in [fiscal 2020] is doubling the previous three years total income tax increase, so that’s definitely not going to be repeated in any manner close to that,” Sun said at the County Council’s monthly meeting on Jan. 6.

The surplus can only be used for one-time costs, not recurring needs. The county is not required to spend the money in a certain time frame, and credit agencies — which gave the county a AAA rating in the spring of last year — prefer the county save as much of the money as possible, Sun said.

Regardless of what the county decides to do with the surplus, in order to spend it, Ball will need approval from the County Council.

“We need to use this [money] for one-time, high-priority needs,” Sun said. “You don’t know how long the economic struggle will be, so it gives us extra flexibility.”