By Donald C. Fry

The $50 million in proposed tax increases for Baltimore City may be a harbinger of what residents of many local jurisdictions in Maryland can expect in the years to come.

Predictions of looming local tax increases by a number of experts familiar with government finances in Maryland are based on projections of a sluggish recovery, diminishing state aid to local jurisdictions and the anticipation that the state will begin shifting teacher pension costs to local governments in future years.

State aid for local government operations in the Baltimore City and Maryland’s counties will decline by 6.6 percent in FY 2011, which begins July 1. But most counties have managed to propose budgets for next year without significant tax increases.

The city, however, has to cope not only with less state aid, but with other serious fiscal developments, including escalating police and fire pension funding costs, that have forced the city to scramble to find ways to raise significant new revenue now.

Baltimore Mayor Stephanie Rawlings-Blake has proposed a $50 million package of tax increases that, along with $70 million in proposed spending reductions, would close the city’s projected $121 million deficit. Her proposal includes increasing the city’s piggyback income tax rate from 3.05 to 3.2 percent. It also includes a new beverage tax, a $350 fee on hospital and university beds, and increases in the parking tax rate and telephone taxes.

Meanwhile, members of the City Council are balking at some of Rawlings-Blake’s requests and have hastily proposed alternative tax measures that, among other things, include an energy tax on industrial buildings that council members believe will raise $9 million.

Such a proposal raises the obvious question of whether it is prudent to enact a tax that will almost immediately increase a key element of major industrial employers’ overhead by almost 8 percent and threaten good blue collar jobs. The obvious answer would be that such a tax is not rational or good public policy.

In any case, Baltimore City residents and businesses will begin paying more local taxes of one sort or another in less than a month.

For residents in many of the state’s counties, new taxes may be only a year away. But they are very likely, say economists such as Anirban Basu. Speaking this week at the Maryland Economic Development Association’s conference in Cambridge, Basu forecast that state aid to local governments in FY 2012 “will be slashed at every level” and that local property taxes will increase.

Unfortunately, such predictions make sense. In 2011, lawmakers in Annapolis will not have several billion dollars in stimulus funding to plug fiscal holes, as they did during the last two sessions. Even with the stimulus funding this year, state legislators clearly indicated that they are losing enthusiasm for the state picking up all of the pension costs for teachers in county school systems. This has been a growing concern of budget experts for years, but no one has been willing to force the issue.

In FY 2011 the state will pay more than $900 million in pension funding costs for local teachers, librarians and community college faculty – a 12.1 percent increase over the current fiscal year. The state cannot, by itself, sustain this kind of annual pension cost increase, say most legislative leaders.

During the 2010 General Assembly session, some lawmakers proposed shifting millions in pension funding liabilities to the counties. Ultimately, they backed off, but that kind of thinking will likely return in the next session if state fiscal issues remain dire and there is no federal windfall to soften the pain.

Should local governments face increasing fiscal pressure, their preferred sources of new revenue will likely be property tax rates. Conversely the city, from a practical standpoint, is precluded from raising property tax rates because its $2.268 property tax rate is already more than twice as much as any other jurisdiction in the state.

How will Maryland’s state and local governments end this upward spiral of taxation? A robust recovery would help, but it would be foolish to expect the economy to rebound to white-hot pre-recession levels anytime soon.

Only long-term economic growth can deliver enduring job-creation and fiscal stability at the state and local levels. This brings us back to the issue that elected leaders in Annapolis generally avoid or get defensive about – business climate and economic competitiveness.

In Maryland, we must ultimately decide how to most effectively position our state in the post-recession competition for business locations and expansions and then ensure that we enact policies and incentives that reflect our vision and deliver robust economic growth.

Donald C. Fry is president and CEO of the Greater Baltimore Committee. He is a regular contributor to Center Maryland.

Previous Center Maryland columns by Donald C. Fry:

After the ‘fiber from heaven’ scramble, what’s next?

BRAC growth no longer a future event – it’s happening now

Economic development is a contact sport

Despite the recession, bioscience growth still percolates in Baltimore

State stumbles in enacting new education collective bargaining process

Wind power has potential in Maryland, but solar emerges as early renewable option

It's not good to be clueless in cyberspace

Amid fiscal shuffle, Maryland lawmakers pass measures to spur business growth

Thankfully, Baltimore leads with substance over style in luring Google

Leave damaging transportation provisions out of the budget

Amended budget continues recession-induced fund shifts and stimulus rescue

General Assembly setting stage for combined reporting push in 2011

Wrong timing for proposal to change Baltimore City school board

Baltimore City isn’t alone in facing pension funding challenges

A government investment program that delivers

Proposed transportation fund raid -- a bad habit continues

Where's the outrage over crime?

Small business is where innovation lives