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Jason Miller County Council at Large


February 6, 2008

“To moratorium or not to moratorium…”

Alan Imhoff

Recently I had the opportunity to attend opening night of the Maryland Shakespeare Theater’s fast-paced, hilarious two hour production of the Bard’s complete works (abridged).

In some ways the Frederick Board of County Commissioners is putting on its own version with its ideas on how best to handle the demands of a growing county and the need to rewrite a host of documents related to that growth (not abridged). For some it is a “tragedy” about to befall them; for others it is a “comedy” as they get relief from the constant toil and trouble created by life.

For me, a more fundamental question is: Can the government afford to impose a “moratorium” while it works on the rewrite of a number of substantial documents; or could it continue business as usual with development while doing the rewrites as well?

First, let us look at what is really happening in the residential marketplace. New home sales have been steadily declining for the past six years, from just over 2,000 in 2001 to just under 900 this past year. New home sales now only account for approximately 23% of all home sales, down from 51% in 1993. The average sales price of all homes sold in 2007 fell 2.6% from its 2006 level. So, it would seem to me that “new home growth” has slowed already.

Next, 2006 was not a stellar year for new home sales; a rough estimate indicates that there was a 43.7% drop in sales from the previous 14-year average of 1,513. So, yes, the commissioners are correct in stating that the timing of the “moratorium” may not affect new home sales for the coming year. After that though, the negative effects of a “moratorium” may begin to affect the recovery part of the housing cycle.

One aspect of the equation to determine “to moratorium or not to moratorium” is a fiscal one. County revenues from the effects of the slowdown in new home sales will begin to show up in the second half of this fiscal year; the impact on next year’s and subsequent years could be substantial if the contemplated “moratorium” is enacted. If the county decides to maintain its expenses and absorb the loss of almost $16 million of property and income taxes annually, who do you think will need to make up the difference if these new homes are not built?

The building industry, as well as government, counts on a regular process to insure annual growth; to interrupt any portion of that process will have exponential effects in later years after that interruption, be it economically induced or locally legislated. The following observations are but an initial estimate of potential financial effects on the county budget on a maximum number of new housing units sold.

Using published information from county source documents, the following conservative estimates on 1,179 housing permits for major subdivisions are given; Frederick City units, small lot subdivisions and other municipal units have been factored out:

Annual lost Impacts fees: $7.1 million Annual lost one-time only fees $8.9 million Annual lost property & income tax $7.9 million

For the two years of a major subdivision “moratorium,” the potential lost revenue could generate a combined total around $56 million dollars to the county coffers for Fiscal Years 2009 and 2010.

Then there are the “soft” costs to the economy; $530,000,000 in material costs would not be expended to build the developments over these two years, a significant portion of which would be normally spent at local businesses. (At 50% for local expenditures times the 6% sales tax would mean a loss of our share on about $1.6 million.)

There is the loss discretionary spending of the new residents that will not be living here, which at a minimum would be at least $30 million over the two years.

Then there is the loss of the “multiplier effect” of this spending in the local economy, not to mention the lost “multiplier effect” of the county’s loss of revenue.

These are only for the two years of the “moratorium,” the lost recurring revenue continues every year thereafter for every new home not “made up” in the pipeline.

The question for the commissioners is what, if any, steps will they need to take on the expense side of the county budget to absorb this shortfall, which will be in addition to effects of the current “recession” we have entered?

The county budget has historically been crafted on the premise that there will be a certain amount of annual new growth along with incremental growth on existing properties. Many in government today, whose jobs are dependant on new growth, have a lot of free time on their hands. Will they be “downsized”?

“To moratorium or not to moratorium” is the question that needs to be posed by you to our Board of County Commissioners before they vote on this issue.



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