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March 11, 2003

The More Things Change, The More They Stay The Same

Alan Imhoff

Fiscal Year '04 looms before us with a not-so-pretty picture of financial stability in the local, state and national governmental coffers. According to most published national reports, the economy has been supported in large measure by home buying and refinancing. Will this last and, if not, what will it mean to Frederick County?

Last year Frederick County saw 1,605 building permits issued for new housing. This was a 12.5% decrease from 2001 and a 39% decrease from 2000. For the most part The City of Frederick contributed most to this tremendous decline.

According to the county's year-end report, only 41 housing permits were issued for The City of Frederick compared to an average of over 600 a year. The main reason was the water shortage.

So what does this mean for this year? Depending on what numbers you want to examine, the worst-case scenario is only 1,249 housing permits. My guess is 1,560 (1,320 from the county and 240 from the city), assuming the moratorium is lifted and the restriction on number of taps is continued through to the end of the year.

So, are we really slowing growth by our policies, or is it the effects of the national economy, or worse, could it be both?

In the nine years since the establishment of impact fees in 1993, according to county Planning Department published records, approximately 17,733 housing permits were issued. In the nine years prior to 1993 approximately 18,200 housing permits were issued. A difference of 467 permits or 52 housing permits a year for each of the nine years, or roughly 25 less students a year than before impact fees.

Remember impact fees were first instituted to help alleviate school overcrowding by adding more seating capacity to the system.

For those who want to "control" growth, the county has in essence stayed on a level field for almost 20 years. So, why do things seem to be still no different after a tremendous school construction program during these last five years?

For one, the percent above capacity changed several years to one student above 100%, whereas previously, elementary schools were considered over capacity at 105% and secondary schools at 110%. So, although we have made great strides under the old rules, the new rules keep us feeling we are getting nowhere.

We are still building more schools based on the old rules, while the number of new housing permits is dropping, along with the number of new students entering the system. So, our expenses are rising while a portion of anticipated revenue increases is dropping.

Lest we forget, several years ago it was calculated the county needed a minimum of 1,200 housing units a year to maintain its financial obligations under the Bond Anticipation Notes floated to "forward fund" these new schools with the impact fees the new housing generated.

So, not only are we facing a potential shortfall for operating dollars this year, but our impact fee reserves may need to be tapped to keep the payments up, while new housing drops. This reserve fund was created to handle just such a situation, but not for more than two or three years.

If this downward trend in new housing permits continues, the money to make up the difference will need to come from the general budget, or the bonds may need to be re-financed or both.

While this article focused on schools and impact fees, the continued decline in new housing permits has other ramifications on the county budget. In theory, with a decrease in new housing permits, there would be less demand on expenses. Yet we do not seem to realize that.

With 1,400 less housing units built this year than two years ago, does anyone see a decrease in any of the line items of the county operation budget?

Combined annual income and property taxes from these 1,400 would have approached $4 million, or, to look at it another way, about 1.3% of total county revenue. So, with expenses rising and revenues falling is it any wonder that the commissioners (and the City of Frederick) are having such a tough time.

Get involved in the budget hearings for both the county and the city. Find out what is really happening and make you voice heard. Only by letting our elected officials know what you feel is important will they be able to make the best of a bad situation.

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