By Adam Pagnucco.
One month ago, I roasted the Montgomery County Republican Party for inaccurately claiming that the county was trying to “sneak in” a tax hike. At that time, the issue was a state notice requirement and not actual intent – at least not by the county council – to raise taxes. But it turns out that there actually was a hidden tax hike embedded in the budget on top of the executive’s open recommendation to raise property taxes. No one reading the budget would have found it. But county council staff did find it and now the matter is exposed.
Folks, I have been reading county budgets for almost 15 years and I don’t remember seeing anything like this.
The issue at hand is how the county calculates the charter limit on property taxes. In concept, it’s a simple procedure. The county’s finance department uses two data points: the estimated amount of real property tax revenues collected in the current fiscal year and the percentage growth of the consumer price index from the previous calendar year. Tack on inflation to the current fiscal year’s property tax revenue and that’s the charter limit for the next fiscal year. (The county can collect additional property tax revenues on a few other categories of property outside the charter limit.)
Sounds easy, yeah? But what about taxes collected from properties newly built during the current fiscal year? For the last 30 years, the county’s finance department has included the actual taxes paid on those properties in its calculation of current year revenues. So if a property was built halfway through the fiscal year, half of its annual tax bill is included in current year revenues. If a property was built nine months into the fiscal year, then one-quarter of its annual tax bill is counted. And so on. Add in these pro-rated tax bills to full-year tax bills for existing properties and that’s the current year property tax collections. Tack on inflation and that’s the charter limit.
The Elrich administration used a new methodology to calculate the charter limit in its FY21 recommended budget. Instead of using the actual tax bills paid by newly built properties in the current fiscal year, it included full-year tax bills in its estimate of current revenues even though those bills were not actually paid for the full year. That allowed the administration to calculate slightly higher current year property tax revenues. Tack on inflation and the charter limit is slightly higher. And so there is more room to raise the property tax rate than there would be otherwise.
In other words, it’s a tax hike.
It’s not a very large tax hike. Council staff estimates that the new methodology allows the county to raise an extra $5.1 million in the FY21 budget, or 0.24 cents per $100 of assessed value. (By contrast, the executive’s openly recommended tax hike was 3.18 cents.) But if this new methodology is adopted, it will compound over time and eventually raise tens of millions of dollars more than under the old methodology.
Basing tax estimates on taxes not actually received is a questionable practice at best, but let’s set aside the merits of the policy for now. The disturbing thing about this is that it was not disclosed to the public through the budget. Search the county’s 831 page budget for “charter limit” and you won’t find any discussion of this methodology change. Instead, the matter first surfaced in a council staff memo released late last week. The council held a closed session to discuss the legal ramifications of the change on Wednesday. The council will now decide the matter today.
Regardless of how one feels about taxes, let’s agree that decisions concerning them are important and warrant public scrutiny and participation. The issue was not publicly known when testimony was heard on the budget, so residents were denied the opportunity to weigh in. That is a direct result of the administration’s failure to disclose the issue in its published budget.
We deserve better.
Let’s see what the council makes of this.