By Adam Pagnucco.
In the wake of a potentially huge increase in school impact taxes, the county council has passed a recordation tax hike for the first time in seven years. With a big increase in property taxes coming, what will all of these tax hikes together do to the cost of living in Montgomery County?
Today’s tax hike has its roots in Bill 17-23, which was introduced by Council Member Kristin Mink and co-sponsored by Council Member Will Jawando. That bill would have raised $320 million over six years for the capital budget, including school construction, and rental assistance by levying recordation tax increases of 30% or more depending on home price. The council’s Office of Legislative Oversight [OLO] found that it would have a “small to moderate negative impact” on the county’s economy by increasing the cost of buying and selling homes.
At the Government Operations Committee, the bill was amended by Council Members Kate Stewart, Natali Fani-Gonzalez and Sidney Katz. Their amendment reduced the revenue raised to $251 million but also eliminated recordation tax increases on homes selling for less than $600,000. (In 2022, the median home sales price in Montgomery was $555,000.) Council Member Andrew Friedson proposed an alternative that would have raised $126 million which the committee did not adopt. Mink and Jawando subsequently praised the committee’s amendments.
This table in the council’s packet shows the difference in rates between the three options – the original bill, the Stewart/Fani-Gonzalez/Katz amendment and the Friedson proposal.
And this table shows the impact of the tax increase on homes by sales price.
All council members agreed that a recordation tax increase was warranted because of the ongoing challenges in the county’s capital budget, to which most of the tax hike would go. The decision they faced was whether to adopt the committee’s amended bill or Friedson’s less costly proposal. Council Member Dawn Luedtke made the motion for Friedson’s proposal, seconded by Council Member Marilyn Balcombe. Luedtke, Balcombe, Friedson and Gabe Albornoz voted for Friedson’s proposal. All other members voted against. An identical vote was held on the bill itself, which passed 7-4.
There is no question that the county has needs for capital projects and rental assistance, which the tax hike will finance. There is also no question that the county is becoming less affordable, particularly in housing. On this bill, these issues were in conflict and the council made its choice between them.
Let’s turn it over to Council Member Gabe Albornoz to conclude this column. These are his comments prior to voting for Luedtke’s amendment.
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I support the notion of the need for an enhancement of the recordation tax. I do. But I think this is a really big swing. And I think that this could ultimately end up being de minimis. Because this tax cannot and should not be looked at in isolation. We are deliberating right now a possibility of a ten percent property tax increase across the board. We just found out a few days ago that the impact taxes for both transportation and school impact taxes have gone up – almost double digits for transportation impact tax and between 40 and 70 percent for school impact taxes. Our real estate market is the only economic engine indicator that has been exceeding projections over the last few years. It has been the golden goose. It has been what has funded so much of the projects that we all agree are so important.
But we also have to consider that, as was noted earlier, the assessed valuation of homes has increased dramatically. More than double digits over the last ten years. We have also seen just recently an increase in WSSC’s rates of 7 percent. There’s a possibility of electricity rate increases which we will be deliberating in the not too distant future. And the OLO report that came out in assessing this expressed some concern, that again, this could be de minimis over time.
We’re projecting that this brings in what it says it’s going to bring in but I’m concerned that when you take the totality of all of the taxes, both current and the ones that we are proposing, that it’s going to exacerbate a problem that is very real and acute. We are losing residents at the highest end of, here in Montgomery County, of incomes. And we are not supplanting them with new folks coming in. We have all talked about that we are competing as a region with our colleagues in Northern Virginia and the District of Columbia both for talent, for businesses, but for also those residents that are in a position to be able to – through their means – help us afford our social safety net programs, our capital projects and so much more.
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Thanks to Council Member Albornoz. How does that competition look now?