By Adam Pagnucco.
County Executive Marc Elrich has sent a memo to the county council withdrawing his proposal to raise the county’s property tax. Instead, he is proposing to raise the county’s income tax and make that increase retroactive to January 1.
Montgomery County has charged the maximum income tax rate allowed by the state for more than twenty years. That used to be a flat 3.2%, but in passing this year’s budget package, the General Assembly allowed counties to charge a maximum rate of 3.3%. (The move was made to allow counties to pay for shift and shaft costs passed down by the state.) Elrich wants to use that authority immediately instead of levying his property tax increase.
One note. Since 2021, counties have been allowed by the state to establish tax brackets for their income taxes. For whatever reason, Elrich’s proposed income tax increase would have no bracket, thereby applying to everyone. He would like to increase funding for the county’s earned income tax credit to blunt the impact for the lowest-earning taxpayers. Update: an amendment to this year’s state Budget Reconciliation and Financing Act prevents counties from implementing brackets for the new 0.1% increase in tax year 2025.
Elrich’s income tax hike comes on top of the massive statewide income tax hike imposed by the General Assembly, of which MoCo would pay a whopping 49%. Income tax rates for Maryland’s highest earners will now be double what they are in Virginia.
Of course, Elrich cannot impose taxes by himself. The county council will decide whether to increase the property tax, the income tax, both of them, neither of them or any other combination of taxes and fees. (Elrich also proposed a gigantic solid waste fee hike.)
Elrich’s memo is reprinted below.
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MEMORANDUM
April 22, 2025
TO: Kate Stewart, President
Montgomery County Council
FROM: Marc Elrich, County Executive
SUBJECT: Amendments to the FY26 Recommended Budget
When I transmitted my FY26 Recommended Operating Budget, I highlighted the great uncertainty regarding how the Maryland General Assembly would close the State’s significant budget gap. Thus, my recommended budget did not consider any revenue enhancements resulting from State tax changes or many costs shifted to the County for either County government or Montgomery County Public Schools (MCPS). Now that the State budget package has passed the Maryland General Assembly, I am writing to communicate that I will send over budget amendments by the end of the week that will reflect changes to both revenues and expenditures in my recommended budget, and to offer some alternatives that you may want to consider as the Council is holding public hearings on the budget.
Revenues
As you are aware, my recommended budget included a modest 3.5 cent increase to the education supplemental property tax rate and a $168 increase to the County’s Income Tax Offset Credit (ITOC) Property Tax Credit to completely offset that increase for homeowners whose principal residence is assessed at or below $495,000. These changes were estimated to increase County revenue by $56.3 million to be used exclusively to fund MCPS. I intentionally coupled these two measures because they were the only tools available to introduce some progressivity; in fact, homeowners with homes assessed at less than $495,000 would actually have seen a modest decrease in their property taxes.
The Maryland General Assembly has made several changes to the State’s income tax structure – including changes to income tax brackets, income tax rates, the capital gains surcharge, standard deduction amounts, and itemization. In addition, the Maryland General Assembly is allowing counties to increase their local income tax rates from 3.2 percent to 3.3 percent.
Given this change, I am proposing to withdraw the property tax increase and instead raise the income tax rate by .01 percent to 3.3 percent, and to make that rate change retroactive to January 1, 2025. This change, coupled with the other revisions to the State’s tax code, is preliminarily estimated to generate between $70 and $80 million for County government in FY26 and $60 to $70 million annually thereafter. This change will allow us to continue to fund both MCPS and vital County services, while mitigating the impact on individuals who might find themselves without employment because of recent action by the Federal government.
To support homeowners facing multiple necessary tax and fee increases, I am modifying my recommended increase in the ITOC Property Tax Credit, which I now recommend be increased by $60 to $752. This increase will provide meaningful relief to homeowners who may be experiencing higher overall bills due to various budget adjustments this fiscal year.
Raising revenues via the income tax is generally more progressive than a property tax increase. Yet, I want to give some additional relief to our lowest earners and am recommending an increase in the Working Families Income Supplement (which piggybacks on the Federal Refundable Earned Income Tax Credit). I propose we increase our match of the State’s REITC from 56 percent to 65 percent.
These changes will remove the property tax increase, give homeowners and low-income earners some relief, fully fund the MCPS request, address some of the Council’s ongoing concern about a structural deficit, and leave reserves over 11% to address known upcoming FY26 expenses as well as impacts from the ongoing impacts of the Trump Administration.
In approving the FY25 Budget, the Council approved half of a requested rate change for the Department of Housing and Community Affairs. My recommended budget inadvertently omitted including the second phase of that rate change, and I will be submitting a technical change to account for this revenue.
The Fire and Rescue Service has completed a review of current trends in Emergency Medical Services Transport (EMST) and Mobile Integrated Health (MIH) fees, and I will be sending over amendments to adjust those fees.
Expenditures
Pension Cost Shifts – Teacher and Community College Personnel
The Maryland General Assembly has increased the County’s contribution for pensions for teachers and community college personnel. When I submitted my budget, estimates for this cost shift ranged from $20.9 million to $41.7 million. Thankfully, it appears that the total cost shift will be the lower end of that range. Thus, I will submit a budget amendment next week to fully support the Board of Education’s FY26 Budget request, as well as covering the cost of the shift to Montgomery College.
Cost Sharing – Operation of the State Department of Assessments and Taxation’s Montgomery County Office
The Maryland General Assembly has altered the cost-sharing formula for the State Department of Assessments and Taxation’s Montgomery County Office. Currently, we share the cost of operating this office with the State on a 50-50 basis. The General Assembly has increased our share of operating the office, such that the County will now be responsible for 90 percent of the cost.
Parks Department
My FY26 Recommended Operating Budget inadvertently underfunded the amount necessary to fully fund the Parks Department’s employee contract obligations. I intend to submit an amendment to increase the Parks Department’s budget by approximately $1 million to correct this error.
In the meantime, should you have any questions, please reach out to Jennifer Bryant, Director of the Office of Management and Budget.
