Category Archives: Property Taxes

County Screw-Up Led to Tax Hike Proposal

By Adam Pagnucco.

Buried in the fine print of County Executive Marc Elrich’s recommended FY21 operating budget is a shocking revelation: the executive claims that a mistake made by county revenue estimators two years ago has caused tens of millions of dollars in losses for the county.  One reason why the Elrich administration is proposing a tax hike now is to recover that money.

To understand what happened, we have to understand how the county’s charter limit on property taxes functions.  Here is the exact text of the charter limit.

Unless approved by an affirmative vote of all current Councilmembers, the Council shall not levy an ad valorem tax on real property to finance the budgets that will produce total revenue that exceeds the total revenue produced by the tax on real property in the preceding fiscal year plus a percentage of the previous year’s real property tax revenues that equals any increase in the Consumer Price Index as computed under this section. This limit does not apply to revenue from: (1) newly constructed property, (2) newly rezoned property, (3) property that, because of a change in state law, is assessed differently than it was assessed in the previous tax year, (4) property that has undergone a change in use, and (5) any development district tax used to fund capital improvement projects.

In plain English, what this means is that the county’s real property tax receipts (with a few exceptions) may not rise at an annual rate exceeding inflation unless the entire council votes to exceed it.

Calculating the charter limit involves three basic steps.  First, one must estimate the value of the assessable base subject to the charter limit.  Second, one must calculate the value of the many property tax credits offered by the county.  Third, one must calculate the levels of real property tax rates that, when applied to the assessable base and taking account of the credits, produce an increase in receipts equal to the rate of inflation.

Hence, estimating the size of the assessable base is critical.  If it is underestimated, property tax rates will be set too high and the charter limit will be violated.  If it is overestimated, property tax rates will be set too low and the county will not collect as much revenue as it could at the charter limit.  These are extremely technical considerations but this affects tens of millions of dollars (at least) for the county budget.

In his recommended budget, the county executive makes this statement:

I am proposing this supplemental tax rate this year to partially offset an unexpected underperformance of the property tax for the last two years. In preparing the FY19 County budget, the taxable property base of the County was overvalued. As a result, the property tax rate needed to generate revenues at the Charter limit for the past two years was set too low. This resulted in lost revenues of $80 million, now permanently embedded in our revenue projections.

The amount of revenue lost by this mistake was $35 million in FY19 and $45 million in FY20.  Because of compounding, the lost revenue will rise each year unless it is recovered.

It’s important to note that Elrich was not yet the county executive when the FY19 charter limit was estimated.  That was done by the finance department in former County Executive Ike Leggett’s last year.

Must the losses be stanched?  The county usually allows property tax receipts to rise up to the charter limit each year, but there is nothing in county law requiring that.  For example, in FY13, Leggett recommended level-funding of property tax receipts, which actually kept them below the charter limit.  The amount of forgone revenue was estimated at $26 million that year, which would have risen in subsequent years.  However, this was not the result of an estimation mistake.  The county had doubled the energy tax two years before and had not sunset it as was promised.  Forgoing a bit of property taxes was something of a consolation.

This issue must be frustrating for all concerned.  County leaders have a choice.  They can live with the mistake and move on.  Or they can tell voters, “We screwed up and now we need to raise your taxes.”

If option number two is selected, how do you think folks will respond to that?

Dear reader, if you are someone who is considering running for office someday, remember this story.  Something terrible could happen to you when you run.

You could win!

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Elrich Then and Elrich Now

By Adam Pagnucco.

The big news coming out of County Executive Marc Elrich’s recommended Fiscal Year 2021 budget is that he is proposing a tax hike.  As you might imagine, I will have something to say about the specifics of that tax proposal in future days.  But first, it’s worth remembering what Elrich said about taxes when he was running for executive two years ago.  Over and over, he made statements ranging from saying that he did not want to raise taxes all the way to flatly refusing to raise them.  Consider the following:

1.  In July 2018, Elrich told WAMU that he “doesn’t want to raise taxes, but would like to see developers pay a greater share of infrastructure costs in the county.”

2.  In a candidate forum in October 2018, Elrich said, “I’m not raising taxes and I’m not raising fees.”  Check out Elrich’s remarks at 1:25 of this video.

3.  In May 2018, Bethesda Beat reporter Lou Peck asked Elrich this question:

As county executive, could you foresee yourself proposing a property tax increase above the charter limit of the rate of inflation, requiring another unanimous council vote?

Elrich replied:

I would seriously hope not. I feel that before you go talk about a tax increase, I would have to demonstrate to people that I’ve done everything I can do to lean out the county, to make sure we’re as efficient as possible, that I’ve taken people and been able to repurpose them, rather than just going to taxes first. I think the days of going to taxes first are over.

4.  In November 2018, Elrich said the following to Source of the Spring:

“A lot of people ask me about taxes,” Elrich said. “One of the issues in the campaign, people said, ‘Oh, Marc is going to bring in all these massive numbers of social programs and raise taxes on everybody.’ And actually that’s not what we’re doing. We know that the budget is going to be constrained.

“We’re pretty committed to staying inside the box and trying to run the government more efficiently,” he continued. “I’ve been telling people I’ve got $5.5 billion or more in revenue, and if I’m going to look for doing new things and being creative, I’m going to look at the revenue I have [and] figure out how to use it better. I think we can do a better job.”

5.  Immediately after he was elected, WAMU asked Elrich about taxes.

Despite being Maryland’s largest county with more than a million people, Montgomery County tax revenues aren’t growing fast enough to keep up with rising costs, Elrich said.

But, he said, a tax increase is out of the question.

“If you don’t handle the money you have better, you’re gonna have a hard time doing what you’re doing today, let alone doing things that you need to [in the future],” Elrich said. “But I think it’s actually a good thing to have this decision that there’s not going to be additional taxes because it means you actually have to think about what you’re doing.”

As a candidate, Elrich proposed an alternative to tax hikes: restructuring the government to increase efficiency and save money.  In a November 2018 op-ed in the Washington Post, Elrich wrote:

Far from saddling taxpayers with higher bills, I will streamline county government. Unions and their members, our county’s workforce, know and trust me. That is why we announced our plan to restructure county government together. Our county is facing difficult financial times; without thoughtful changes, employees will face across-the-board cuts.

Elrich elaborated on his restructuring plans in his 2018 questionnaire response to the Greater Silver Spring Chamber of Commerce.

I have explained how I would begin to rethink government in my First 90 Days Financial To-Do List, which you can find on my website. In this list, I lay out how I would initiate a long-term financial plan, increase the net profit contribution from the Department of Liquor Control, begin a structural review of county departments in partnership with the county workforce, implement a labor-management partnership called gainsharing (in which both parties agree on targets for improving performance and reducing cost and everyone receives a share of the savings generated), leverage a business process improvement system called Lean, assess the appropriateness of county reserve levels, improve data practices, review non-competitive county contracts, establish an innovation fund, increase government accountability, and develop budgets that prioritize spending and ensure that the county meets financial commitments in a sustainable way.

After Elrich’s election, the Sentinel interviewed him and reported, “Elrich said he plans to restructure the County government to make it run more efficiently, saying that doing so will help pay for the new programs he proposes without needing to raise taxes.”

So according to candidate Elrich, there would be no need for tax hikes because he would work with the unions to restructure government and save money.  What is his actual governing record through his first two budgets?

1.  Elrich’s recommended FY20 operating budget contained an increase of 82 full-time equivalent (FTE) positions in county government.  This does not include position increases in other agencies like MCPS, the college or park and planning.  The personnel cost increase recommended for county government was $37 million.  For the three county government unions, Elrich negotiated contracts containing raises of up to 9.4% for some employees.

2.  Elrich’s recommended FY21 operating budget contains an increase of 189 FTEs in county government with a personnel cost increase of $21 million.  Again, this omits increases in MCPS, the college and park and planning.  Elrich’s negotiated contracts with the three county government unions contain raises of up to 8% for some employees plus lump sum bonuses of $1,000 and longevity increases for some employee categories.

3.  The county council trimmed Elrich’s contract with MCGEO last year but his contracts and increases for managers and non-union employees this year will cost a combined $27.4 million in FY21 and $37.7 million each year thereafter.

And so, if there has been any restructuring at all, it has not saved any money or created any obvious new efficiencies.  Instead of streamlining government – as he said he would do – Elrich just wants a tax hike.

Would anyone like to rerun the 2018 county executive election right about now?

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Is This the Worst Communications Debacle in County History?

By Adam Pagnucco.

As MoCo residents are just now starting to find out, County Executive Marc Elrich has recommended a property tax hike as part of his Fiscal Year 2021 budget.  And how did they find this out?  The first mention of it came from a county council statement released at 1:05 PM today opposing the tax hike.  As of this writing, the public knows little about the budget other than the fact that it contains a tax increase.

With the coronavirus spreading and the local economy on its knees, how do you think folks are going to feel about that?

Let’s set aside for the moment any analysis of the merits of the tax hike.  (That will come.)  Instead, let’s consider how a competent administration would try to roll this out.  In the past, administrations held press events with the council on the mornings of their recommended budget releases.  Right after those events, press releases went out containing loooooooong lists of all the goodies in the budgets.  More money for schools?  Check.  More social workers?  Check.  Increased numbers of police officers?  Check.  Big Macs for every girl and boy (or quinoa for the healthy eaters)?  Check.  Doug Duncan, Ike Leggett – it didn’t matter who it was, they all put on a Santa cap and handed out cookies from the chimney, at least when there wasn’t a recession.

But this budget contains a tax hike.  No problem, plenty of budgets in the past contained tax hikes.  You sell those tax hikes based on what they buy and other factors making them necessary.  Leggett, for example, sold his FY11 doubling of the energy tax hike as being the only way that he could preserve the bond rating.  In FY17, the county council sold its 8.7% property tax increase as an “Education First” budget.  It didn’t matter so much whether they were right.  The point is that they had an argument to make.

And now to today.  The administration was always going to face hurdles in selling a tax hike.  After all, the council just two weeks ago said that they didn’t want more taxing authority from the state because they weren’t interested in raising taxes.  So what do you do?  First, you line up advocates who benefit from the tax hike and forge them into an army.  That shouldn’t be so hard since the teachers, the service employees, MCGEO, the non-profits, the enviros and lots of other stakeholders are getting a piece of the new money either directly or indirectly.  Invite them to your presser.  If the coronavirus prevents that, get them in writing.  Have them make videos.  Include supportive quotes from them in your own communications.  Have them all up team up on an online petition.  (MCGEO already has one that they promoted through a mailer.)  Have them send out supportive blast emails and social media posts the very morning on which the budget is released.  And so on.  The point here is that this isn’t just the executive’s budget.  It belongs to all of these other groups too.  This makes the council members understand that they would pay a price by voting no.

The budget isn’t drafted overnight; it takes weeks to prepare.  That means the executive branch had time to get ready.  They should have lined everything up and beat the council (and everyone else) to the punch.  Yeah, the critics are going to cry about it, but let them go last so YOU can define this budget first.  Instead, the administration did… apparently nothing.  There was no morning press event, even a livestreamed one, and there were no preemptive communications – at least none that I saw.  The very first communication released from the county came from eight council members who opposed the tax increase.  As of this writing, other than a brief statement from Elrich defending the tax hike, there is STILL no comprehensive communication from the county listing all the benefits of the budget.  Is anyone other than Elrich out there defending it?

What a disaster!

So who should be upset about this?  It shouldn’t be the tax opponents.  The administration’s incompetence allowed them to define the budget around the tax increase.  Robin Ficker has to be bellowing in joy right now.

The folks who should be really upset are the ones who might benefit from the tax hike.  A proper communications effort should have been designed to get the council to hold off on expressing opinions about the increase, thereby buying time for the advocates to lobby them and start shifting some votes around.  Instead, eight council members said no immediately in the most public way possible.  (Council Member Nancy Navarro, who has chaired the council’s tax-writing committee for ten years, followed up with a hell no.)  It would be very hard for the council to move off that now.  As for the advocates, instead of waging a common battle for a bigger pie, they might have to fight each other for scraps as the council figures out how to reduce the executive’s increase in county expenditures.

And so, because of an epic communications debacle, a tough sell has become damn near impossible.

Congrats to the administration.  Or something.

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Elrich Defends His Tax Hike

By Adam Pagnucco.

Forty-five minutes after eight members of the county council released a statement opposing the property tax hike contained in County Executive Marc Elrich’s recommended budget, the executive has released a statement defending it. We reprint it below.

Montgomery County Executive Marc Elrich’s Statement on Release of his Recommended Fiscal Year 2021 Operating Budget

As required by the County Charter, I submitted my annual budget to the County Council earlier today. My staff and I have been working on this budget for more than six months. During that time, we received budget requests from the community, the school system, our departments and Councilmembers that help to shape this budget proposal. The three-cent increase is a special tax that is specifically designed for education and would help to fund the budget request from Montgomery County Public Schools.

At the time that we were developing this budget, COVID-19 was not on the horizon and now, during these unique and difficult times, we have to factor in its impact. I stand by the need for us to increase our investment in education, but I understand the unique situation that we are currently in. We have all known from the beginning that funding the school system’s request could not be funded within anticipated revenues and, as we have been working at the State level to increase school funding through the Build Act and Kirwan, I believe that we should make the additional investment in schools that they need today, even if it required a special tax increase dedicated to the schools.

I combined this proposed three-cent special schools tax increase with a $108 increase in the County’s property tax credit so that a homeowner with a $500,000 home would see about a $42 annual tax increase—the three cents would raise the taxes by $150, but combined with the County property tax, the net increase is $42. A one million dollar home would have a net $192 per year increase. 

As in every budget cycle, I have informed the Council that I will work with it to find ways to deal with the budget.

Dealing with today’s emergency situation and having a long overdue community conversation about the future we want to build for our County will be a challenge in coming weeks.  The challenges we face in areas such as education, economic development and transportation will still be there long after this crisis is over and we can’t take our eyes off the future no matter how hard those decisions will be. I know that in today’s context it is hard to determine what the future looks like, but we will balance addressing our present situation with planning for the future of this County. And we will do it together.

To learn more about the recommended operating budget, go to https://www.montgomerycountymd.gov/operatingbudget

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Elrich Recommends Tax Hike, Council Says No

By Adam Pagnucco.

County Executive Marc Elrich has proposed a 3.18 cent property tax hike in his recommended Fiscal Year 2021 operating budget, which was released today. The budget does not state the exact size of the tax hike, but because state data indicates that the county collects almost $20 million per penny in real property taxes, the tax hike is probably in the vicinity of $60 million.

Soon after receiving Elrich’s budget, the entire county council except for Council Member Tom Hucker released a statement opposing the tax hike. Their statement is reprinted below.

Statement by Montgomery County Council President Katz and Councilmembers Albornoz, Friedson, Glass, Jawando, Navarro, Rice and Riemer on the County Executive’s Fiscal Year 2021 $5.9 Billion Operating Budget Recommendation

ROCKVILLE, Md., March 16, 2020—Montgomery County Council President Sidney Katz and Councilmembers Gabe Albornoz, Andrew Friedson, Evan Glass, Will Jawando, Nancy Navarro, Craig Rice and Hans Riemer, made the following statement on County Executive Marc Elrich’s proposed 3.18 cent property tax increase in the fiscal year 2021 Recommended Operating Budget:

“Our focus in the midst of an unprecedented health emergency must be on bringing together businesses and residents, nonprofits and government to address the immediate crisis we face. We also must provide as much certainty and support as we can for county residents who understandably fear what the economic realities of this global pandemic will have on their jobs, retirement savings, small businesses and families.

This is a time for cautious decision-making, not property tax increases. We look forward to working with the County Executive to address the initiatives in his budget recommendations.”

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Non-Incumbents Embrace Moon Country Club Bill

By Adam Pagnucco.

Delegate David Moon’s local bill on country clubs, which would have phased out a $10 million special tax break received only by country clubs with golf courses, did not get much love from elected officials.  The County Council did not support it (despite recently passing $53 million in budget cuts), the County Executive outright opposed it and Moon’s colleagues in the MoCo House Delegation killed it on a 17-7 vote.  This story is not quite over though because Moon has a statewide bill that would not eliminate the tax break but would limit country clubs’ assessed land value to one percent of market value.

Elected officials may not have embraced Moon’s bill but there is another group of people who absolutely loved it: non-incumbent candidates for office.  In the wake of the bill’s death, MANY candidates made clear they would support it if elected.  Here’s a sample.

Bill Conway (Council At-Large) tweeted in support of the bill.

Danielle Meitiv (Council At-Large) wrote in support of the bill on Facebook and criticized those who voted against it.

Andy Hoverman (House D-39) took out a Facebook ad supporting the bill.  Among the District 39 Delegates, Shane Robinson voted for the bill while Kirill Reznik and Charles Barkley (who is running for Council At-Large) voted against it.

Three non-incumbent candidates for Delegate in District 18 spoke out in favor of the bill on Seventh State’s Facebook page.

Emily Shetty said, “We have a budget deficit and are struggling to fully fund schools and other high priority services. I support David’s bill, and appreciate and would have supported the amendments he made to further tailor it as well. I don’t think it’s fair for private clubs to benefit from tax breaks otherwise unavailable to families and other employers in the state.”

Mila Johns said, “I 100% support David Moon’s bill. I have previously stated that on this page and I’m extremely grateful to Jeff Waldstreicher and Ana Sol Gutierrez for their principled vote. I read Al Carr’s reasoning and while I understand how he came to his decision, I disagree with it. It’s simply hard to believe so many in our county discarded a very reasonable way to raise revenue in a time of such painful budget shortfalls.”

Leslie Milano said, “Here’s where I stand: We cannot continue to subsidize a luxury restricted to the wealthy when taxpayers do not have access to the very thing they are subsidizing. The fact that only the very wealthy can access this subsidized luxury is extremely distasteful, especially when there is a great deal of poverty in our county as well as a budget shortfall of $120M affecting a variety of areas for every taxpayer. I would sponsor or co-sponsor a revised bill come January to ensure that clubs are paying their fair share. I agree with Ike Leggett that MoCo clubs shouldn’t be taxed differently than clubs in other counties, but I think we need to course correct MoCo clubs first with a local bill – as a sign of good faith – and in a second bill address remaining clubs in the state, which is David’s proposal. It will be easier to pass in two stages and moves us in the right direction.”

Among the District 18 Delegates, Al Carr voted against the bill while Ana Sol Gutierrez (who is running for Council District 1) and Jeff Waldstreicher (who is running for Senate) voted for it.

Several other candidates sent us statements in support of the bill.  They include:

Brandy Brooks (Council At-Large)

Our budget and tax policies should be built around the mutual concept of the common and each contributing their fair share. The common good should guide us in our decisions as well as our interactions with one another. It’s clear the special tax breaks for country clubs benefit only a few.  When wealthy special interests have a major influence over the policy discussions — even around common sense bills to create tax equity — our communities suffer. The county faces a huge budget shortfall, a severe housing crisis, income inequality, and education and opportunity gaps in our schools, to name a few of the pressing issues. Yet, the arguments made by those opposing the bill fail to address these needs. Instead, the country club lobbyist gave lawmakers an ultimatum: kill this bill or workers lose their jobs. All too often, hourly and low wage workers are the first to suffer when management says they need to tighten their belt.   Our policymaking should be focused on the common good. Lawmakers need to hear the voices of everyday people over corporate and big money interests. Our voices — the voices of everyday people — must be central in our policymaking, otherwise we further divide the county into the haves and have nots.

Hoan Dang (Council At-Large)

I strongly backed Delegate Moon’s bill to phase out the special property tax break for Montgomery County country clubs. I was disappointed that this bill was killed by special interests in this County.   This action is another example of why we need more efforts to take money out of politics, such as the public financing of all candidates in Montgomery County from School Board to the General Assembly.

Seth Grimes (Council At-Large)

I support ending special tax treatment for country clubs. Thanks to David Moon for taking a shot. We’ll try again in 2019.

Ben Shnider (Council District 3)

It’s common sense that clubs with annual dues in the tens of thousands of dollars should pay their fair share in taxes when we’re struggling to keep up with vital investments in transportation, school facilities, and other critical infrastructure. It’s not sustainable to keep raising taxes on working families in the County to meet our budgetary needs.

Vaughn Stewart (House D-19)

It’s a shame that this proposal to bring the taxes paid by country clubs in line with the far higher taxes paid by working families and seniors failed to generate wide support. The extra $10 million of revenue per year would be especially beneficial at a time when the county is cutting school funding to address a $120 million budget shortfall caused in part by wealthy residents strategically withholding capital gains. If we can’t afford to pay teachers and staff what they deserve, we can’t afford tax breaks for Montgomery County’s Mar-a-Lagos. I’ve spoken to thousands of District 19 residents since starting this campaign, and they want to know how I’m going to reduce their healthcare costs, create alternatives to traffic congestion, and fully fund their kids’ schools. Not one of them has asked me to continue subsidizing the golf games of our county’s wealthiest few. I look forward to helping Delegate Moon revive this bill next session.

Editor’s Note: All three District 19 Delegates – Bonnie Cullison, Ben Kramer and Marice Morales – voted against the bill.

Chris Wilhelm (Council At-Large)

I’m disappointed that our County and State representatives weren’t willing to stare down the country club lobbyists on this bill, especially when the County is getting ready to balance the budget by cutting from education and other important services. I see this issue through a racial equity lens: how can we claim to “resist” and stand up for our diverse community when so many of our officials were unwilling in this instance to help shift the tax burden from lower and moderate income residents to the ultra wealthy? This is why Montgomery County needs to stop patting itself on the back for being the most progressive place in the world; we aren’t.

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Additionally, institutional supporters of Moon’s bill include SEIU Local 500, MCGEO, National Nurses United, Montgomery County Young Democrats and the Sligo Creek Golf Association (which advocates for a public golf course).

Moon’s statewide bill, which limits but does not abolish the country club tax break, is headed to a hearing before the Ways and Means Committee tomorrow (February 27).  The Chair of the Committee, Delegate Anne Kaiser (D-14), voted against the local version of the bill.

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Moon Explains Failure of Country Club Tax Break Bill

By Adam Pagnucco.

In the wake of the failure of his bill that would have phased out a special property tax break for MoCo country clubs, the Facebook page of Delegate David Moon (D-20) saw an eruption of commenters expressing outrage, disbelief and mockery.  (Some raised the prospect of starting country clubs in their back yards to get similar tax breaks.)  In response to repeated requests, Moon analyzed the arguments against his bill and told the story of how it died.  Moon’s account contains references to a well-intended amendment by Delegate Eric Luedtke (D-14), who tried to narrow the bill to allow it to pass.  But he also describes the tactics used by a lobbyist hired by the clubs to kill the bill which demonstrate just how far some special interests will go to protect what they have been granted by government.  We intend to find out what that lobbyist was paid when reports come due.

We reprint Moon’s breakdown of the arguments against his bill below.

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Let me finally try and add some detail to this bill.

Argument 1 – Treating MoCo Differently Than Other Counties: The bill as originally introduced repealed these tax breaks for all of Montgomery County’s golf courses. State law doesn’t allow counties to asses property differently from one another, so the bill needed a constitutional amendment (subject to approval by voters), to give MoCo permission to repeal the Country Club tax breaks. Some people (including Ike Leggett) argued that MoCo shouldn’t be taxing country clubs differently from other counties. I found that argument unpersuasive, as MoCo has a majority of the state’s country clubs receiving this tax break. Additionally, MoCo loses far more money from this tax break than other counties. This is because in 2002, state law created a flat fee for country club assessments at $1,000 an acre. The problem with that is that in MoCo, many of our country clubs are sitting on land worth between $300,000 and $1 million per acre. You will not find that scenario in any other county, as their land is worth far less. So the flat fee seriously harms counties with valuable land. I offered one amendment to change the bill to simply say the county should decide the country club tax assessments, since they are the ones losing money from this. That amendment failed narrowly. But even still, some people simply had a problem with amending the state constitution to fix this problem. I honestly don’t care what the mechanism is to address the issue (we inserted slot machines into our state constitution, for example). I also have a statewide bill (HB 1340) that addresses this issue by changing the $1,000/acre assessment to 1% of market value, to account for the different land values in Maryland. A few of my colleagues suggested this issue should be taken up as a statewide measure and didn’t think it made sense as a local bill. But to be honest, one of the reasons I did both a local bill and a statewide bill is that it will likely be far more difficult to persuade lawmakers from around the state to fix this broken system. It now remains to be seen whether lawmakers who opposed my MoCo bill on the grounds of treating all the counties the same will now support the statewide bill. I will forward the state bill to the County Executive to see if it now addresses his stated concerns.

Argument 2 – Some Country Clubs Are In Poor Financial Shape: A common argument made against my bill is that of the 15 or 16 MoCo golf courses receiving this tax break, not all had wealthy members. Some argued that they were teetering on the brink of closure and would shut down if this bill passed. The country club lobbyist got all the janitors and service staff from the clubs to come to Annapolis and tell lawmakers they would all be fired if the bill passed. It was a true spectacle. I tried to counter this argument with amendments to make the bill more need-based. I proposed that we cap the tax discount at the first $400,000 per acre of market value, so that almost all of the clubs would be unaffected except for the super wealthy ones that charge huge initiation fees ($40,000 to $70,000 just to join). The country club lobbyist opposed this and other amendments. Basically, they were saying this would put courses out of business, but when we proposed amendments to make that not the case, the lobbyist opposed those fixes, too. Nice move! To be fair to my House colleagues, they never had an opportunity to vote for this version of the bill, because we didn’t adopt the narrowing amendments in subcommittee.

Argument 3 – Country Clubs Provide Jobs & Do Charitable Work: Another routine argument during this debate was that the country clubs employ people and let charities use their facilities. My response here is that plenty of entities employ people and do charitable work AND pay their taxes. But what this argument really turns on, is the idea that passing this bill would put the clubs out of business. As I noted above, I had an amendment to address that issue, but the country club lobbyist (who was formerly a State Senator who sponsored the bill for country club tax cuts) opposed the amendment. Come on now.

Argument 4 – Open Space & Those Evil Developers!: Yet another frequently cited argument against my bill was that the country clubs would close and lead to rampant development. The Sierra Club ought to go do a membership drive at country clubs, because apparently there are hundreds of open space conservation activists at country clubs, and we didn’t know it! Kidding aside, there are a number of reasons why this is a flawed argument. First, it assumes that country clubs will close BECAUSE OF this bill. As I noted above, I offered to amend the bill to exclude clubs that are not wealthy. Second, you would have to believe that a wealthy club with hundreds of acres of land worth $1 million/acre and waiting list to join would shut the entire club over a tax bill increase in the thousands. As some have noted, the wealthy clubs could simply add some members or sell a tiny piece of their land IF this was really an issue (and I doubt it is, with the amendments I offered). Moreover, the teetering country clubs are in trouble because there is a generational shift away from golf being a popular hobby. We didn’t throw money at Blockbuster or Tower Records to keep those businesses open when the market shifted on them, but then again, their customers were not wealthy and politically influential people. Additionally, nothing would stop the county from exercising its zoning and staging authority over a failed country club, and I would be willing to bet that’s exactly what would happen if one of these clubs failed. Let’s also be clear that even if you don’t like development, only ONE of these clubs was in the Ag Reserve, and Eric Luedtke offered an amendment which I supported to exclude that club (it was rejected). Many of the clubs inside the beltway are in areas of the county that are zoned for development (not open space), per the master plans that guide county development. If people have a problem with that, they should argue for extending the Ag Reserve to the DC border, near highway exits and transit (an absurd policy proposition). Given that many of these inside-the-beltway clubs are located in highly desirable school districts, this amounts to an argument for residents who are privileged enough to live in the W cluster keeping out others who also want the privilege to live there. The tax implications of this de facto development moratorium are far greater than $10 million a year for the county. Moreover, a supermajority of MoCo lawmakers also cosponsored the bill to drop 50,000 Amazon workers onto the county without worrying about the development implications. But remember once again, that there were amendments offered to take this development issue off the table.

When I first embarked on this effort to rein in country club tax breaks, I thought this would be a simple bill. Boy was I wrong! I now know more than I could’ve imagined about this issue, and the more I learn the more I’m convinced that this situation is seriously messed up. I’ll be back with more legislation on this issue next year, including looking at how we enforce the anti-discrimination provisions regarding country clubs and pesticide restrictions for clubs receiving these tax breaks (since the environmental, open space argument is being made!).

In the meantime, I encourage everyone to listen to Malcolm Gladwell’s fascinating podcast on this topic.

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MoCo Delegates Kill Moon Country Club Bill

By Adam Pagnucco.

Montgomery County’s Delegates have killed a local bill proposed by Delegate David Moon (D-20) that would have eliminated a special tax break for country clubs contained in state law.  Seventeen Delegates voted to kill the bill while seven voted in its favor.

Under current state law, the State Department of Assessments and Taxation (SDAT) is permitted to enter into agreements with country clubs possessing golf courses that would set the assessed value of their land at $1,000 per acre.  Moon’s bill would have phased out these agreements in Montgomery County subject to approval by voters.  The fiscal note on the bill indicated that the state government would have received an extra $1 million a year in tax revenue and the county government would have received an extra $10 million a year once the agreements were ended.  Despite the fact that the county just reported a $120 million shortfall, neither the County Executive nor the County Council supported the bill.

Since it was a local bill, the bill needed to clear Montgomery County’s House delegation before advancing to further votes by the county’s Senators and the full General Assembly.  That vote took place this morning.  After two unsuccessful attempts were made to amend the bill, Delegate Kathleen Dumais (D-15) made an unfavorable motion on it, which is tantamount to a no vote.  Delegate Sheila Hixson (D-20) seconded the motion.  Seventeen Delegates voted in favor of that motion and seven voted against.  The seven Delegates who voted in support of Moon’s bill were Moon, Ana Sol Gutierrez (D-18), Aruna Miller (D-15), Andrew Platt (D-17), Jeff Waldstreicher (D-18), Shane Robinson (D-39) and Jheanelle Wilkins (D-20).  We reprint the vote tally below.  In reading it, remember that a “Yea” vote is a vote to kill the bill.

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Moon Country Club Bill Could Generate $10 Million for MoCo

By Adam Pagnucco.

A local bill introduced by Delegate David Moon (D-20) that would end property tax breaks for country clubs would eventually generate $10 million a year for Montgomery County Government according to General Assembly analysts.  That’s welcome news for the county, especially considering its current budgetary difficulties.

Under current state law, the State Department of Assessments and Taxation (SDAT) is allowed to strike agreements with country clubs having golf courses to cap the assessed value of their land.  To be eligible for such agreements, the clubs must have at least 100 members who pay dues averaging $50 or more annually for each member; restrict use of their facilities primarily to members, families, and guests; have at least 50 acres of land; and have a golf course with at least 9 holes and a clubhouse.  In practice, the agreements limit assessed land values to $1,000 an acre.  In return for the assessed rate, a club with an SDAT agreement must agree not to sell its land for subdivision and to not discriminate on race, color, creed, sex or national origin.  If a club with an agreement does sell its land for subdivision, it must pay back taxes equivalent to what it would have been paying without an agreement.

Not long ago, your author asked SDAT for all of its agreements with country clubs in Montgomery County.  SDAT sent us ten of them but we later learned that there are actually fifteen of them in the county.  One of them was signed in 1980 and three more were signed in 1981; all four of these are fifty year agreements.  Two more were transferred from prior owners.  One agreement, for the Lakewood Country Club in Rockville, was signed in 2017.  In tax year 2016, when the agreement was not effective, the club’s 175 acres had an assessed land value of $1.94 million.  Once the agreement takes effect, the club’s assessed land value will be $175,000 – a 91% reduction.

Moon’s local bill would abolish such agreements with country clubs in Montgomery County as of their expiration or June 30, 2029, whichever date is earlier.  Because Maryland’s state constitution requires uniform rules for the assessment of land, Moon’s bill takes the form of a constitutional amendment carving out MoCo country clubs and golf courses from that requirement.  The amendment would have to be approved by voters.  We understand that Moon may also introduce a statewide bill to deal with SDAT agreements everywhere.

The fiscal note on Moon’s bill indicates that MoCo country clubs with SDAT agreements have a combined 3,000 acres currently assessed at $3 million.  In the absence of the agreements, the fiscal note estimates that the club’s assessed land value would be $983.3 million.  So once the agreements are all gone by Fiscal Year 2030, the fiscal note estimates that the state would collect an additional $1 million a year in property taxes from the clubs and the county would get an additional $10 million annually.

That’s right, folks – if the country clubs simply pay property taxes at the same rate the rest of us do, the Montgomery County Government would get an extra $10 million a year.

Delegate Moon’s country club bill is the biggest no-brainer of all time.  There is no justification for the richest of the very rich to get a property tax break that no one else does.  And if they are required to pay the same as everybody else, the county government would get a nice revenue bump to help it deal with our significant and increasing needs.

We hope every single MoCo Senator and Delegate will join David Moon and support his bill.

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MoCo’s Giant Tax Hike, Part Six

By Adam Pagnucco.

Montgomery County’s giant tax hike will have consequences.  Here are a few of them.

1.  Term limits are more likely to pass.

There are several reasons why Robin Ficker’s newest term limits amendment will probably pass if he gathers enough signatures to place it on the ballot, but the tax hike is one of the biggest.  The last time the council broke the charter limit in 2008, voters responded by passing Ficker’s charter amendment to make tax hikes harder.  With a new tax hike in place, voters may be tempted to respond with term limits.

Ficker has taken notice.  He regularly runs Facebook ads linking term limits, the tax hike and the council’s 2013 salary increase like the one below.  Commenters respond predictably.

Ficker vs Elrich

Ficker may have a new ally in his quest to evict the council: MCGEO President Gino Renne.  After the council voted to abrogate his union’s collective bargaining agreement, Renne told the Post, “I’m tired of these clowns,” and said his union might support term limits.  An alliance between Gino Renne and Robin Ficker would be one of the strangest events in the history of MoCo politics.  Whoever can produce a picture of these two smiling and shaking hands will be awarded a gift certificate from Gino’s beloved Department of Liquor Control.

2. Outsider candidates could be encouraged to run for county office.

If term limits pass, two things will happen.  First, the County Executive’s seat and five seats on the County Council will be open in 2018.  Second, the tax increase will be blamed for the success of term limits.  Both factors could lead to the entry of outsider candidates with a message like this: “We need new leadership.  We need to do things differently.”  Translation: we need to run the government without giant tax hikes.

Some of these outsiders may use the county’s new public financing system to run.  But the strong performance of David Trone, who started with zero name recognition and won many parts of CD8, will encourage self-funders.  This being Montgomery County, there are a LOT of potential self-funders, including those who have previously run for office.  Candidates in public financing can raise as many individual contributions of up to $150 each as they are able to collect, but the system caps public match amounts at $750,000 for Executive candidates, $250,000 for at-large council candidates and $125,000 for district council candidates.  A wealthy self-funder could easily overwhelm candidates who are subject to these caps and make a mockery of public financing.

3.  More charter amendments on taxes are possible.

Ficker’s 2008 property tax charter amendment, which instituted the requirement that all nine Council Members must vote to override the charter limit on property taxes, was a mild version of his previous ballot questions on the subject.  His 2004 Question A, which would have abolished the override provision entirely, failed by a 59-41 percent margin.  Now that the 2008 amendment has been proven ineffective, Ficker could be encouraged to bring back his more draconian version soon.  In the wake of this new tax hike, would voters support it?

Passage of a hard tax cap would have very grave consequences for the ability of county government to deal with downturns.  In 2010, the County Council responded to the Great Recession by passing a tough budget combining cuts, furloughs, an energy tax increase and layoffs of 90 employees.  When the next recession comes, if the county has no taxation flexibility, it might have to pass a budget laying off hundreds of people and gutting entire departments.  If the levying of giant tax hikes in non-emergencies causes the voters to abolish the possibility of levying them in true emergencies in the future, it would be a serious calamity.

4.  Governor Larry Hogan is a big winner.

One of Governor Hogan’s favorite political tactics is to play the Big Three Democratic jurisdictions against the rest of the state, with the City of Baltimore being his prime target.  But he can also point to Prince George’s County, where the County Executive (and a potential election opponent) proposed a 15% property tax hike, and also to Montgomery County, where the council passed a 9% increase.  His message to the voters will be a simple one.

“Look, folks.  This is what you get when you allow liberal Democrats to have one-party rule: giant tax hikes.  That’s why you need people like me in office to stop them.”

How many MoCo Democrats will ask themselves this question: “What is easier for me to live with? Larry Hogan or nine percent tax hikes?” What do you think their answer will be?

Hogan received 37% of the vote in Montgomery County in 2014.  He had a 55% approval rating in MoCo according to a Washington Post poll last October.  A Gonzales poll taken in March found that registered voters in the Washington suburbs (defined as MoCo, Prince George’s and Charles) gave Hogan a 62.6% job approval rating, with 35% strongly approving.  If Hogan can use the tax issue to run in the low 40s, or even as high as 45% in MoCo, he will be very difficult to beat for reelection.

Reelecting himself is not Hogan’s only priority.  He would also like to elect enough Republicans to the General Assembly to uphold his vetoes.  That task is easier in the House of Delegates, where Democrats hold 91 seats, six more than the 85 votes required to override vetoes.  If the GOP can pick up seven seats, as they did in 2014, they can uphold the Governor’s vetoes on party line votes.  That would cause serious change in how Annapolis operates.  Could big tax hikes in Democratic jurisdictions like Montgomery help the GOP get there?

5.  It will be harder to get more aid from Annapolis.

In 2007, former Baltimore State Senator Barbara Hoffman commented to the Gazette on Montgomery County’s ultra-wealthy reputation in Annapolis.  “They have to overcome the view that they’re rich and trouble-free. … That’s not true anymore.”  She was right then, and she is even more right now.  The county has massive needs for transportation projects and both operating and construction funds for the public schools.  But when the county levies giant tax hikes on itself to pay for these needs, is it letting the state off the hook?  State legislators from other cash-strapped jurisdictions that lack wealthy tax bases like Bethesda, Chevy Chase and Potomac are perfectly happy to let MoCo tax itself while they ask the state to tax MoCo even more to pay for their needs.  (Remember the 2012 state income tax hike, of which MoCo residents paid 41% of the new revenue?)  As a result, the next time the Lords of Annapolis are asked to help Montgomery County, they could very well reply, “Tax yourselves to pay for it. You always do.”

6.  A major argument in favor of the liquor monopoly has been proven hollow.

County officials predicted that if the liquor monopoly was lost, annual property taxes would have to rise by an average $100 per household.  Instead, the monopoly was preserved and the council passed a property tax hike that will cost an average $326 per household.  The tax hike was in the works since at least January 2015, long before small businesses and consumers launched their campaign to End the Monopoly.  And the $25 million in new spending added by the council to this year’s budget actually exceeds the $20.7 million that the liquor monopoly is projected to return to the general fund.  This proves once and for all that liquor monopoly revenues do not prevent tax hikes!

7.  There will be pressure in the future for another tax hike.

As we discussed in Part Three of this series, the U.S. Supreme Court’s Wynne decision, which requires counties to refund taxes paid on out-of-state income, was one reason for the current property tax hike.  Senator Rich Madaleno’s state legislation extended the time that counties had to pay for refunds from Fiscal Year 2019 to 2024.  Below is a table showing the fiscal impact on all Maryland counties combined, of which Montgomery accounts for roughly half.  While the legislation enables counties to spend less in FY 2017-2018, it requires them to spend more in FY 2020-2024.  MoCo will have to spend around $20 million a year in most of the out years.

Madaleno Wynne Bill Fiscal Impact

Given its $5 billion-plus annual budget, Montgomery could easily afford the out-year payments by slightly slowing the growth rate in its annual spending.  But instead, the council added $25 million in new spending on top of the Executive’s FY 2017 budget, and unless it is cut, that spending will continue in future budgets.  The cumulative impact of that new spending plus future Wynne refund payments will start to be felt in three years.  At that point, the council could very well face a choice between trimming back their added spending or raising taxes.  What do you think they will do?

8.  Economic development will now be harder.

Despite the wealth in some of its communities, Montgomery County struggles with the perception that it is not business-friendly.  While its unemployment rate is low by national standards, its real per capita income fell steeply during the recession, much of its office space is obsolete and it lacks Northern Virginia’s two major airports and its new Metro line.  The chart below shows the county’s private sector employment from 2001 through 2014.  Despite recent sluggish growth, the county had fewer private sector jobs in 2014 than it did in 2001.

MoCo Private Employment 2001-2014

And while the county lost private sector jobs, the Washington region as a whole grew by 9.5% over this period.

Washington Private Employment 2001-2014

There may be a variety of factors explaining MoCo’s weak economic performance, but consider this: in the last 15 fiscal years, the county has seen six major tax increases.  The county broke its charter limit on property taxes in FY 2003, 2004, 2005, 2009 and 2017 and it doubled the energy tax in FY 2011.  (Most of the latter increase is still on the books.)

Good government is an exercise in balancing needs.  Education, transportation, public safety and public services are valuable and require resources, at times necessitating tax increases.  But all of that is impossible without a vigorous private sector that creates jobs and incomes and pays the government’s bills.  Those priorities must be balanced, and when they are, progressive policies can be afforded.  But if they are not, economic growth will fail, government services will be harder to sustain, taxes will fall increasingly on a shrinking base and a downward spiral could begin.

In the wake of its long-term stagnant economy and its Giant Tax Hike, how close is Montgomery County to that tipping point?

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