Category Archives: taxes

Raskin to IRS: Extend the Tax Filing Deadline

By Adam Pagnucco.

Congressman Jamie Raskin has spearheaded a joint letter from more than 100 members of Congress in both parties asking the IRS to extend its April 15 tax filing deadline. Among the reasons for the request are the agency’s late kickoff for tax filings, a change in the American Rescue Plan Act regarding taxation of unemployment benefits and the fact that the IRS is only answering 1 out of 4 phone calls from taxpayers with questions. The joint letter is reprinted below.

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Dear Commissioner Rettig and Acting Assistant Secretary Mazur:

We write to urge you to extend the impending April 15th federal tax filing and payment deadline. We welcomed the Internal Revenue Service’s (IRS) decision last year, after bipartisan calls from Congress, to provide an automatic filing and payment extension to July 15, 2020. Almost a year later, we are still grappling with the massive economic, logistical and health challenges wrought by this devastating pandemic. Millions of stressed-out taxpayers, businesses and preparers would appreciate an extension of the deadline to file their 2020 tax returns.

Over the past year, Congress enacted four historic emergency stimulus packages to deliver relief to Americans through Economic Impact Payments, the Paycheck Protection Program, and the Employee Retention Tax Credit. The American Rescue Plan Act of 2021, signed into law by President Biden on March 11, 2021, contained a provision excluding from income the first $10,200 of unemployment benefits received in 2020 for those with an adjusted gross income under $150,000. The IRS will need to take action to address the changes in the tax law, and taxpayers will need additional time to fully understand how this affects their tax liability. Further, taxpayers and tax return preparers are awaiting guidance from the IRS regarding these recent tax changes and are still waiting for some IRS forms to be made available for electronic filing. Compounding these complicating factors, the IRS did not begin the 2020 filing season until February 12, 2021, nearly three weeks later than usual, creating a lot less time for constituents and businesses to file taxes overall.

With limited in-person tax assistance at local tax preparation clinics, libraries, and community centers, tens of millions of our constituents are facing the same logistical hurdles as last year.

Additionally, the IRS is struggling to address taxpayer issues, with the agency reporting that it is answering only 1 out of 4 telephone calls. As our leaders on the House Ways and Means Committee have pointed out, compared with the same time last year, 27% fewer tax returns have been filed already and 31% fewer returns have been processed by the IRS.

For these reasons, we respectfully urge you to extend the federal tax filing and payment deadline as Americans, and the IRS, continue to grapple with the disruptions caused by the COVID-19 pandemic. Thank you for your thoughtful attention to this urgent matter.

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Zucker and Carr Give Hope to MoCo Property Tax Victims

By Adam Pagnucco.

Last fall, I wrote about a bombshell General Assembly audit of the State Department of Assessments and Taxation which found that the agency had miscalculated property taxes for thousands of MoCo home owners. As a result, some home owners had been overcharged property taxes for years. The agency’s response was to deny that its prior practice was inaccurate but also to change its methodology going forward. Overcharged home owners would then get no refunds for past overpayments.

That wasn’t good enough for Senator Craig Zucker (D-14) and Delegate Al Carr (D-18), who each represent parts of Montgomery County. They introduced legislation that would enshrine the new tax calculation methodology in law and would provide three years of refunds to affected home owners. One of the best parts of the bill is that the burden is placed on the state, not the home owners, to calculate and apply the refunds. The fiscal note states:

For taxable years beginning after June 30, 2017, but before July 1, 2021, the State Department of Assessments and Taxation (SDAT) must determine whether a homeowner is owed a refund of property taxes paid by the homeowner as a result of the changes made to the calculation of the homeowners’ property tax credit by the bill and if so, the amount of the refund owed.

SDAT must notify the homeowner and the county within which the homeowner’s dwelling is located of the amount of the refund. Upon certification by SDAT, the Comptroller must pay eligible homeowners the amount of the refund from the Local Reserve Account.

Every MoCo state senator co-sponsored the bill. MoCo delegates co-sponsoring the house version include Carr (the lead sponsor), Charlotte Crutchfield (D-19), Julie Palakovich Carr (D-17) and Jared Solomon (D-18). Because the problem also affected Baltimore City, several city lawmakers co-sponsored the bill as did a number of Republicans.

The bill’s senate version passed the senate on a unanimous 47-0 vote yesterday. It now proceeds to the House Ways and Means Committee, which is chaired by MoCo Delegate Anne Kaiser (D-14). Please look favorably on this bill, Delegate Kaiser!

Thank you to Senator Zucker, Delegate Carr and all others who are standing up for their constituents by supporting this legislation.

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Hucker: MoCo Will Expand its EITC

By Adam Pagnucco.

Montgomery County Council President Tom Hucker has responded to our post from yesterday asking whether the county will match the state’s expansion of its earned income tax credit (EITC). The short version of Hucker’s response: hell yeah!

Yesterday, Hucker wrote on Facebook:

“Will MoCo Match the State’s Earned Income Tax Credit?” The answer is Yes, I believe Montgomery County will expand the County EITC to provide additional, targeted relief to our suffering working families.

I’ve asked CE Marc Elrich to add these matching county funds to the FY22 budget. And I believe my colleagues will agree. This follows the good news that the MD House Democrats improved the State relief package that our MDReliefNow.com coalition had advocated for by expanding the MD EITC.

The EITC is one of the most effective, targeted anti-poverty programs available to us, and expanding it during this historic recession is highly appropriate & urgent.

Hucker has a point on this: if the county executive puts the funding to expand the EITC in his recommended budget (due next month), it’s inconceivable that the council would cut it. And Elrich was both a co-sponsor and an unwavering supporter of restoring the EITC when the council passed legislation to do that in 2013.

Thanks to Tom Hucker for his advocacy on this issue and his work for broader relief for recession-impacted Marylanders.

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Will MoCo Match the State’s Earned Income Tax Credit?

By Adam Pagnucco.

Last week, Maryland Matters reported that the House of Delegates attached a large expansion of the state’s earned income tax credit (EITC) to Governor Larry Hogan’s pandemic relief bill. That’s good news for working class people in Maryland. It’s also complicated news for Montgomery County’s leadership.

That’s because MoCo is one of the few local jurisdictions in the nation that has a local EITC. The county’s EITC is tied to the state’s by county law. If the state’s EITC grows, so might MoCo’s.

MoCo’s EITC (called the Working Families Income Supplement) was first proposed in 1999 by then-County Executive Doug Duncan. Freshman Council Member Phil Andrews had introduced living wage legislation for county contractor employees that Duncan opposed, so Duncan came up with an alternative package including a county EITC. In the end, the county council passed both the living wage law and the EITC and both remain on the books today.

The county EITC was originally specified to provide a 100% match for the state EITC. So if a tax filer obtained a $500 credit from the state, the filer could also obtain a $500 credit from the county. That framework prevailed until the county got into budget trouble during the Great Recession. In 2010, the council passed legislation decoupling the county EITC from the state EITC and making it subject to whatever appropriation the council wanted to pass for it. By FY12, the EITC’s value had shrunk to 68.9% of the state’s credit. In 2013, Council Member Hans Riemer introduced a bill phasing in a restoration of the county EITC to 100% of the state’s EITC, which passed. (Disclosure: I was Riemer’s chief of staff at the time.)

The county code now contains the following language on setting the level of the county EITC.

Sec. 20-79. Amount of Supplement.

(a) Subject to subsection (b), the amount of the Working Families Income Supplement paid to each recipient must equal the amount of any refund the recipient receives from the State earned income credit program.

(b) The Council may approve a different amount in the annual operating budget by an affirmative vote of at least five Councilmembers.

According to Maryland Matters, the value of the state’s EITC is set to increase by a range of 28% to 45% for three years. Under current county law, the county’s EITC “must” match it unless the county council decides differently. Whether the county’s EITC rises too depends on whether the county executive remembers to put it in his recommended budget and whether the council votes to approve it.

Needless to say, this is a very big deal for MoCo’s working class residents.

Among its many virtues, the EITC is well suited to the unique circumstances of the COVID recession. Consider this recession’s quintessential victim: the payroll employee who is laid off and now works in the gig economy to make ends meet. What assistance program is best targeted to help this person? Unemployment benefits might help but they have eligibility requirements and limited duration. Assistance to the employer might help but only if the worker is rehired. Rental assistance might help but only if the worker knows to apply for it and only if the landlord wants to accept it. (Some don’t.) Language barriers and outreach issues are further complications.

In contrast, anyone who files an income tax return can claim the EITC. It applies to all earned income, not just to payroll income. No new program needs to be set up, no bureaucrats need to be hired and no federal grants need to be administered. The county already has a volunteer income tax assistance program to help low and moderate income county residents claim it. And because we are in tax season, the timing is right for the EITC to put money into the pockets of those who need it right away. According to the comptroller’s office, electronic filers can get their refunds a few days after they file returns. Compare that to the weeks and sometimes months required to process and disburse county grant applications.

There is one drawback: the EITC costs money. In FY21, the county budgeted $20 million to pay it. If MoCo matches the proposed state increase, the county might have to pay an extra $6-9 million a year for three years. That doesn’t sound like much in a nearly $6 billion county budget, but the county does have revenue pressures and a new whopping $100 million a year liability in COVID emergency pay.

Tough times require tough choices. Workers who have seen their incomes plummet during the pandemic know that better than anyone. Expanding the EITC is one of the best ways to target assistance to them in their time of need. Will MoCo leaders make the tough budget choices to help them?

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Political Awards 2020

By Adam Pagnucco.

It’s that time: here are the political awards for 2020, the year that was!

Politician of the Year: Governor Larry Hogan

There is really no other choice. Because of the unique demands of the COVID-19 crisis, it’s possible that no Governor of Maryland has wielded more power than Hogan did in 2020 since the colonial era. Local governments, employers and residents all over the state have had to react to his many executive orders. He has had successes, such as Maryland’s relatively low COVID case rate compared to the rest of the country, and he has had failures, such as the flawed test kits from South Korea. Above all, he has been incredibly consequential – far more than any other political figure in the state – and that is enough for this award.

Debacle of the Year: The Purple Line

Again, there is no other choice. The Purple Line’s public-private partnership (P3) was supposed to protect taxpayers from liability, but its collapse will cost us $250 million that would otherwise be available for other transportation projects. The state is promising to complete the project, which will someday generate real benefits for the Washington region, but no one knows its completion date or its ultimate cost. With another P3 pending for the Beltway/I-270 project, the Hogan administration owes it to Marylanders to report on lessons learned from the Purple Line so that its mistakes are not repeated.

Runners Up
Two powerful officials – Hogan Chief of Staff Roy McGrath and MoCo Chief Administrative Officer Andrew Kleine – lost their jobs due to scandal. The McGrath story may not be over.

Worst Move of the Year: Robin Ficker’s Question B

Ficker thought he could get MoCo voters to approve a draconian tax cap that would handcuff county government forever. Instead, not only did voters reject his idea, but they approved a competing ballot amendment (more below) that will actually generate more revenue for the county over time.

Runners Up
MoCo Republicans badly wanted the nine council district charter amendment to pass but they wound up helping to defeat it because of their prominent embrace of it in the toxic year of Trump. Talbot County officials insisted on keeping a confederate statue at their courthouse, a long-term loser for the county.

Best Move of the Year (Tie): Andrew Friedson’s Question A and Evan Glass’s Question C

Former Obama Chief of Staff Rahm Emanuel once said, “Never allow a good crisis to go to waste.” Council Members Andrew Friedson and Evan Glass sure didn’t, drafting competing ballot questions against Ficker’s anti-tax charter amendment and another amendment providing for an all-district council structure. The result of the passage of Friedson’s Question A and Glass’s Question C is a more rational, liberalized property tax structure and a larger county council to service a larger population.

Runner Up
Baltimore County Executive John Olszewski Jr. issued an executive order capping third party food delivery app fees at 15%, preventing excessive fees ranging as high as 30%. The order also bans them from reducing driver compensation and tips to comply with the fee cap.

Missing in Action Award: Almost Everyone Planning or Thinking of a Run for Governor

Comptroller Peter Franchot is the only declared candidate for governor. He has a war chest, a statewide profile and a consulting firm. Right now, he has no competition. As Roger Waters would say, is there anybody out there?

Big Deal of the Year: Moratorium Repeal

The county council repealed the county’s illogical housing moratorium policy, which did not accomplish its intended purpose (alleviating school crowding) but did prevent housing construction in the face of MoCo’s affordable housing shortage. Housing construction still has challenges – including financing problems stemming in part from slow job growth – but the council was right to junk moratoriums that did no good and made housing problems worse.

Just Because She’s Great Award: Delegate Anne Kaiser

She never asks for attention or takes credit for anything. But Delegate Anne Kaiser is everything you could want in an elected leader: smart, practical, savvy, mentors younger politicians and plays the long game. Best of all, she’s a down to Earth person who doesn’t let success go to her head. She’s a worthy successor to the great Sheila Hixson as chair of Ways and Means. Long may she serve.

MoCo Feud of the Year: JOF vs Stephen Austin

In one corner: political newcomer Stephen Austin, running for school board on a platform of opposing MCPS’s boundary analysis. In the other corner: former school board member Jill Ortman-Fouse (universally known as “JOF”), leader of a movement favoring boundary studies in the interest of equity. This was never going to be a great relationship, but this feud set a record for most screenshots in a MoCo political dispute. Here’s to more in the new year!

Runner Up
County Executive Marc Elrich vs Governor Larry Hogan. This one runs hot and cold but it flared big-time when Hogan stopped MoCo from instituting a blanket shutdown of private schools. These two can’t stand each other so expect more this year.

Media Outlet of the Year: Baltimore Brew

If you’re not reading Baltimore Brew, you need to start doing it right now! No city scandal can hide from the Brew’s hustling, dirt-digging journalists, whether it’s document shredding, scams, SLAPP suits, politician tax liens, travel expenses, or other questionable activities. Baltimore Brew is a must-read and a true gem of Maryland journalism.

Game Changer Award: Len Foxwell

For more than a decade, the Franchot-Foxwell partnership roiled Annapolis, grabbed headlines and marched steadily towards Government House. Now Foxwell is a free agent and available for hire as a communications, public relations and political strategist. Few people combine knowledge of politics, policy, press and all things Maryland like Len. Having him on the market is a game changer, especially for anyone who hires him.

County Employee of the Year: Inspector General Megan Davey Limarzi

Limarzi is MoCo’s dynamite inspector general, whose reports on mischief in county government regularly rock Rockville. Two especially notable reports revealed an “overtime scam” in the fire department and overpayment of COVID emergency pay in at least one county department. In Fiscal Year 2020, complaints to the inspector general increased 92%, suggesting confidence in her work. Count me as her biggest fan!

Runners Up

Like Calvin and Hobbes, Travis Gayles (the county’s health officer) and Earl Stoddard (the county’s emergency management director) come as a pair. Both of them have played critical roles in responding to COVID. Gayles is a happy warrior who shrugs off criticism and is indefatigable in his job. Stoddard is a stand-up guy who earned a lot of respect in taking responsibility for the county’s grant management issues. Given the nature of their jobs, Gayles and Stoddard are not always loved, but they deserve credit for taking the heat and carrying on when so many other health officials are leaving around the country.

Quote of the Year: “Hope is Not a Fiscal Strategy”

Council Member Andrew Friedson has said this so many times that his colleagues (and executive branch officials) are probably sick of hearing it. But it’s true: the county has been praying since the summer for a federal bailout that has yet to arrive while the day of reckoning is near. We could have done better.

Gaffe of the Year: “Can I Say the Council is Fact Proof?”

Here is an instance in which County Executive Marc Elrich’s snarky sense of humor was not appreciated by the county council in this hot mic moment. Can we get more hot mics please?

Survivor of the Year: Linda Lamone

After numerous glitches in the primary election, state elections administrator Linda Lamone looked like she might finally be run out of Annapolis. But she outlasted calls for her resignation and the general election went better, so she remains in her job. Given her many problems and a string of bad audits, Lamone isn’t just a survivor of the year – she is THE survivor of the last twenty years. State leaders need to restructure the accountability of her position after she finally retires.

Departure of the Year: Bob Dorfman

We’re not fans of the county liquor monopoly here at Seventh State, but former monopoly director Bob Dorfman was a capable manager who tamed some of its worst problems. Depending on who succeeds him, the county could really miss him.

Most Ignored Story of the Year: Public Information Act Suspension

The Elrich administration’s indefinite suspension of public information act deadlines is the single biggest setback for open government in MoCo that I have seen in almost 15 years of writing. And yet to my knowledge, not a single politician said anything about it publicly and not a single D.C. area press outlet has followed up. I’m not surprised by the politicians. But I am surprised by how meekly the press surrendered to the suspension of one of the greatest tools of investigative reporting available – the public information act. To quote Roger Waters again, is there anybody out there?

That’s all for 2020, folks!

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Top Seventh State Stories, December 2020

By Adam Pagnucco.

These were the top stories on Seventh State in December ranked by page views.

1. What Happened to White Flint?
2. The Day of Reckoning is Near
3. Jawando Calls for a Tax Hike
4. Come on Now
5. Who’s the Boss?
6. MCEA to School Board: Reopening Should be Safe
7. Trump vs Hogan: Votes by MoCo Town
8. Council Overrides Veto, Attacks Elrich, Cuts Revenue for School Buildings
9 (tie). Minority Members of the U.S. House
9 (tie). Corporate MoCo Council Adopts Supply-Side Economics

The top three stories fit together and have meaning for the new year and beyond. The Day of Reckoning is Near summarizes the county’s dire fiscal picture as it heads into a challenging FY22 budget discussion in the spring. Jawando Calls for a Tax Hike kicks off an inevitable dialogue about taxes, one which will only get hotter before the executive makes his budget recommendation on March 15. And What Happened to White Flint? – December’s runaway winner – lays out the story of how the county’s premier development plan has been held back by our slow rate of job growth. Budget headaches, taxes and economic problems are about to collide.

Welcome to 2021, folks!

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What Happened to White Flint?

By Adam Pagnucco.

Ten years ago, White Flint was regarded as the future crown jewel of MoCo. With a shiny new master plan, a tax district for infrastructure and an assortment of regulatory breaks, the area was supposed to create new high-end high-rises combining office, retail and residential uses that would generate billions of dollars in county revenues over coming decades. Everyone who lives here knows that vision is still largely unrealized. And now a new report by county planning staff lays out why.

First, let’s revisit what White Flint was envisioned to become in its 2010 master plan: a smart growth, walkable mecca around a transformed Rockville Pike which would be transit-heavy and pedestrian friendly. The plan required substantial infrastructure investment including streetscaping, a new road network and a bus rapid transit route. Unlike many county master plans, this one had a mechanism for financing infrastructure: a new special taxing district. Properties inside the taxing district would pay into a fund used to pay for the new infrastructure needed to bring the plan to life. In return, impact taxes were set to zero. The council set an infrastructure project list through a resolution and projects in the district were exempted from county traffic reviews. This combination of high density, infrastructure investment and regulatory exemptions was revolutionary for MoCo at the time and still has not been fully replicated. MoCo politicians love to throw around the word “bold” like peanut shells, but White Flint (now marketed as the Pike District) truly deserved the adjective.

So what happened?

In simple terms, the planning staff describes a negative, self-reinforcing feedback loop that has no identifiable end. The loop functions like this. Low levels of development led to low proceeds for the tax district. It was supposed to raise $45 million in its first 10 years but only generated $12-15 million. Low tax district revenues held back the construction of some of the transportation improvements and other infrastructure necessary to make the area more attractive to investment. Developers seeking financing for projects were hindered by the inadequate infrastructure along with the “prominence of underutilized properties.” One of those properties, the mammoth White Flint Mall site, was tied up by years of litigation. The lack of financing, along with construction costs and market conditions, has held back development. And of course the lack of development holds back tax district revenues necessary to pay for infrastructure, so the cycle continues.

This map from the report shows the vast majority of land in White Flint is underutilized (areas marked in red and orange) relative to its zoning.

The most interesting part of the report summarizes comments from White Flint property owners, who comprise a who’s who list of prominent MoCo developers. First, let’s identify what they don’t complain about. They don’t complain about the plan itself; indeed, they think the area still has potential. They don’t complain about market demographics; they find the wealth and education levels in the area attractive. They don’t intend to sell their existing properties, which generate enough cash to cover operating costs and taxes, but they’re not in a hurry to redevelop them. And not a single one of them complained about taxes or requested a tax abatement.

Here are a few excerpts from the report on their take on White Flint’s problems.

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All developers interviewed cited Montgomery County’s limited job growth as a fundamental challenge to continued construction in the Pike District. Low levels of new jobs limit the number of new families seeking to occupy units in the county (household formation), decreasing demand for new development. In addition to limited employment growth, construction costs increased dramatically since 2010, office users occupied less space per employee, and retail demand declined with the rise of online shopping, all factors that continue to reduce demand for or limit the financial feasibility of new development.

Multiple developers noted without providing details that their firm managed to solve issues of high construction costs in other submarkets where there is a higher pace of job growth and household formation, which in turn supports rent growth.

Developers interviewed affirmed that the Pike District is accessible to fewer jobs within a reasonable commute than its peer non-downtown submarkets, and that this reduced access to job centers limits demand for additional multifamily units.

All developers interviewed cited Montgomery County’s limited job growth as a fundamental challenge to continued construction in the Pike District. Low levels of new jobs limit the number of new families seeking to occupy units in the county (household formation), decreasing demand for new development. Developers cited the reduced pace of household formation as a key contributor to stagnant rents, a major concern for the feasibility of future projects.

Several developers independently stated that the attraction of a major employer to the Pike District, such as a life science campus, would significantly increase the feasibility of new multifamily projects.

Developers are not currently willing to build speculative office projects in Montgomery County due to the lack of underlying job growth and the uncertainty about the future of the office sector. Several developers mentioned that they would still consider speculative office construction in Tysons and along the Silver Line corridor, highlighting the continued job growth in Northern Virginia and the contrast with suburban Maryland.

Several interviewees contrasted recent Northern Virginia economic development wins, such as the expansion of Microsoft in Reston, with news that a large distribution center project in Gaithersburg for Amazon is in jeopardy due to delays in the entitlement process. These interviewees stressed that while the number of jobs in these deals is modest, there is a constant drumbeat of positive economic news from Northern Virginia that is unmatched from suburban Maryland.

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Let’s boil this down to three words: jobs, Jobs, JOBS. Employment growth was the dominant theme for these developers, but they had a few things to say about business climate and regulations too.

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Interviewees related that development projects ultimately deliver equivalent profits as similar projects in neighboring jurisdictions, but that Montgomery County’s reputation as generally “a difficult place to do business” limits developer interest.

Developers agreed that the difficulty of the business environment issue is primarily about perception rather than the ultimate profitability. Interviewees cited as examples a range of policy issues such as a minor energy efficiency tax that Montgomery County leadership presented and implemented as a temporary measure but that never expired.

Multiple interviewees stated that in competitor counties they feel that the entitlement review process is oriented to enabling and facilitating a project, whereas in Montgomery County it feels like an oppositional relationship. Related to this, developers feel the County continually creates new policies and initiatives that adversely affect development, and which ultimately encourages them to focus on assets elsewhere in the region.

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The county council and the planning staff are focused on tax abatements as a way to stimulate development, especially housing. But developers in White Flint weren’t complaining about taxes. In fact, tax revenues are NECESSARY to finance infrastructure required to make development happen and function well. It is the absence of tax revenues that resulted in under-financing of infrastructure in White Flint, a key part of the area’s negative feedback loop.

Instead of taxes, the key issue identified by White Flint developers is the absence of job growth, which they believe would stimulate demand for housing and eventually make the economics of housing construction work even with high construction costs. In short: if you want more housing, create more jobs. All of these developers know what we have been saying on Seventh State for years: MoCo has one of the worst records on job growth and business formation of any large jurisdiction in the metro area.

The county’s terrible record on job growth and business formation must be reversed.

All of this points to the need for a strategic decision. MoCo can focus like a laser on job creation, doing everything possible to help entrepreneurs grow their organizations and create employment for residents. If the county does that, the vision of White Flint and other smart growth plans can be realized. Or MoCo can keep handing out tens of millions of dollars in corporate welfare as it has done for decades, thereby depleting its ability to construct infrastructure that facilitates economic growth. Or it can do nothing.

Those are the choices. What will MoCo choose?

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Jawando Calls for a Tax Hike

By Adam Pagnucco.

This morning, the county council and representatives of the executive branch discussed the county’s abysmal new fiscal plan, which raises the prospect of cuts to county government (excluding MCPS and Montgomery College) of up to 12% next year. That attracted many comments from the council as one might imagine. Council Member Will Jawando was the only one to call for a tax hike to prevent draconian cuts. His comments (which can be seen on county video) are transcribed below.

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Thank you, Mr. President and thank you to Mr. Madaleno [the county’s chief administrative officer] and Mr. Coveyou [the county’s finance director] and acting director [Jennifer] Bryant [the county’s acting budget director]. Excited to confirm that shortly. And to all the staff.

A couple things I just wanted to note. I think Council Member [Evan] Glass said something that’s really important I want to underscore and I agree with, that our focus needs to be on maintaining services for those who need it the most, and Director Bryant, you said this as well, and I think everyone agrees with that. But I also want to make sure that we are also looking at how we’re going to come out of this crisis. And we are in the unenviable position of having to both manage our fiscal situation, deal with the multiple pandemics – health, social, economic – and try to make sure that we don’t exacerbate inequality and we plan for the recovery at the same time.

And that’s not easy, right? We’re dealing with that, as is the nation, as is the world. But I think we are in a better position than most to try to make those plans. And I want to urge us to do a couple of things as we’re thinking about that, so as Mr. Madaleno, as you’re coming back in January with your team. We have reserves for a reason. So we should use them. If we’re not going to use them now, I don’t know when you would use them. I’ve said this since the beginning. And we have been using them on special appropriations and we have been seeking reimbursement.

Jawando speaks in open session today.

But I think to – as we’re looking at, there’s been a lot of talk of savings plans. We cannot cut critical services to those in need that are going to exacerbate income inequality. And if those decisions are being made or are on the chopping block, we have to use reserves.

The other thing is we have to consider how we’re going to raise additional revenues. This has been one of the most unequal pandemics and recessions that we’ve ever seen. There was a report out in October that billionaires increased their net worth by $637 billion through October during the pandemic. And obviously those numbers are smaller for millionaires. But equal growth. While at the same time, you see more than 40 million Americans applying for unemployment insurance. My office has helped hundreds, I know other colleagues have. So this recovery, this pandemic has not been equal. And Montgomery County is a perfect example of that. We have – we are in the wealthiest county in the wealthiest state with the most millionaires per capita in the country. And so as a state and as a county, some who have done well, and I’m happy that that’s the case – we’re going to do have to do more for our residents. So before we discuss any cuts to services that are in need that are going to exacerbate inequality, we’re going to need to look at these types of options.

I’m glad that we included in the statement we sent to Annapolis asking for the authority to levy a progressive tax bracket on the income tax. We need to do that. I’ve said it before. If we were to increase the top bracket from 3.2 to 3.5 percent on just millionaires in the county, you’d bring in over $90 million in revenue a year. I’m not saying that’s the specific proposal we need to do, but we certainly need to be talking about those things in the context of this larger picture. And I just want to say that because it hasn’t been said. So I look forward to reviewing the details. I appreciate the sobering picture and look forward to working through this with you and our colleagues.

Thank you, Mr. President.

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Elrich Vetoes Impact Tax Cut

By Adam Pagnucco.

County Executive Marc Elrich has vetoed a bill passed by the council that would effectively cut impact tax collections. While the bill passed the council on a 9-0 vote, making it unlikely that Elrich’s veto will be upheld, the policy debate lays out stark differences between the executive and the council.

Impact taxes are charged to development projects in order to pay for the additional demands for infrastructure that they create. MoCo levies two: a school impact tax and a transportation impact tax. Both are used to finance the capital budget and are dedicated to schools and transportation projects respectively. The county council periodically adjusts impact tax rates, credits and discounts, and various structural aspects of how they are administered.

This year, the planning board proposed as part of a new subdivision staging policy (which sets the county’s policies on infrastructure) a package of tax changes. Bill 38-20 instituted a range of changes to impact tax collections that would effectively reduce the county’s receipts. Among the planning board’s proposals were to cut the school impact tax rate to 100% of the cost of a student seat from the current 120% of the cost of a student seat and to apply discounts to single-family detached and multifamily units in desired growth areas to incentivize growth, both of which would cut receipts. These cuts would be partially reduced by a new utilization premium payment applied to development projects in areas with crowded schools.

To offset the impact tax losses in Bill 38-20, the planning board proposed Bill 39-20E, which would raise recordation taxes. Currently, recordation tax receipts are split between the operating budget’s general fund, the capital budget (especially schools) and rental assistance programs. And so the planning board’s vision was to cut impact taxes and raise recordation taxes to spread the cost of financing infrastructure across both new and existing development.

Lots of changes were made to the planning board’s proposals but the bottom line is that the council passed Bill 38-20, which cut impact tax receipts, and has not yet passed Bill 39-20E, which would raise recordation tax receipts to help pay for lower impact taxes. (The latter had significant opposition from the real estate community.) The recordation tax increase is not dead, however; the council will return to that issue eventually if for no either reason than to examine the capital budget next year.

That leaves the county executive, who repeatedly expressed concerns about the changes to impact taxes and other growth policies throughout the fall. Elrich believes that Bill 38-20 will cost the county $12.5-20 million a year in lost impact tax revenues, all of which go to paying for school construction and transportation projects. (That number is subject to dispute.) Elrich also never bought in to the trade of lower impact taxes for higher recordation taxes. He would rather use higher recordation taxes to cover operating budget shortfalls or more school expenditures than to offset lower revenues from impact taxes. Accordingly, Elrich vetoed the cut in impact taxes even though it passed the council on a 9-0 vote. The council will win the policy debate for now, but the politics (and the budget maneuvers) will go on.

Elrich’s veto message is printed below.


MEMORANDUM

November 30, 2020

TO: Sidney Katz, President, County Council

FROM: Marc Elrich, County Executive

RE: Veto explanation: Bill 38-20 Taxation – Development Impact Taxes for Transportation and Public-School Improvements – Amendments

With new development comes increased infrastructure needs; the newly renamed “Growth and Infrastructure Policy” (Growth Policy) reduces the funding available to provide the necessary infrastructure while the need to provide infrastructure is more critical to our success than ever. While I have long been concerned with how impact taxes work and I believe that there are alternatives that should be implemented, I cannot support simply reducing the necessary revenues without an appropriate replacement. Therefore, I am vetoing Bill 38-20.

The primary purpose of the Growth Policy is to put forth policies for adequate infrastructure – schools, transportation and more – that accompany new development. While I have other concerns about the bill, my primary concern is the projected revenue loss, which is estimated to be between $12.5 million and $20 million per year based on an analysis of projects in the development pipeline.

These reduced revenues are occurring at a time when we know we don’t have enough funding to address current needs or other infrastructure investments needed to grow our economy and maintain our status as a desirable place to live. For example, legislation to increase state aid for school construction will require the county to provide local matching funds; traditional state aid costs the County $3 for every $1 from the State or an average of $200 million annually. It is important to ensure the County will be able to continue to match traditional state aid for school construction as well as the approximately $400 million in additional state aid expected from the Built to Learn Act. (This Act will take effect immediately upon the legislature’s expected override of the Governor’s veto of the “Kirwan” bill.) School overcrowding and a $1.5 billion-dollar backlog in new construction, renovation and modernization needs burden our school system – one of our prime assets.

In addition, regional business leaders have said that improved transportation is central to economic development, pointing out the importance of efforts like Bus Rapid Transit.

Yet at a time when we know that (post-Covid19) we need improved transportation and relief for overcrowded schools and delayed modernizations, this Growth Policy reduces our ability to finance those needs.

These and other increased needs are coming while we are lowering our General Obligation bond borrowing to slow the growth of debt service costs, which lowers the amount of infrastructure we can fund with bonds. Less bonding and fewer impact tax revenues will not allow us to address our education and transportation needs. Even as the Growth Policy reduces revenues, the need for the infrastructure will not disappear. Either the funds will have to come from somewhere else, largely from county residents, or we will have to forgo important infrastructure improvements which will make righting our economic ship even more difficult.

I laid out my concerns in a letter I sent to the Council on September 10 (attached) and I highlighted my concerns again in another letter on November 10 (attached). My staff also raised several issues throughout the process. While I appreciate some of the improvements to the Growth Policy, including the improved annual school test and the clarification for agricultural storage facilities, I cannot sign this bill as it is currently written.

The Council has stated that it will consider an increase in the recordation tax to fill the gap from the reduced revenue, but that discussion is not currently scheduled. Furthermore, using an increase in the recordation tax shifts the costs from the developers of the projects to people refinancing or buying homes as well as to purchasers of commercial properties. Additionally, in these uncertain budgetary times, any potential revenue source may have to be reserved for other needs.

If competitiveness is the issue vis-a-vis our neighbors, then we should consider how our neighbors raised the money to meet their infrastructure needs. I think we will find that their focus was not on ways to reduce the revenues coming from development – rather, the opposite – they looked for ways to ensure the resources needed to provide the infrastructure for a growing community.

I regret that in the middle of this pandemic we have not had the opportunity for a more fundamental discussion of other methods to achieve adequate public facilities under the Growth Policy. While I recognize that one of the driving forces behind the recommended changes is to generate more housing, we know this will generate more residents in need of services, more students in our schools, and more people traveling to their jobs. This strongly suggests the need to increase revenue sources, not reduce them. I would welcome an opportunity to work with the Council to identify fair, alternative methods to fund the necessary infrastructure. For example, our office is working on how we could structure development districts, which have been successfully implemented in Northern Virginia and which were recently recommended by the Economic Advisory Group. Without such a replacement, I cannot support a loss of revenue. That’s not providing adequate public facilities by any measure. We can do better.

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Winners and Losers of the Ballot Question War

By Adam Pagnucco.

This year, MoCo saw its biggest battle over ballot questions in sixteen years. Most county players lined up on one side or the other and victory has been declared. Who won and who lost?

Winners

Council Member Andrew “Real Deal” Friedson
Friedson authored Question A, which liberalized the county’s property tax system to allow receipts to increase with assessments. Wall Street applauded its passage. Even progressives, who don’t love Friedson but owe him big-time for opening up the county’s revenue stream, have to admit that his Question A was the real deal.

Council Member Evan Glass
Glass authored Question C, which added two district council seats and defeated the nine district Question D. Lots of wannabe politicians are going to look at running for the new seats. Every single one of them should kiss Glass’s ring and write a max-out check to his campaign account.

County Democratic Party
It’s not a coincidence that MoCo voters adopted the positions of the county Democratic Party on all four ballot questions. With partisan sentiments running high and information on the questions running low, MoCo Democrats went along with their party and dominated the election.

David Blair
Blair was the number one contributor to the four ballot issue committees that passed Questions A and C and defeated Questions B and D. By himself, Blair accounted for nearly half the money they raised. Whatever Blair decides to do heading into the next election, he can claim to have done as much to pass the county Democrats’ positions on the ballot questions as anyone. (Disclosure: I have done work for Blair’s non-profit but I was not involved in his ballot question activities.)

Ike Leggett
The former county executive was key in leading the fight against Robin Ficker’s anti-tax Question B and the nine county council district Question D. Thousands of MoCo voters still like, respect and trust Ike Leggett.

Jews United for Justice
While not having the money and manpower of many other groups who played on the questions, Jews United for Justice played a key role in convening the coalition that ultimately won. They have gained a lot of respect from many influencers in MoCo politics.

Facebook
Lord knows how much money they made from all the ballot question ads!

Losers

Robin Ficker
At the beginning of 2020, MoCo had one of the most restrictive property tax charter limits of any county in Maryland. For many years, Ficker was looking to make it even tighter and petitioned Question B to the ballot to convert it into a near-lock on revenues. But his charter amendment provoked Friedson to write Question A, which ultimately passed while Question B failed and will raise much more money than the current system over time. Instead of tightening the current system, the result is a more liberal system that will achieve the opposite of what Ficker wanted – more revenue for the county. This was one of the biggest backfires in all of MoCo political history.

Republicans
The county’s Republican Party did everything they could to pass Ficker’s anti-tax Question B and the nine county council district Question D. In particular, they gave both cash and in-kind contributions to Nine Districts and even raised money for the group on their website. In doing so, the GOP provoked a fierce partisan backlash as the county Democrats rose up to take the opposite positions on the ballot questions and most Democratic-leaning groups combined forces to support them. With President Donald Trump apparently defeated, Governor Larry Hogan leaving office in two years and little prospect of success in MoCo awaiting them, where does the county’s Republican Party go from here?

This tweet by MoCo for Question C from a voting location explains all you need to know about why Question D failed.

Political Outsiders
It wasn’t just Republicans who supported the failed Questions B and D; a range of political outsiders supported them too. What they witnessed was a mammoth effort by the Democratic Party, Democratic elected officials and (mostly) progressive interest groups to thwart them. Even the county chamber of commerce and the realtors lined up against them. Whether or not it’s true, this is bound to provoke more talk of a “MoCo Machine.” Machine or not, outsiders have to be wondering how to win when establishment forces combine against them.

Push

MCGEO, Fire Fighters and Police Unions
These three unions are frustrated. They have not been treated the way they expected by the administration of County Executive Marc Elrich and they are also upset with the county council for abrogating their contracts (among other things). They wanted to show that they could impose consequences for messing with them and that was one reason why all three made thousands of dollars of in-kind contributions to Nine Districts. On the negative side, the nine districts Question D failed. On the positive side, the passage of Friedson’s Question A will result in a flow of more dollars into the county budget over time, a win for their members. So it’s a push. On to the next election.

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