MoCo’s Giant Tax Hike, Part Three

By Adam Pagnucco.

The need to fund MCPS was one reason given by county officials for their recent hike in property taxes.  Another reason was the effects of the U.S. Supreme Court’s decision in the Comptroller of The Treasury of Maryland vs Wynne case.  We examine that issue today.

The Wynne case started when two Howard County residents with income from a firm that did business in other states applied for an income tax credit to offset their out-of-state earnings.  While they received a credit against their state income taxes, they were denied a credit against their county income taxes.  The residents sued, and the case made it all the way to the U.S. Supreme Court, where the court sided with the plaintiffs on a 5-4 vote.  There were two consequences for local jurisdictions.  First, they could no longer tax out-of-state income.  Second, they owed refunds to residents who had paid taxes on out-of-state income dating back to 2006.  Between the two changes, Montgomery County’s Department of Finance estimated lost county income tax revenue of $76.7 million in FY17 and FY18, $31.5 million in FY19, and $16.4 million annually after FY19.

When the Executive sent the council his recommended budget in March, then-current state law required that Montgomery County pay an estimated $115 million in refunds and interest in nine quarterly installments stretching into FY19.  The hit in FY17 was $50.4 million.  But Montgomery County State Senator Rich Madaleno, Vice Chair of the Senate’s Budget and Taxation Committee, passed a state bill that extended the refund payment period out to FY24.  This reduced the county’s immediate liability and the Executive responded by asking the council to reduce his recommended property tax hike from 3.9 cents to 2.1 cents per $100 of assesable base.

Senator Madaleno’s legislation enabled the council to cut the Executive’s original $140 million tax hike by $33.7 million and still increase county funding for MCPS by $110 million.  But the County Council did not take advantage of it.  They increased property taxes by the Executive’s original amount anyway, a tax hike of 8.7 percent.  Why did they do that?  We will explore that question soon, but first we will examine another source of potential reductions in the tax hike: savings from collective bargaining agreements.

More in Part Four.