Category Archives: taxes

Robin Ficker, taxes

Poll Out on Ballot Questions

By Adam Pagnucco.

A poll is in the field on MoCo’s ballot questions, much of it focused on Question B (Robin Ficker’s charter amendment on property taxes). The sponsor of the poll is unknown. A source supplied this description of the poll questions asked in a recent call.

Tell me if you’re favorable, somewhat favorable, not favorable.

Montgomery County PTA
Marc Elrich
Robin Ficker
Montgomery County Dem Party
Ike Leggett
MCEA
Larry Hogan
David Blair
MCDL – county government employee association

Do I approve or disapprove of the job performance of the Montgomery County Council?

Issues of taxes

Would you say that taxes are too high, are just right or too low?

Trying to explain A, B, C, D.

How certain are you that you’ll vote for or against these measures? Very certain or uncertain?

Are you the type of person who votes for all the ballots, for the state level ballot or the local ballots?

I know the ballot question language can be confusing. What makes it less likely to change your vote?

Question B would prohibit county council from raising taxes
Question B is opposed by the county council
Question B was placed on the ballot by a petition organized by Robin Ficker
If the question is passed the only way to raise property taxes above the limit is through a majority vote on…?

Which statement comes closer to my own view:

Supporters say that the county council should not be able to increase property taxes. The county should stick to a budget and not drastically increase property taxes. Housing and living costs are already high in an expensive area.
Question B ties the hands of our government officials. The opponents say there are already checks in place to restrict county taxes from being raised. This measure would damage the county’s triple AAA bond rating and cause more money to be spent on infrastructure projects.

Reason to vote on Question B – they listed these statements and asked does this make you more likely to vote for B or less likely. Is that convincing, somewhat convincing or all convincing.

There is a broad coalition of labor, business and non-profit organizations that oppose Question B including MCEA and building capital area of realtors and Progressive Maryland and Washington Post editorial board.
The Maryland Democratic Party opposes question B.
If the county council loses control over public taxes they will just levy different taxes and fees when they want. This will just shift the burden on tax payers in a different way.
Montgomery County schools are the best in the region but this question will remove flexibility from leaders to fund our schools and infrastructure.
Threaten the county’s triple AAA bond rating that allows us to fund infrastructure projects. If this passes taxpayers will have to pay more for roads, bridges and public buildings.
Question B will tie the hands of county government and restrict their ability to deal with the health pandemic, the housing crisis and severe weather incidents.
Question B was put on the ballot by a Republican anti-government activist trying to cut local government and reduce government services.
We should give officials the flexibility to make decisions and then hold them accountable during elections. Question B would take away the ability of officials to do their jobs.

How certain are you on voting against or for Question B?

Do you think of yourself as a Republican, Democrat, independent?

Are you a strong Democrat or not strong? (only 2 options).

Thinking in political terms are you a liberal, moderate, or conservative?

What is the last year of schooling you completed?

Is anyone in your household of Latino descent?

Do you consider yourself to be white, black, Hispanic, Asian, Latino or something else?

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MCDCC, Montgomery County Council, Robin Ficker, taxes

MoCo Democrats Issue Statement on Ballot Questions

By Adam Pagnucco.

In the wake of their vote last night, the Montgomery County Democratic Party has issued the following statement on their position on this year’s ballot questions.

*****

Montgomery County Democratic Party Recommendations on 2020 Ballot Questions

For immediate release
September 17, 2020
Contact Linda Foley
chair@mcdcc.org

The Montgomery County Democratic Party has announced its voter recommendations on County and State Ballot Questions for the 2020 General Election. The recommendations were issued following a vote by more than 170 grassroots Democratic officials on September 16.

“The State and County questions on the 2020 ballot will have an enormous effect upon our ability to provide vital public services locally,” said Linda Foley, Chair of the Montgomery County Democratic Central Committee. “Democrats understand the value of public education, healthcare, transportation, public safety, libraries, and other vital services our State and County governments provide. That’s why we urge voters to vote FOR County Charter Questions A and C, vote FOR State Questions 1 and 2, and vote AGAINST County Charter Questions B and D.”

Here are the Montgomery County Democratic Party recommendations:

Vote FOR Question A: Council Property Tax Limit – Limit Tax Rate Increases
Question A establishes a cap on the property tax rate instead of the total revenue that the County can receive. This amendment would allow revenue to grow so County services can keep up with increased population and needs. Property tax rates will remain the same as this year. Any future increase would require an affirmative vote by all Councilmembers, as is currently required to raise the revenue limit.

Vote AGAINST Question B: Property Tax Limit – Prohibit Override
Question B is a bad way to fund public services. It prohibits the County Council from increasing the total revenue received from the property tax beyond the rate of inflation under any circumstances. This measure, proposed by Republican activist Robin Ficker, would cause a reduction in public services and threaten the County’s AAA bond rating, which enables the County to borrow at the lowest rate.

Vote FOR Question C: Increase to 11 Councilmembers
Question C expands the Council from 9 to 11 members. District Council seats would increase from 5 to 7. The number of At-Large seats would remain at 4. Each voter would continue to vote for 5 members of the Council. It reduces the number of residents represented by each District Councilmember, thus increasing representation.

Vote AGAINST Question D: Alter County Council Composition to 9 Districts
Question D eliminates the current Council composition of 4 At-Large and 5 single district seats. It establishes a Council of 9 members, each elected only by voters in their own district (eliminating At-Large seats). It would reduce from 5 to 1 the number of Councilmembers for whom each voter can vote.

Vote FOR Question 1: Balancing the State Budget
Question 1 allows the Maryland General Assembly to increase, decrease, or add items to the State budget provided such changes do not increase the total budget proposed by the Governor.

Vote FOR Question 2: Expansion of Commercial Gaming – Sports and Event
Question 2 would authorize the General Assembly to allow betting on sports and other competitive events to generate funding that must be used primarily for public education.

Vote YES to retain State Appellate Judges: Mary Ellen Barbera, E. Gregory Wells, and Steven B. Gould. The Party reviewed the records of the three State appellate judges on the ballot and supports their continuance in office.

By Authority: Montgomery County Democratic Central Committee, Dave Kunes, Treasurer.

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Adam Pagnucco, MCDCC, Montgomery County Council, Robin Ficker, taxes

MoCo Democrats Take Position on Charter Amendments

By Adam Pagnucco.

As they do in every election year, officials of Montgomery County’s Democratic Party gathered tonight to take positions on charter amendments and ballot questions.

The standard format is for the party’s ballot question advisory committee, which studies such questions, to present information to the party’s precinct organization. The precinct organization, comprised of the party’s network of precinct officers, hears opinions, discusses the questions and takes votes. The party’s central committee takes the final votes establishing the party’s position, although they usually don’t go against the precinct organization’s stance unless the latter’s vote is close.

Tonight, County Executive Marc Elrich and a majority of the county council made their case to the precinct organization on the county charter amendments. The precinct organization voted in line with their recommendations and so did the party central committee. I don’t have exact vote tallies but my sources say they were all lopsided.

The ultimate vote by the MoCo Democrats was:

Yes to Question A, which was Council Member Andrew Friedson’s proposal to redo the county’s charter limit on property taxes.

No to Question B, which was Robin Ficker’s charter amendment to impose a hard cap on increases to property tax collections.

There was huuuuuge support for A and equally huuuuuge opposition to B (the Ficker amendment).

Yes to Question C, which was Council Member Evan Glass’s proposal to increase council district seats from five to seven and retain the current four at-large seats.

No to Question D, which is a charter amendment to convert the county council into nine district seats. No doubt the Democrats paid heed to the fact that Republicans support this proposal because they believe it might create a Republican council seat.

The party also voted to support state question 1 (which would grant more budgetary authority to the General Assembly over the governor’s budgets) and state question 2 (which would allow sports betting).

The exact language of all the questions and charter amendments can be seen on the official county ballot.

The party’s vote tonight is important because it will be expressed on its sample ballot, which is customarily mailed to hundreds of thousands of registered county Democrats. The vote is a particular blow to the Nine Districts for MoCo group, which has depicted its charter amendment as bipartisan but now has it supported by county Republicans and officially opposed by county Democrats.

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Adam Pagnucco, Andrew Friedson, Property Taxes, Robin Ficker, taxes

Why Progressives Should Support the Friedson Amendment

By Adam Pagnucco.

MoCo voters will see two charter amendments on property taxes on their ballots this fall. One of them was submitted by long-time anti-tax activist Robin Ficker, who delivered his petition signatures in February. The other was authored by Council Member Andrew Friedson and placed on the ballot by the county council. The Washington Post editorial board dislikes both, but for progressives, the choice is clear: the Friedson amendment is superior in providing adequate funding for government.

The first reason why progressives should support the Friedson amendment over the Ficker amendment is due to the nature of how they allow revenue increases. The Ficker amendment uses the methodology of the current charter limit on property taxes, which dates back to 1990. Currently, MoCo’s charter allows the volume of real property tax collections to rise at the rate of inflation with a few relatively minor exceptions. Friedson’s charter amendment would cap the weighted average tax rate on real property and allow collections to rise with assessments. So to compare their revenue generation over time, we need to compare the growth in price inflation (which is relied upon by the Ficker amendment) to the growth in assessments (which is relied upon by the Friedson amendment).

The chart below compares the growth in the county’s assessed value of real property to the growth in the Washington-Baltimore Consumer Price Index (CPI) from 2003 through 2017.

This period contained three distinct economic phases. The 2003-2010 period saw robust economic growth throughout the Washington region, causing assessment growth (115%) to far outpace price inflation (26%). Then came the Great Recession years of 2010 to 2013, during which assessments fell (5% over three years) while prices rose modestly (7%). In the slow recovery through 2017, assessments went up by 12% while prices rose by 4%. For the entire period, assessments increased by 129% while price inflation was 41%, suggesting that Friedson’s approach would have yielded MUCH more property tax revenue growth than Ficker’s. (The exact difference would have depended on other factors such as the application of tax credits, especially the homestead tax credit.)

That said, in four of these sixteen years – the period of the Great Recession – Ficker’s approach would have raised more than Friedson’s because real estate values tend to decline during prolonged economic downturns. That leads us to the second major difference between the Friedson and Ficker amendments. Friedson’s amendment allows a unanimous council vote to break the charter limit on property taxes, which continues current practice. Ficker’s amendment eliminates the ability of the council to break the limit, thereby instituting a hard cap on property tax collections. (There is an important exception to this in state law which will be the subject of a future post.) If property tax collections collapse during a recession, Friedson would allow the council to intervene in case of an emergency while Ficker would not. That’s another big reason why progressives should support the Friedson amendment.

Some progressives were disappointed because they wanted the council to adopt County Executive Marc Elrich’s proposed charter amendment, which would have made property tax hikes easier. Good luck getting MoCo voters whose wallets are getting slammed by COVID-19 to support anything opening the door to tax hikes. The Friedson and Ficker amendments both limit property tax increases, but since the Friedson amendment raises more money over time, it deserves the support of the left.

Update: An earlier version of this post was based on changes in the national CPI. This version is based on the Washington-Baltimore CPI. The two measures change at similar rates so the conclusions here are unaffected.

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Montgomery County Council, Robin Ficker, taxes, washington post

Post Editorial: Vote Against All Charter Amendments

By Adam Pagnucco.

The Washington Post’s editorial board has weighed in on MoCo’s competing charter amendments and recommends voting against all of them. The Post wrote that both citizens’ initiatives – Robin Ficker’s amendment on taxes and the nine council district proposal – were bad ideas. But the Post also said, “Yet neither of the council’s competing proposals is preferable to the status quo.” The Post’s verdict is to vote against all of the amendments and stick with the county’s current property tax system and council structure.

You can read the Post’s editorial here.

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Adam Pagnucco, Andrew Friedson, Marc Elrich, Property Taxes, Robin Ficker, taxes

Ficker vs Friedson vs Elrich on Property Taxes

By Adam Pagnucco.

In an open meeting tomorrow, the county council will consider placing two charter amendments limiting property taxes on the ballot along with an amendment by Robin Ficker, which has already qualified. Let’s compare the three proposals – Ficker’s, one by Council Member Andrew Friedson and his colleagues on the council’s Government Operations Committee and one by County Executive Marc Elrich – to current law.

What would be limited?

Current charter limit: An annual growth limit is applied to the total dollar volume of real property tax collections.

Ficker: Same as current charter limit.

Friedson: A limit would be applied to the weighted average tax rate on real property.

Elrich: A limit would be applied to the real property tax rate but there is a lack of clarity on which rate. It could apply to the general property tax rate, which all county residents pay. Or it could apply to the weighted average tax rate, which includes both the general tax and many other smaller property taxes that are specific to function and/or geography. This issue needs to be decided one way or the other if this proposal appears on the ballot.

How would the limit be applied?

Current charter limit: The annual growth in the total dollar volume of real property tax collections is limited to the growth rate in the Washington-Baltimore consumer price index in the previous year. A few categories of property are exempted from this limit (notably new construction during the fiscal year).

Ficker: Same as current charter limit.

Friedson: The weighted tax rate on real property would not be allowed to increase without a unanimous vote of current council members.

Elrich: The property tax rate (whichever option is picked) would not be allowed to increase without a vote of two-thirds (six) of the council members.

Is there a waiver?

Current charter limit: Yes. The limit may be exceeded if all current council members vote to do so.

Ficker: No. The limit on property taxes is absolute (subject to state law).

Friedson: Yes. The limit may be exceeded if all current council members vote to do so (as in current law).

Elrich: Yes. The limit may be exceeded if two-thirds (six) of the council members vote to do so.

Are there disproportionate impacts on different taxpayers?

Current charter limit: No.

Ficker: No.

Friedson: No.

Elrich: Yes. The taxable value of owner-occupied residential property would be allowed to increase at a maximum rate of 3% per year. Other types of property would not be subject to this limit.

Who wins and loses under each option?

That depends on who you are and what your interest in taxes is.

People who depend on county services (other than schools) lose the most under the Ficker amendment, which ties the growth in property tax receipts to the rate of inflation. Inflation is low and might even be negative this year. If the Ficker amendment passes, it will raise the possibility that property tax collections will screech to a halt with limited ways to deal with that.

Groups favoring tax increases gain the most from the Elrich amendment because it lowers the threshold of breaking the tax limit from all current council members to two-thirds (six) of the council members.

Homeowners might benefit from the Elrich amendment, which limits annual tax bill growth on their principal residences to 3%. However, council staff pointed out that the average annual growth in residential assessments exceeded 3% only twice in the nine-year period of FY11-19.

Owners of commercial property and renters of both residential and commercial property will be disadvantaged under the Elrich amendment because they won’t get the 3% growth limit that homeowners will. Over time, the tax burden will shift away from homeowners and onto commercial entities and renters – including residential renters. This is exacerbated by the fact that the Elrich amendment makes property tax increases easier as stated above.

For stakeholders in MCPS’s operating budget, the entire discussion is irrelevant. That’s because a change to state law in 2012 allowed counties to ignore charter limits for the purpose of dedicating funding to approved budgets of local school boards. Since state law trumps county charters, no charter amendment can stop the council from passing a dedicated tax for MCPS. The Elrich administration included such a dedicated tax in its recommended FY21 budget but the council opposed it.

Ficker’s amendment looks to be headed to the ballot because it received enough petition signatures to qualify. We shall see what, if anything, the council decides to put on the ballot along with it.

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Adam Pagnucco, Marc Elrich, taxes

Elrich Charter Amendment Would Make Tax Hikes Easier

By Adam Pagnucco.

A document written by a special assistant to County Executive Marc Elrich lays out the administration’s views on the county’s charter limit on property taxes. And its approach is a simple one: make tax hikes easier.

The county’s charter limit on property taxes was approved by voters in 1990. In simple terms, it allows the county’s total volume of property tax collections to rise annually at the rate of inflation (with a few exceptions like new construction) unless the county council votes to override the limit. Under the original 1990 law, the limit could be overridden with a vote by seven council members. In 2008, tax activist Robin Ficker passed a charter amendment raising the override requirement to nine council votes. Two years ago, voters passed another amendment changing the override requirement to a unanimous vote of all current council members, a change designed to deal with council vacancies. Ficker has qualified another amendment to the charter this year which would revoke all overrides of the limit if approved by voters.

Elrich made his dislike of the current charter limit structure plain in his most recent recommended budget. In his budget message, Elrich wrote:

When the County Council proposed to the voters our current Charter limit on property taxes in 1990, few people could have foreseen the dramatic changes that would take place in Montgomery County and around the globe. In the past 30 years, our school population has grown by 65 percent and our overall population has grown by 40 percent. The services we provide are now more complex and seek to address a range of challenges, from traffic congestion and climate change to health care disparities and linguistic diversity. And over the past four decades, our property tax rate has declined by 35 percent.

We have all witnessed other local governments regionally and nationally experience generational decline due to conflicting, irreconcilable fiscal policies. Montgomery County is at the precipice of such a decline if we cannot get ourselves out of this cycle of self-enforced structural deficits and inequitable, unpredictable revenue caps. Therefore, I will be sending the Council a proposal for a Charter amendment that will revise our revenue cap to provide certainty to homeowners. This proposal will eliminate our old, cumbersome revenue cap and replace it with a three percent cap on the increase in any homeowner’s taxable assessment. This will give our taxpayers real protection from unexpected increases in property values. It will also provide the County Government with a higher degree of predictable tax revenues like every other jurisdiction in our region.

Without such a change in the Charter, our community could be facing a situation in FY21 where a recession and deflation cripple our ability to provide emergency services and a quality public education system. This perfect storm would threaten lives and diminish the value of properties in our County. I will not stand by and let our community be harmed by the ghosts of voters from four decades ago.

An internal document written by one of Elrich’s special assistants, Debbie Spielberg, lays out the administration’s specific objections to the current charter limit. (Spielberg is the Hand of Elrich. No one in the administration is closer to the boss.) Among Spielberg’s criticisms are that the current charter limit structure does not capture growth in the tax base, is vulnerable to underestimates that affect the taxable base subject to the limit forever and leaves open the possibility of having a zero inflation rate stop increases in collections. Spielberg is right on all of these points. She also alleges that the charter limit has caused MoCo to have a lower property tax rate than most of its neighbors. This point is more complicated. MoCo’s property tax rate was in the middle of the pack for Maryland counties in FY20 and is lower than much of Northern Virginia because those localities do not charge income taxes. Spielberg’s memo is reproduced below.

The administration is fearful of what would happen if voters pass the new Ficker amendment, which would remove the county council’s ability to break the charter limit. Spielberg’s memo proposes an alternative charter amendment that would do three things.

  1. It would apply the charter limit to the property tax rate, not the volume of collections.
  2. It would allow six council votes to raise the tax rate. The current override requirement is a unanimous vote by all current council members.
  3. It would limit the growth in the taxable value of an owner-occupied residential property to 3% per year.

Elrich’s official charter amendment request to the council appears below. The council and the voters – but not the executive directly – can place charter amendments on the ballot.

The obvious impact of this proposal would be to make property tax hikes easier. Instead of one council member being able to block an increase, now four would be required to obstruct it.

The less obvious impact has to do with the distribution of future tax increases. Right now, the county limits the annual increase of taxable assessments on principal residences to 10%. The administration’s proposal would lower that to 3%. That looks good for homeowners but let’s think about the properties that are not principal residences: commercial properties and residential rental properties. If homeowners are shielded from tax hikes, commercial entities and residential renters will pay more. This is a significant policy shift with two consequences. First, it would impede the county’s commercial sector from recovering from the COVID-19 economic crisis. (Let’s remember that MoCo had major competitiveness issues before the virus arrived.) Second, renters – especially low-income residents and small businesses – have been dramatically affected by the current economic downturn. How much more can they pay? Policy makers should think carefully about having them assume more of future tax burdens.

The looming prospect of a new Ficker amendment has generated both this concept as well as another amendment on property taxes now before the county council. (The council’s version would require a unanimous council vote to raise the tax rate and contains no redistribution of the tax burden.) If one or both alternatives to Ficker make it to the ballot, voters will face complicated choices on tax policy. And they will do it during one of the worst recessions ever.

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Adam Pagnucco, budget, taxes

Crash!

By Adam Pagnucco.

You heard that deafening noise, yeah? It came from Rockville, specifically from Monroe Street. It was the sound of the county budget being blown to smithereens. And it probably won’t be the last loud noise heard echoing from the county seat.

Why the explosion? That’s what it sounds like when the county writes down half a billion dollars over two years.

A dryly titled document known as “Update on County Tax Revenue Estimates” will be reviewed by the county council tomorrow. Budget writers tend not to be very dramatic people. That’s one reason why summer blockbusters tend not to be centered on budget analyses. But this blockbuster contains more exploding ordinance than a World War II battlefield. Ground zero is MoCo.

The COVID-19 crisis is now blowing up budget after budget all over the world and we are not immune. In FY21 (the current fiscal year), the county was supposed to receive roughly $4 billion in locally generated tax revenues. (The county gets another $2 billion in intergovernmental aid, grants and non-tax revenues). Of the $4 billion or so in local taxes, here are the projected writedowns as of last week.

FY20 (last year): $47.7 million
FY21 (this year): $192.0 million
FY22 (next year): $282.0 million
FY23: $275.9 million
FY24: $272.8 million
FY25: $225.2 million
FY26: $173.9 million

There is bound to be variation in the out years because economic forecasting is about as certain an art as selecting number one draft picks. But when combining last year, this year and next year, the total writedown is $522 million. That’s the biggest writedown since the Great Recession.

The biggest contributor by far to the shortfall is income taxes, which have been written down through FY22 by $357 million, or 68% of the total writedown. The county’s finance department reported that income tax receipts were down $19 million from their estimate in May and $20 million from their estimate in June. Finance expects personal income, wage and salary income and income from dividends, interest and rent to fall in calendar year 2020 and then rise by a fraction of their prior annual growth over the last decade in calendar year 2021. Finance also expects resident employment to fall by 1.82% in 2020 and a further 0.05% in 2021. All of these declines will hit income taxes.

Relative to their immense size, property taxes are not written down by very much (just $41 million from FY20 through FY22). The reason is because the county’s charter limit allows property tax collections (aside from new construction and a few other categories) to rise at the rate of inflation regardless of what happens to assessments. There are two wild cards here. First, what if the rate of inflation goes to zero or even goes negative because of the collapsing world economy? And second, what if massive failures to pay rent cause property owners to file more tax appeals? If the real estate market fails, that will just add to the wreckage.

Two other wild cards might be thrown the county’s way. First is Governor Larry Hogan’s plan to shift and shaft the counties, which was defeated at the Board of Public Works but may yet return at a later date. Second is the fate of additional federal aid for counties, which is backed by Democrats in Congress but draws a wary eye from Republicans (including U.S. Senate Majority Leader Mitch McConnell). The federal government has so far allocated $183 million of aid to MoCo, but it is targeted to expenses directly attributable to COVID-19. The county needs money to cover its plummeting local revenues. If Hogan and McConnell get their way, all MoCo will get is more shrapnel.

So what does all this mean? The loud noises might not be over, folks. Could we someday hear the wailing squeals of sacred cows, prodded by unforgiving steel as they are dragged away to slaughter?

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Adam Pagnucco, budget, Property Taxes, taxes

Council Rejects Hidden Tax Hike

By Adam Pagnucco.

Yesterday afternoon, the county council rejected the hidden tax hike that was buried in the county executive’s recommended budget.

The primary issue that bothered the council was the lack of transparency surrounding the tax hike. It was not mentioned in the executive’s budget but it would have raised $5.1 million next year and more money cumulatively in later years. Tax increase proposals attract major attention at budget time with much discussion and public testimony. But this one, which was not published but still included in revenue numbers, flew under the radar until near the end of the FY21 budget process.

Multiple council members complained about process issues. Council Member Hans Riemer noted the failure of the budget to mention the tax hike and said, “This is about our values and our approach to government… The reason why I am so concerned about this proposal is because I really think it flies in the face of our approach to good government and to transparency.” Council Member Andrew Friedson said, “Public policy means public input. And we cannot have transparent and accountable policy making unless there are transparent and accountable decisions for how we make those decisions, how we calculate the policies that we make.”

Council Member Evan Glass put on his CNN journalist hat to investigate what happened. Glass asked council staff how the issue surfaced. Staff replied, “I did not read anything published that this was included,” and said the issue was uncovered through discussions with executive staff. Glass then asked budget director Rich Madaleno why the administration proceeded with it. Madaleno defended the executive’s proposal as an appropriate calculation of the charter limit and said the executive would have discussed this upon release of the budget but that event was canceled because of COVID-19 concerns. Madaleno also said this:

Council Member Riemer is correct that in the final iteration of the budget book the piece that explained this was taken out for revision and did not make it back in before it went to the printer. For that I am profoundly sorry but other than that there would have been deep conversation and of course many of you have heard the county executive say over and over that he thinks the charter interpretation is wrong and has been talking about that for months.

Glass acknowledged that he had heard Elrich express various opinions at forums. (Remember those back in the good old days?) But he replied, “To say something in a forum but then not convey it to the council or not to, as you noted, not to even include the cover page in the budget for whatever reason is a problem.”

Even Council Member Gabe “Mr. Rogers” Albornoz had nothing nice to say about the process for considering the tax hike. When Mr. Rogers is unhappy, there is a problem.

Riemer proceeded to claim that the executive’s proposal was actually illegal because it allegedly violated the charter. The charter’s exact language on the property tax charter limit says:

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.

So the charter applies the rate of inflation to adjust “the total revenue produced by the tax on real property in the preceding fiscal year” to calculate the charter limit. The methodology used by the finance department for the last 30 years uses actual taxes paid on real property, including partial-year taxes on newly constructed property which was in use for only part of the year, to calculate current year total revenues. The executive’s new methodology would use taxes that new construction would have paid if billed on an annual basis to calculate current year revenue even though full-year taxes on those properties were not actually collected.

Riemer alleged that the use of hypothetical revenues rather than actual revenues to calculate the charter limit violates the plain language of the charter and asked a council attorney for his opinion. After explaining the technical issues and the possible steps for analysis by the courts, the council attorney replied, “My opinion is that the courts if asked – the court of appeals if asked – would ultimately rule for all the reasons I explained that this provision means actual revenue received during the relevant year for newly constructed property and not the potential revenue you could have received had everything been online for a full year.”

Riemer was bothered by both the transparency issue and the legal risks of the executive’s proposal and he linked the two.

The fundamental issue here is, given how risky it is, the fact that the county council and even more importantly, the public was not informed of this proposal is highly problematic. If you look at the county executive’s budget, you will not find an explanation of this decision. It’s not there. The county executive did not present a budget explaining this method of calculation. The fact is it is a $5 million increase in property taxes from all payers of property taxes in the county. But there is no explanation of that in the county’s budget. It is unthinkable to me that we would have a tax increase that has not actually been transparently presented to the community and, what more, is actually illegal. It is a violation of the charter. The combination of those two aspects of this proposal are just profoundly troubling.

Let’s remember that the principal charter limit activist in the county – Robin Ficker – is an attorney who has sued the county before and prevailed multiple times. A legal challenge to a change in charter limit administration is far from a hypothetical thing.

It’s not clear that a majority of the council agrees with Riemer on opposing the merits of the executive’s proposal. But there was obvious discomfort in dealing with this issue both late and without public input. That goes on top of other tensions with the executive branch on the budget and issues ranging beyond that. Add in stir craziness during the lockdown and these are strange times in Rockville.

After 40 minutes of discussion, the council killed the executive’s hidden tax hike on a 9-0 vote.

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Adam Pagnucco, budget, Property Taxes, taxes

Elrich’s Hidden Tax Hike

By Adam Pagnucco.

One month ago, I roasted the Montgomery County Republican Party for inaccurately claiming that the county was trying to “sneak in” a tax hike. At that time, the issue was a state notice requirement and not actual intent – at least not by the county council – to raise taxes. But it turns out that there actually was a hidden tax hike embedded in the budget on top of the executive’s open recommendation to raise property taxes. No one reading the budget would have found it. But county council staff did find it and now the matter is exposed.

Folks, I have been reading county budgets for almost 15 years and I don’t remember seeing anything like this.

The issue at hand is how the county calculates the charter limit on property taxes. In concept, it’s a simple procedure. The county’s finance department uses two data points: the estimated amount of real property tax revenues collected in the current fiscal year and the percentage growth of the consumer price index from the previous calendar year. Tack on inflation to the current fiscal year’s property tax revenue and that’s the charter limit for the next fiscal year. (The county can collect additional property tax revenues on a few other categories of property outside the charter limit.)

Sounds easy, yeah? But what about taxes collected from properties newly built during the current fiscal year? For the last 30 years, the county’s finance department has included the actual taxes paid on those properties in its calculation of current year revenues. So if a property was built halfway through the fiscal year, half of its annual tax bill is included in current year revenues. If a property was built nine months into the fiscal year, then one-quarter of its annual tax bill is counted. And so on. Add in these pro-rated tax bills to full-year tax bills for existing properties and that’s the current year property tax collections. Tack on inflation and that’s the charter limit.

The Elrich administration used a new methodology to calculate the charter limit in its FY21 recommended budget. Instead of using the actual tax bills paid by newly built properties in the current fiscal year, it included full-year tax bills in its estimate of current revenues even though those bills were not actually paid for the full year. That allowed the administration to calculate slightly higher current year property tax revenues. Tack on inflation and the charter limit is slightly higher. And so there is more room to raise the property tax rate than there would be otherwise.

In other words, it’s a tax hike.

It’s not a very large tax hike. Council staff estimates that the new methodology allows the county to raise an extra $5.1 million in the FY21 budget, or 0.24 cents per $100 of assessed value. (By contrast, the executive’s openly recommended tax hike was 3.18 cents.) But if this new methodology is adopted, it will compound over time and eventually raise tens of millions of dollars more than under the old methodology.

Basing tax estimates on taxes not actually received is a questionable practice at best, but let’s set aside the merits of the policy for now. The disturbing thing about this is that it was not disclosed to the public through the budget. Search the county’s 831 page budget for “charter limit” and you won’t find any discussion of this methodology change. Instead, the matter first surfaced in a council staff memo released late last week. The council held a closed session to discuss the legal ramifications of the change on Wednesday. The council will now decide the matter today.

Regardless of how one feels about taxes, let’s agree that decisions concerning them are important and warrant public scrutiny and participation. The issue was not publicly known when testimony was heard on the budget, so residents were denied the opportunity to weigh in. That is a direct result of the administration’s failure to disclose the issue in its published budget.

We deserve better.

Let’s see what the council makes of this.

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