Tag Archives: property 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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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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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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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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Yes, Virginia, You Do Pay More in Taxes, Part I

Source: County Executive Budget Presentation

In Montgomery County, there has been a long-term tendency to moan that we can’t compete with Fairfax due to higher property taxes. In short, we should be more like Virginia.

Unfortunately for that argument, Fairfax, and now Virginia, have decided instead to be more like Maryland. Loudoun and Fairfax Counties all have higher property taxes than Montgomery. Arlington property taxes are essentially the same as ours.

Only the District of Columbia has substantially lower property taxes. On the other hand, services in Montgomery from schools to recreation facilities are, frankly speaking, much better than in the District.

Does this mean we should raise our property taxes? No. But it does mean that it’s time to abandon the myth that we pay more than our neighbors on the other side of the Potomac.

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