Middlebrooks Wises Up...Sort of

A curious thing happened on the way to the Council, it appears Ed Middlebrooks finally got a clue. During the discussions, late last year, about a dedicated fund for stormwater repairs, certain "anti-tax" Republicans like Ed Middlebrooks asked, "why not a dedicated fund for schools, or other infrastructure?" The question seems to have sparked a rare good idea from the Councilman.

Early last week, he sponsored a resolution, which passed the Council, asking the County Legislative Delegation to give the County the capacity to raise the transfer tax on the sale of homes to collect additional funds for school maintenance and other infrastructure backlogs.

It turns out, however, that the County Executive and most of the County Delegation oppose the increase and are unlikely to push the State enabling legislation.

The Executive's chief objection is that it would be better to achieve these ends by raising the impact fees. The problem is, impact fees can't be used for routine maintenance, but must instead be used to pay for expansion of existing facilities.

The proper solution involves compromise on each side, the Council owes it to the citizens of the County to hike the impact fees to 100% of cost, regardless of the whinery of the development community, and the Executive needs to recognize that the $1.5 billion backlog of school maintenance can't be dealt with through impact fees, and needs a steady funding stream of its own.

The most beautiful aspect of the proposals is that increases in both are unlikely to have much impact on the pocketbooks of existing residents and put the County on a much more sound fiscal footing for decades to come.

Homestead Application Repeal Considered

A couple of weeks ago, I pointed readers to the new application that the State requires to extend the Homestead property tax credit this year. Now, faced with a public backlash regarding the application requirement, some in the General Assembly are seeking its repeal. Just to be on the safe side, if you own property in Maryland, you should probably submit the paperwork to avoid a steep tax hike.

Homestead Head's Up

The Homestead Tax Credit was put in place to limit the amount of assessment increase that homeowners can expect on their property tax bill. Any homeowner, regardless of income level, is eligible to take the credit on their primary residence.

However, in an effort to avoid individuals taking the credit on multiple properties, the legislature passed a law requiring that a one-time application be made in order to receive the credit into the future. The application, at the State Department of Taxation and Assessments website, can be found here.

According to the site, "This credit can have a significant impact on your real estate taxes regardless of your property’s value or your income level. If the property is used as your principal residence, you are strongly encouraged to complete this application."

Comparing County Tax Rates

While making my way around other state blogs, I came across this informative tax table from the Maryland Department of Taxation and Assessments.

There's an awful lot of discussion about Anne Arundel being a "tax cap, tax averse" County. In fact, the County Executive seems to rattle it off at this point like it's second nature. So, just how "taxed" is Anne Arundel County relative to other jurisdictions in the State?

Let's begin with size. With an estimated population of 509,300 in 2006, Anne Arundel County is the fifth largest of 24 County size jurisdictions in Maryland (smaller than only Montgomery, Prince George's, and Baltimore Counties, and Baltimore City).

At $.87/$100 of assessed value, our real property tax rate is 8th lowest in the State. Our personal income tax rate, the so-called "piggyback" tax, is 2.56%, the 3rd lowest in the State. Only Worcester and Talbot Counties, with less than 1/10 the population have lower rates in Maryland.

We may well be "tax averse", after all, I can't say I've ever met anyone who relished paying taxes, but for anyone to assert that we are "overtaxed", particularly compared to other jurisdictions in the State, is not accurate¹.

To my knowledge, we still have an enormous school maintenance backlog (it was $1.5 billion 18 months ago), perhaps it's time to consider bumping up the piggyback tax to fix our schools before we have any more embarrassing situations like the one that occurred with Severna Park High School in 2006.

¹ I will say, however, that taxes in Baltimore City are out of hand. What do you get for a property tax rate ($2.268/$100 assessed) that is more than double the next highest in the State and a personal income tax rate (3.05%) that is 7th highest? Atrocious schools, failing infrastructure, and two murders every three days. Something needs to change in Maryland's biggest city.

Tax Talk in Anne Arundel

This week there was quite a bit of tax-related talk in the County. Early on, Executive Leopold announced his effort to cut taxes for senior citizens. Leopold's bill, which would provide an average $30 property tax credit to low-income individuals, over 70, who have lived in their homes for at least 10 years would cost the County about $75,000 annually.

On the other end of things, Executive Leopold proposed to raise the taxes on car rentals in the County. The Executive and full Council are seeking authority from the State to have the option to levy the tax, which is projected could raise "several million dollars" a year. Reception within the County delegation has been mixed.

All of this gains increasing relevance given that the School Board has asked for a $133 million (17%) budget increase.

Tax! You're It.

A sharp dose of economic reality came from an unlikely source this week - County Executive Janet Owens. According to the Queen, the next County Executive will "absolutely" have to increase taxes to deal with the County's increasing backlog of expenses.

Why, oh why, would Ms. Owens toss this little grenade into the mix three weeks before the November 7th election. Some might suggest it was to give Mr. Leopold and Mr. Johnson fair warning about what they are about to get themselves in to. I'm too cynical for that. I suspect this was one last (?) present lobbed at George Johnson from the only County Executive of the last 6 who didn't endorse him last week. I think Ms. Owens knew that the Sheriff is too responsible a person to completely rule out the possibility tax increases, and that Leopold probably would, and that such responses would cost Johnson votes from the "I want something for nothing" crowd. From the looks of the headline of the Capital article, things went exactly according to plan.

Problem is, the headline is misleading at best. It says, "Next county exec must raise taxes, Owens says: Johnson vows only as a 'last resort,' while Leopold rules out hikes." Fact is, both Leopold and Johnson leave the door open for impact fee increases, and raising the property tax up to the cap. Johnson supports the watershed restoration fee, Leopold opposes. Johnson is willing to consider an increase in the "piggyback" income tax, and Leopold says he won't.

As much as I disagree with the Queen's motivations, I appreciate her message, and I think she's right. The next administration would be extremely irresponsible not to raise taxes. An impact fee increase is a no brainer. The County can't afford to keep subsidizing sprawl. Taking the property tax up to the cap also makes a lot of sense, to start cutting into the school backlog. Taxes are a tool, and the County infrastructure and budgetary needs are a project. It's irresponsible to remove tools from the toolbox before one's stint as general contractor has even begun. To get a sense of the scale of this undertaking, see the following:

Outstanding Infrastructure and Other Needs:

$1.5 billion in school construction backlog.

$500 million+ in stormwater infrastructure backlog.

$200-500 million in road infrastructure needs.

$100 million/year in retiree benefits.

$18 million/year in teacher raises.

Potential Sources of Tax Income:

Increase the property tax up to the cap - Predicted annual income $125 million.

Increase the "piggyback" tax on the State income tax - Predicted annual income $80 million.

Increase impact fees to recommended fee from 2001 (from $4,500 to $12,500 per home) - $8,000 for each new home. [BRAC could bring 10,000 new homes, or $80 million in lost impact fees if something isn't done fast.]

Other potential sources of revenue:

- Watershed restoration fee ($60 per runoff unit/year) - ~$36 million

Owens Cuts Property Tax Rate, Warns of Income Tax Increase

Yes, you heard that right. The County Executive proposes cutting the property tax rate, and then warns that a future County Executive may have to increase the County income tax rate (the lowest in the Baltimore region) to offset proposed budget increases, like teacher raises. Sounds like just the sort of person you would want as State Comptroller, no?

February Follies

Wednesday's Capital leads off with a piece on Delegate Dwyer's erstwhile effort to get enough signatures on a petition to force his anti-gay marriage bill before the House. Thankfully, he's failed at that task thus far. The article reveals a potential side benefit of the recent judicial ruling which concluded, preventing gay marriage violates the State constitution: Bigoted Anne Arundel County Clerk of the Court Robert P. Duckworth would refuse to officiate same-sex ceremonies, hopefully leading to his being frog-marched from office, and allowing him to join the horde of countless unknown individuals who allowed their principled prejudices to drive them into the ranks of the unemployed. [Post profile on the man some are calling the "Anne Arundel Ayatollah"]

In more pleasant news, increasing tax assessments seem to be the talk of the town. On Tuesday evening, Eastport hosted a meeting to inform local residents about the process to appeal increasing property tax assessments. For instance, one resident who purchased her waterfront home in Eastport in 1996 for $367,000 had her property assessed at $1.7 million earlier this year. While, on the one hand, it's difficult to muster pity for people whose homes quadrupled in value over the past decade, it's easy to see how such a valuation could certainly squeeze people's pocketbooks. I've been thinking about this a fair amount, and trying to come up with an equitable solution. Certainly, appealing the assessment is one tactic, but really it's only temporary measure. Property values will keep climbing, and it's not hard at all to believe that waterfront property in Annapolis would have a low end of $1 million. How about this as a compromise:

The homeowner's assessment is locked in at the purchase price of the home, and that assessment can only climb by a fixed percentage (say 5%) per year, even though the potential sales price of the home may go up by 15-20% per year.

The catch is the State's "real assessment" stays in place, and for each year their is a discrepancy between the amount the homeowner pays, and the amount they would pay under the State assessment, a running balance is kept.

At the date of sale, that running balance comes due, and is paid out of the profits from the home sale.

So, as an example, Jane Homeowner buys her home in 2006. Property values climb 17% per year, and her property tax payment is $1 for every $100 dollars of assessed value:

Year	Home Value	Homeowner's Assessed Value	Actual Payment	Potential Payment	Difference
2006	$100,000	$100,000	$1,000	$1,000	$0
2007	$117,000	$105,000	$1,050	$1,170	$120
2008	$136,890	$110,250	$1,102	$1,368	$266
2009	$160,016	$115,762	$1,157	$1,600	$443
2010	$187,388	$121,550	$1,215	$1,873	$658

In 2011, Jane decides to sell for the market value. She receives about $87,388 in profit, but her running tax balance is $1,487. After the balance is paid, she takes away $85,501 from the deal. She's happy, the State is happy, and the taxes get paid, albeit a bit later. I'd welcome any constructive feedback.

Boning Up on the Budget

Perusing budgets, particularly the labyrinthine, detailed budgets of large businesses or government entities is hardly anyones' idea of a good time. But, that doesn't mean that, on occassion, it doesn't have to be done. At over $1.1 billion for fiscal year 2006, there's a lot to investigate in the County's books.

Have you ever wondered where your property taxes, fees, and local income taxes go after they've entered the County's coffers? While it may be tempting to respond, "down the drain", that answer is only partially correct. Only .03% of those funds went to the Department of Public Works ($32.7 million), literally down the drains, while a far smaller percentage went down the figurative drains to fund the Office of the County Executive and the Department of Planning and Zoning ($3.8 million and $8.5 million, respectively).

But seriously, did you realize that 46% of County expenditures go to fund the public school system and Community College? "Public safety" (police, fire, and detention facilities) makes up another 19% of the budget. "Human services", which includes the Deparments of Aging, Parks and Recreation, Health, and Social Services, makes up another 8%.

Future columns will be dedicated to a more in-depth exploration of the budget. In the meantime, I invite you to do some exploring of your own.

Tax Tips for the Bay

Tax time, April 15th, is nearly upon us, and as I was recently finishing up my State and Federal taxes, I noticed something I hadn't seen before. Maryland offers (and has since 2002) an income tax credit for citizens who purchase and place aquaculture oyster floats in waters near their homes for personal, noncommercial use. The credit allows purchasers to claim 100 percent of the cost of aquaculture floats up to $500. That basically means that waterfront homeowners or community associations could be helping to restore the oyster population at no cost to themselves. Oyster floats can be ordered from the Circle-C Oyster Ranch in Ridge, MD (St. Mary's County).

Also on the Maryland Tax form is the opportunity to contribute to the Chesapeake Bay and Endangered Species Fund (Line 37). The monies collected through the Fund are split evenly between the Chesapeake Bay Trust and the Maryland Department of Resources Wildlife & Heritage Division. In the past, funds collected through the tax check-off have helped put millions of oysters in the Bay, assisted in the planting of shoreline grasses, and provided educational opportunities about the Bay for school children. It's a great way to give a targeted gift to Bay restoration and its tax deductible.

Taxing Good Sense

In a move that suggests Speaker of the House, Mike Busch (D-Annapolis), has trouble learning from his mistakes, Mr. Busch is proposing to roll back an increase in the state property tax enacted in 2003. In the 2002 elections, Republicans up and down the slate, from Mr. Ehrlich to candidates for the House of Delegates, uniformly ripped sitting Democrats in the House and Senate, and the aspiring Kathleen Kennedy Townsend, on the issue of the projected billion dollar deficit that had been racked up under their watch. The budget deficit was one part bad luck, the economy had recently taken a downturn, and one part poor management, the state Democrats, hoping to share in the anti-tax afterglow their Republican counterparts cultivate, had cut income tax in the State, and now were coming up short.

Following those elections closely, I didn't see one instance where incumbent Democrats were able to win the political points they had hoped their tax cutting fervor would produce. Instead, time and again, they were shredded by Republicans in debates, forums, and in the press on the issue of fiscal irresponsibility. Their Republican-emulating formula led to the debacle that was the 2002 elections, where Republicans took the governor's office for the first time in over 30 years, and gained several seats in the Assembly.

Despite Speaker Busch's assurances that, "The time is right for this ... We just think it's an opportune time to repeal the tax increase that Governor Ehrlich initiated in his first year in office," the time is not right. As Senate President, Mike Miller (D-Calvert), asserted, cutting property taxes this year would not be responsible, given the state's unmet needs in areas such as education, health care and the environment. By rolling back the property taxes, the State would lose more than $165 million in annual revenue.

Time for a Toycott?

Speaking of taxes, in this time of tight budgets and lean economic times, one would hope that we could all pull together and pay our fair share. Unfortunately, some of the corporations doing business in Maryland, including Toys R Us, have cheated Maryland out of some $70 million in back taxes by setting up shell "holding companies" in Delaware. This scandal harkens back to Enron's tax games in the Cayman Islands. These mega-corporations spend millions of dollars to avoid the taxes they are legally required to pay, putting locally-owned businesses at a disadvantage, and depriving Marylanders of revenue desperately needed to run the State.

The Maryland Court of Appeals has held that the profits of holding companies like these are taxable by Maryland, but the "lowest common denominator" business climate that Delaware has set up to collect incorporation fees, and deprive other states of tax revenue, represents a serious problem for states all around the country. The strategy of getting ahead by undermining the rules and regulations that the rest of us have put in place is akin to the current incarnation of global "free trade", a race to the bottom, where companies without worker protections and environmental regulations are "rewarded" with exploitative manufacturing operations.

Selling the Future

Upon receiving word that Governor Ehrlich is determined to have a fire sale of various State-owned properties around the County, it appears that Executive Owens has done the right thing and tried to step in to block their sale. The 3.9 acre parcel at the northwest corner of Ritchie Highway and Jones Station Road in Severna Park and the 64-space Park & Ride lot in Earleigh Heights are on the Governor's hit list and represent yet one more step in his ideological drive to avoid tax increases by any means necessary. Slots and selling public lands are apparently the most creative solutions he can muster.

Meanwhile, the Severna Park plot is used regularly by not only commuters and those utilizing the B & A trail, but it has also hosted a farmer's market for 11 years. It has been a site for the Severna Park community to gather for recreation and commerce, and holds the potential to become an even more substantial hub for public transportation between Annapolis and Baltimore in the future, and once the public loses it, it's going to be gone for good.

Rather than auctioning our assets off and mortgaging our future, perhaps we should consider Oliver Wendell Holmes Jr.'s famous words, "Taxes are the price we pay for a civilized society." Future columns will focus on the public's cognitive dissonance between wanting more services (and effective funding of those currently in place) and the widespread disdain for paying more taxes, but let me leave you, dear reader, with a teaser. The October 2003 survey [pdf] by the Center for the Study of Local Issues, at Anne Arundel Community College, found that when asked "Which is the best approach for dealing with the State budget deficit?", only 24 percent of residents suggested raising taxes or creating new ones. Only 27 percent suggested reducing spending. Can you guess which alleged silver bullet almost all the rest chose?