The Montgomery County Council unanimously voted Tuesday to change the way the county collects its development impact taxes to require that such taxes be collected at the final inspection of a completed structure.
Currently, an applicant for a building permit does not pay impact taxes until six or 12 months after the building permit is issued, depending on the type of building, or the structure’s final inspection by the Department of Permitting Services, whichever is earlier. The bill will change county law so that applicants do not have to pay the tax until their building projects are completed.
Changing the due date means payments won’t be due earlier in the construction process as previously required. Developers, who supported the change, said the previous requirement to pay the taxes earlier sometimes could impact the availability of funding to complete a project.
“By changing the time at which impact taxes are collected, we’ll be able to reduce the costs of new housing by collectively millions of dollars, and that cost savings will be shared by renters and home buyers,” councilmember Evan Glass (D-At-large), who sponsored the legislation, said prior to the vote Tuesday.
The legislation was co-sponsored by councilmembers Gabe Albornoz (D-At-large), Andrew Friedson (D-Dist. 1), Sidney Katz (D-Dist. 3), Natali Fani-González (D-Dist. 6) and Dawn Luedtke (D-Dist. 7).
The assessment of development impact taxes is directly impacted by the size and geographical designations in the county’s Growth and Infrastructure Policies. Developers are required to pay the taxes on approved projects to help fund school and transportation infrastructure. The designations and rates differ based on the location of a proposed development, as illustrated in maps attached to the council’s resolution.
Development impact taxes directed to school infrastructure spending are calculated for new housing developments based on estimated school construction costs as well as the expectation that the housing will generate new students. The taxes are used to help offset the costs associated with increasing school capacity.
Developers and county commerce officials voiced strong support for the legislation during a December public hearing, saying it would ease the taxing process for developers and make development less burdensome, as well as positively impact the county’s economy by encouraging development.
Peter Ciferri, an attorney representing the Maryland Building Industry Association, said during the hearing that passing the legislation would be the first step in “re-examining Montgomery County’s burdensome development impact tax structure.”
“The impact of development does not actually occur until the building is occupied, so there is no real nexus for tying payment of the tax to a sort of arbitrary timeline, rather than a point in time that is more reliably certain to relate to when the impact will occur,” Ciferri said. “In some cases, the payment of a substantial impact tax fee will create material delays or stop the project entirely by pulling too early from the budget.”
Brian Levine, vice president of government affairs for the Montgomery County Chamber of Commerce, noted during the hearing that the bill would have a positive impact on the county’s economy.
“It’s not just the economic impact for developers and on the county. There’s a positive impact on the county’s housing stock, which is just as important in our mutual priority to address the housing challenges that Montgomery County faces,” Levine said.
However, County Executive Marc Elrich was critical of the decision. In a memorandum to the council, Elrich said he worried that “recent reductions to impact tax estimates” will “substantially hamper our ability to make critical community investments in school capacity projects and transportation improvements.”
“While impact taxes may not be the ideal tool for funding transportation and school infrastructure, further reductions to impact tax revenues should not be enacted before assembling the study group recommended by the Planning Board and the County Council to identify alternative revenue streams,” Elrich wrote.
Elrich will have to sign the bill into law for the changes to take place. He previously vetoed a council decision to update the county’s development impact tax districts, but the council unanimously overturned his decision by a supermajority vote.
