Speakers at a Montgomery County Council public hearing on Tuesday were divided over legislation that would establish an excise tax on certain demolitions and renovations of single-family homes.
If passed, revenue generated through the tax would be directed to the Montgomery County Housing Initiative Fund and used exclusively for the Housing Production Fund. The proposed tax legislation, sponsored by councilmember Kristin Mink (D-Dist. 5), is designed to help retain affordable homes in the county. Six speakers attended the hearing at the County Council chambers in Rockville.
According to a council staff report, a $20,000 excise tax would apply to certain total demolitions and partial demolitions of attached or detached single-family homes in the county. A “partial demolition” is considered construction or renovation that results in the destruction or removal of at least 50% of an existing single-family home.
Under the bill, the council would have the authority to raise the tax rate in accordance with inflation, subject to a public hearing.
Some houses, including those being demolished for safety reasons, would be exempt from the rule. Exceptions would also apply if the original homeowner agrees to own and live in the replacement home for at least five years, or if the new construction includes moderately priced dwelling units (MPDUs).
According to the county’s Department of Housing and Community Affairs, the MPDU program aims to produce moderately priced housing, distribute low- and moderate-income households across the county’s growth areas, expand and retain an inventory of low-income housing in the county and provide funding for future affordable housing projects.
Reasons for and against
Supporters of the council legislation said the tax would protect affordable homes from being demolished to create more expensive homes.
“As housing prices continue to rise and gentrification grows, the demolition of single-family homes to make way for larger and more expensive homes is hindering the development of affordable housing for working-class families,” said Eden Aaron, policy analyst for local immigration rights organization CASA.
Some speakers who supported the legislation also wanted to see major amendments to how the tax revenue would be spent.
Hilary Swab, a Montgomery County Public Schools (MCPS) parent, said she supports the legislation, citing the potential negative impact of teardowns on neighborhoods. But she said the revenue that would be collected through the tax should be directed to the school system instead of spent on housing projects.
“It is critical that the County Council not only pass this legislation but amend it so the fees are shared with MCPS,” Swab said. “The County Council can end their addiction to giving money away to developers and begin to make common sense changes … that will not only provide MCPS more financial stability but [also] stop promoting the false narrative that you have to choose between funding important public goals such as affordable housing or public education.”
Those opposed to the legislation who spoke at the hearing, mainly developers, said it would make new development more burdensome.
“[The proposal] feels ludicrous,” said Mimi Brodsky Kress, owner of Bethesda-based Sandy Spring Builders. “It feels like another new tax on housing on top of the increased recordation taxes recently and could ruin the already difficult market for builders.”
The council passed a recordation tax rate increase in 2023 to help fund capital projects in the county, including renovations to county public schools. The recordation tax applies to homes valued at $600,000 and above and is applied whenever real estate is transferred from one party to another or refinanced in the county. It’s a one-time tax that occurs when buying or selling a home.
Another speaker, Antonio Francis, who owns Silver Spring-based Francis Development, said he is concerned the proposal if approved could make it more difficult to create new housing in more diverse and lower-income areas of the county.
“If this bill is adopted, I foresee new construction activities being concentrated in more affluent areas of the county, leaving other regions financially disadvantaged,” Francis said. “This concentration of development contradicts the equitable growth and development goals of this council.”
There have been a number of changes to how the county taxes developments in recent years. In February, the council voted to change when the county collects development impact taxes. Previously, an applicant for a building permit did 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 council voted to change county law so that applicants do not have to pay the tax until their building project is completed.
The assessment of development impact taxes is directly related to 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 new housing will bring new students. The taxes are used to help offset the costs associated with increasing school capacity.
A joint work session on the proposed tax legislation between the council’s Government Operations Committee and Planning, Housing and Parks committees is expected to be scheduled at a later date. A vote has not yet been scheduled.
