UPDATED: Elrich calls for property tax hike in budget proposal

UPDATED: Elrich calls for property tax hike in budget proposal

Most of increase would go to help public schools; Eight County Council members object

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This story was updated at 9:45 a.m. March 17, 2020, to clarify the overall proposed tax increase in the budget.

A proposed Montgomery County budget of $5.9 billion for fiscal year 2021 was released Monday with a new tax to fund schools.

County Executive Marc Elrich is calling for a nearly 5-cent property tax increase.

The majority of it would be a 3.1-cent supplemental property tax rate to be used exclusively for public schools. The current rate is roughly 98 cents per $100 of assessed value. The new rate is proposed at $1.03.

Maryland law allows each county to establish a supplemental property tax rate for schools. It would be the first time Montgomery County created one, Elrich’s budget plan says. Three other counties in the state have a similar tax, according to the plan.

Montgomery County Council President Sidney Katz and other council members released a statement on Monday afternoon opposing the supplemental tax rate. Council Vice President Tom Hucker was the only member not included on the statement, saying he wanted to take more time to read the plan before commenting on it.

Council members said people in the county need certainty and support as they face economic realities of the coronavirus. The global pandemic will affect their jobs, retirement savings, small businesses, and families, they said.

“This is a time for cautious decision-making, not property tax increases. We look forward to working with the County Executive to address the initiatives in his budget recommendations,” the council statement said.

“Even with this additional funding, we will still be providing the school system with less support per pupil than in 2010,” Elrich wrote in his proposal. “A decade of slow growth nationally, unpredictable tax policy changes at the Federal level, and our severe Charter limit has left our schools playing catch-up on funding while absorbing enrollment growth of more than 25,000 students.”

Elrich responded to the council in a separate statement, saying the coronavirus was “not on the horizon” as the budget was being developed.

Elrich could not be reached for comment.

He said in his budget plan that the new supplemental tax rate would partially offset an unexpected underperformance of the property tax the last two years.

The school funds would increase 4.3%, or $114.9 million, from this year.

Board of Education President Shebra Evans and Montgomery County Public Schools Superintendent Jack Smith praised Elrich’s budget in a statement sent Monday afternoon.

“We greatly appreciate County Executive Marc Elrich’s understanding of the need to face the challenges of today while planning for the future of our children and community,” the statement said. “His recommended budget nearly equals the Board of Education’s requested budget and is more than $30 million over Maintenance of Effort.”

“We have all known from the beginning that funding the school system’s request could not be funded within anticipated revenues and, as we have been working at the State level to increase school funding through the Build Act and Kirwan, I believe that we should make the additional investment in schools that they need today, even if it required a special tax increase dedicated to the schools,” Elrich said in a statement.

School funding includes $10.4 million for the Early Care and Education Initiative and $900,000 for 10 additional school nurses to help with a staff shortage.

In February, the Montgomery County Board of Education finalized its $2.8 billion budget request, which included money to increase staff salaries, expand access to prekindergarten services and increase staffing for English language learners.

The budget proposal was a 4.6% increase from the current budget.

The proposed budget was about $43 million higher than what the district would legally be required to fund. School systems must provide per-pupil funding that is at least as much as what was provided in the prior fiscal year, a concept known as “maintenance of effort.”

The budget also includes money for expanded after-school security following the October 2018 rapes in a football locker room at Damascus High School.

In his budget, Elrich stated that a provision of the county charter limits the growth in property tax revenue, not property tax rates, to the growth in the Consumer Price Index (CPI) for all consumers in the Baltimore-Washington Region for the 12 months ending on Nov. 30 of the preceding year. The CPI was only 1.27%, which means that the total amount of property tax revenues cannot grow by more than 1.27%, regardless of how much assessments increase.

Elrich said he would send the council an amendments proposal for the charter that would revise the revenue cap and replace it with a 3% cap on the increase in any homeowner’s taxable assessment.

Richard Madaleno, the county’s budget director, said the funding from the supplemental property tax rate is needed for the roughly 170,000 students expected in the school system in September.

“The problem we have right now is our unusual charter limitation on property tax revenues, not property tax rates. It puts us in a situation where every year, it drives the rate lower and we have to raise the rates,” he said. “I’m sure that the majority of residents would be surprised to know that after supposedly five tax increases over the last 20 years, the tax rate was lower than it was 20 years ago.”

More children in the schools means more funding is necessary for educational needs. If the rate went back to where it was three years ago, the county would have the resources needed for the school system, Madaleno said.

“We’re being forced to do more for less with this charter provision,” he said.

Madaleno said the statement by council members on Monday was ironic because they said more certainty was needed in the community and the tax change would be just that. The taxable valuations would not go up by more than 3% in any one year.

“At least this would give a degree of stability. We would be out of this political game,” Madaleno said. “The property tax revenue for the county can only grow by the amount of inflation from one year to the next.”

The council would have to approve the change in the charter, which would then be placed on the ballot.

“Some years, the council had to have a tax increase when, in fact, it’s just leaving the rate at the same number, but it will bring in the same number that the charter limits,” Madaleno said. “There is no other jurisdiction in the region that has this limitation.”

The only other tax change that Elrich proposed was an adjustment to the county’s income tax offset credits, which reduce the property tax burden on properties of lower value. The credit, which every homeowner receives, would increase from $692 to $800.

Council says: Not the right time

Katz told Bethesda Beat that the council felt it was not the right time for a tax increase.

“That’s not something that we believe is something that we can do,” he said. “The public can’t afford it. … We will not be raising the tax rate the way that it was suggested.”

Katz said the council will work to figure out how to adjust the budget without raising taxes. The budget will be different than in years past, because of the economic effects from the coronavirus.

“There’s certain revenue we won’t be getting. As an example, obviously, the hotel and motel tax is going to be less,” he said. “There’s people that will need government more than they will ever need government before, and we’re going to have expenditures that people are going to require and are going to be necessary for them.”

A nearly $6 billion budget can be adjusted, he said.

“When you look at those numbers, we can sit down, and need to sit down, as a community and figure it out,” Katz said. “This is going to be different from other budgets, that’s for sure.”

Hucker said he chose not to include himself on the joint press release because he wanted to take time to read the entire budget. Raising taxes should be a last resort though, he said.

“The proposed budget is 831 pages long, so the first thing is I like to read the whole thing and hear from the public before reacting to it,” he said.

The schools were facing severe needs before the coronavirus reached the county, he said.

“I’m a big supporter of our school system,” he said. “I would prefer to scrutinize the budget over the next few months.”

Council Member Andrew Friedson said that with the economic uncertainty for both residents and the government, a supplemental property tax rate would be inappropriate.

“The magnitude of impact on businesses, families and nonprofits we have yet to comprehend or fully understand,” he said. “To introduce additional uncertainty at a time of anxiety and challenge is just not the right time. It’s not the right moment.”

Both Friedson and Council Member Gabe Albornoz acknowledged that the budget was put together before the coronavirus was a concern in the county.

“His budget was prepared during a different time. During the last week, the world has changed,” Albornoz said. “The county does have provisions in place, whether it’s a rainy day fund or our reserves, which would be designed for the type of situation that we’re in.”

In an emailed statement to Bethesda Beat, Council Member Will Jawando said the rainy day fund and reserves should be used to ensure that operations continue and programs aimed at the most vulnerable remain in the budget at full funding.

In addition, Jawando called for a broader discussion about tax fairness and equity. The coronavirus doesn’t segment by race or socioeconomic status, but the economic crisis does, he wrote. Many will be unable to pay for basic necessities such as housing, food and health care if they those their jobs, he wrote.

“The most vulnerable already live on this margin, and the fallout from this public health emergency could become a question of life or death,” Jawando wrote. “For these reasons we must make changes to our unfair tax system which places a greater burden on working and middle class families.”

There’s no way to start the budget process over, but the council will have to look at it through a completely different lens, Albornoz said.

“We’re beginning to process the ripple effect of what a long-term shutdown of the nation and across the world will look like,” he said.

Council Member Evan Glass said people are concerned about their health, families, paying employees of small businesses and caring for the vulnerable in the community.“I don’t think we need to add any fears or concerns to the residents of Montgomery County with a tax change at this time,” he said.

Other options

If the county doesn’t approve the supplemental property tax rate, there would be several options: have the school board reevaluate its budget request, find the money elsewhere in the budget by cutting other funds, cut the school budget request by up to roughly $40 million, or take from the county’s $500 million in reserves.

“We can take it out of our reserves, which could cost us our AAA bond rating, which is what gives us access to the lowest interest rates,” Madaleno said. “But that would create more costs for the future.”

He said the council was more open to the tax change over the last few days and weeks than they were on Monday.

“I think they are reacting to the health care situation that’s happening,” he said. “I think their impulsive and understandable reaction was ‘Oh, my God, we can’t consider this now.’”

Also included in the proposed budget are increased wages for county employees of $9.7 million. Service and longevity increments would total $8.1 million.

General wage increases range from 1% to 2.25%. Eligible employees would also receive 3.5% service increments and $1,000 bonuses. Performance-based pay increases would total $1.9 million.

Council Member Hans Riemer criticized the wage increases.

“I think it’s a time to tighten our belts and try to be as mindful as we can that the fallout from this could be recessionary and it could play out over several years,” he said. “It’s disappointing that the county executive would recommend a tax increase at the same time as some pretty hefty compensation increases. It’s not good decision making. Frankly, it’s abdicating the responsibility to make tough decisions and trying to push through a tax hike.”

Riemer said council attorneys and staff are looking into whether the supplemental tax rate is legal.

“I think he’s misreading state law about our ability to have a tax increase that is targeted to education to break the charter limit for education,” he said. “We don’t think that is allowed by state law.”

Riemer said the council has not taken an official position on the issue yet.

“We’ve known that he was likely to do this for a couple weeks now,” he said. “We’re looking at state law to understand it better.”

Madaleno said the budget was not released with a press conference because of the focus on the coronavirus. News outlets were focused on coronavirus news and the staff didn’t know if anyone would show up to a budget press conference, he said.

“The view was that everyone was focused on this issue,” he said of the coronavirus. “The budget actually went out online at 10 am. It was totally accessible to the public.”

Madaleno said he didn’t know why a press release was not sent when the budget was posted.

“Could we have rolled this budget out better? Yes,” he said, adding that it would have been better if not for the county’s need to handle the public health crisis.

Staff writer Caitlynn Peetz contributed to this story.

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