2020 | Government

Elrich vetoes development impact-tax bill

County executive says he can’t support a loss of revenue; council could override

Montgomery County Executive Marc Elrich vetoed a bill on Monday that will decrease impact-tax revenue.

File photo

Issuing his second veto in office, County Executive Marc Elrich declined to sign a bill that would decrease impact-tax revenue from developments.

The veto was issued against a bill that is connected to the county’s newly approved 2020-2024 growth and infrastructure policy — formerly known as the subdivision staging policy.

A minimum of six votes is needed to override Elrich’s veto. The County Council, which approved the policy 9-0 on Nov. 16, is expected to consider the veto on Tuesday.

One of the most significant changes in the new policy was ending a residential building moratorium in the county to make way for housing in areas where development was restricted to address overcrowding in schools.

School and transportation impact taxes are levied against developers to help pay for infrastructure that is needed as a result of increases of residents in particular areas.

The bill that Elrich vetoed is accompanying legislation to provide impact-tax discounts to developers. The goal was to produce more housing.

Under that bill, the county would calculate school impact taxes at 100% of the cost of a student seat using student generation rates in school impact areas. The taxes were previously calculated based on 120% of the cost of a student seat.

To incentivize development in desired growth and investment areas, a discount would be provided on transportation impact taxes.

Another change would exempt any development in a Qualified Opportunity Zone — certified by the U.S. Treasury Department — from development and school impact taxes. The bill also would give a 60% impact-tax credit for construction of three-bedroom units in the “infill” school impact area.

Elrich issued his veto against the related bill on impact taxes on Monday, saying he couldn’t sign the bill in its current form. The projected revenue loss is estimated to be $12.5 million to $20 million a year.

“While I have long been concerned with how impact taxes work and I believe that there are alternatives that should be implemented, I cannot support simply reducing the necessary revenues without an appropriate replacement,” he wrote Monday in a letter to then-Council President Sidney Katz.

The county is lowering its general obligation bond borrowing to slow the growth of debt service costs, which lowers the amount of infrastructure that can be funded with bonds, Elrich wrote.

“Less bonding and fewer impact tax revenues will not allow us to address our education and transportation needs …,” he wrote. “Either the funds will have to come from somewhere else, largely from county residents, or we will have to forgo important infrastructure improvements which will make righting our economic ship even more difficult.”

Elrich noted that although the council has said it will consider an increase in the recordation tax to fill the gap from reduced revenue, it has not scheduled a discussion on the tax yet.

Increasing the recordation tax would shift the costs from project developers to people refinancing or purchasing homes, or buying commercial property, he wrote.

Elrich was not alone in his opposition.

During the council’s consideration of the bill in November, Council Member Will Jawando raised concerns over the reduced revenues from impact taxes, even though he voted for the bill.

“I just think that if our schools are overcrowded, we need the money to support them,” he said in an interview with Bethesda Beat on Nov. 16. “We’re already having a budget shortfall. But to just kind of give all of this away and reduce our revenue in this way is irresponsible without maximizing the public benefits.”

Elrich wrote in the veto letter that he would be open to working with the council to identify an alternative method to fund infrastructure. His staff members are working on a proposal of how the county could structure development districts.

“Without such a replacement, I cannot support a loss of revenue,” he wrote. “That’s not providing adequate public facilities by any measure. We can do better.”

Adam Pagnucco first reported on the veto in a column for Seventh State.

Briana Adhikusuma can be reached at briana.adhikusuma@bethesdamagazine.com.