As public hearings near on a proposed Montgomery County budget for next year, concerns have rippled through the community over whether there will be a property tax hike, as County Executive Marc Elrich proposed in mid-March.
County Council members say there’s nothing to worry about — it won’t happen.
Elrich proposed a roughly 5% tax increase, with the majority going to the public school system through a special supplemental property tax. He said in an interview on Friday that he believes that his proposal was modest and a good way to bring in funding the school system needs.
However, council members said that raising taxes during a pandemic is inappropriate.
In Elrich’s proposed $5.9 billion budget for fiscal year 2021, the real property tax rate would be set at 74 cents per $100 of assessed value, up from the current 71.7 cents.
A required legal notice published recently in The Washington Post, in a format and wording mandated by law, says the “County Council proposes to increase real property taxes.”
Several council members said dozens of people emailed them wanting to know if there would be a tax hike. But council members emphasized that the tax rate in the legal ad is based on Elrich’s proposed rate, which none of them say they support.
If Montgomery County’s current real property tax rate of 71.7 cents were maintained for next year, real property tax revenues would increase 1.2%, or more than $16.9 million, because of rising property values.
According to the ad, the real property tax rate should be decreased to 70.8 cents to fully offset increasing assessments.
In the budget, Elrich called for a nearly 5-cent property tax increase. The majority of that increase would be a 3.1-cent supplemental property tax rate to be used exclusively for public schools.
The weighted average of the real property tax rate and other property taxes adds to a current property tax rate of 97.9 cents per $100 of assessed value. The new rate was proposed at $1.03.
The other property taxes included in the weighted average rate include taxes for fire, transit, and parks and planning services.
The total requested school budget is $2.8 billion — $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, otherwise known as “maintenance of effort.”
Elrich said in an interview on Friday that the supplemental property tax was proposed to fund the increase in school funding requests. He said he “happened to think that addressing the school needs were important.”
“When we put it in the budget, we were having record low unemployment and a reasonably good economy,” he said. “I don’t think it’s a bad thing to do because the school needs are the school needs. What do you tell the kids? Sorry, the coronavirus came along.”
Elrich said the supplemental tax rate was “not exactly an onerous tax increase for anybody,” but if the council felt it was too much, then the county just wouldn’t do it.
If the county doesn’t approve the supplemental property tax, the options would be to 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’ll just find other cuts in the budget in order to fund the ‘maintenance of effort’ request and not have to use the school tax to pay for it,” Elrich said. “It’s a simple solution to that problem.”
On March 16, eight of the nine council members sent a letter to Elrich stating that they did not support a tax hike during a pandemic. Council Vice President Tom Hucker said at the time that he did not sign the letter because he wanted to read the entire budget before commenting on it.
Seven council members told Bethesda Beat on Tuesday and Wednesday that they would not raise property taxes this year. Council members Nancy Navarro and Craig Rice could not be reached.
Several council members said they had not heard from Elrich on whether he still supported a supplemental property tax.
Montgomery County Budget Director Richard Madaleno said on Thursday that nothing has changed in the proposed budget from what Elrich unveiled last month.
“There have been a number of conversations. There’s been no formal announcement as of yet,” he said.
Madaleno said a hiring freeze for nonessential positions and procurement freeze for nonessential purchases are in effect in the current county budget.
While the county is spending more on purchasing masks and other medical supplies, spending has decreased in other areas such as utility bills for closed county buildings.
“We’re saving money through a whole bunch of actions that we’ve taken and we’re spending money on things that we haven’t had to buy before,” Madaleno said.
Reactions to legal notice
Hucker said the “constant yield” legal ad is a “silly requirement” in state law, causing the public to falsely assume what the council is doing. The constant yield refers to the idea that if tax revenues will increase from one year to the next, even if it’s because of rising property values, it has to be advertised as a tax increase.
Hucker said the county does not know its tax revenues yet because the state collects the taxes on the county’s behalf.
Council President Sidney Katz stressed that nothing has been decided on the budget and won’t be until the community has the chance to speak at public hearings on the budget. There will be two hearings — at 1:30 and 7 p.m. on Thursday.
“No one should be under the illusion that there should be increased taxes in the county,” Hucker said. “There’s a lot of people who are hurting and a property tax increase would be exactly the wrong message right now.”
County staff members said they were working on adding additional ways for people to provide public comment during the budget hearings on Thursday, including through video, audio and written testimony. Live testimony through phone calls will be available.
Residents must sign up by 3 p.m. on Tuesday.
“Because of COVID-19, we’re doing things in a different way but we will still continue to hear from the public and after that has been done, we’ll have a discussion in the public about the budget itself,” Katz said.
Council Member Evan Glass said it would be wrong to increase taxes in the middle of a pandemic.
“People are concerned about their businesses and their own jobs. We do not need to concern people about any tax increases,” he said. “The advertised rate does not indicate that the council is going to accept that rate. It is an archaic formality that the state law mandates and, understandably, confuses the conversation.”
Council Member Andrew Friedson said the council goes through the same issue every year with the advertisement causing confusion.
Madaleno said the county’s finance office has not received questions or concerns about the constant yield advertisement for years. But this year, the finance department has had a handful of calls about the constant yield, he said.
The advertisement was placed in small, local publications in years past. This was the first year that it was published in The Washington Post because there are no more local print newspapers closer to the area, he said.
“It’s important to stress that this is something that every county does every year and has for decades,” he said. The ad might have received more attention this time because it was placed in a large newspaper and people might be reading through the newspaper more because of a stay-at-home order in effect in Maryland, he said.
Madaleno said several changes could be made to the state’s whole property tax structure, including the constant yield rate ad requirement.
“I think it is especially confusing in Montgomery County when you also take into consideration our charter limit on property tax revenue,” he said. “So you have these two different things happening. The county’s trying to adhere to state law as well as to the county charter.”
What’s the constant yield tax rate?
The state requires each local government to advertise a “tax increase” if the tax revenue would go up — even if the property tax rate is staying the same. It’s considered a tax increase because rising assessments mean higher tax bills, even if the rate does not increase.
Maryland refers to this concept — adjusting the tax rate to keep the same level of tax revenue year to year — as “constant yield.”
To maintain the same tax revenue each year, a jurisdiction would have to lower its tax rate to compensate for higher property values. If the jurisdiction does not choose a constant-yield rate, it must advertise a tax increase.
Briana Adhikusuma can be reached at email@example.com.