2021 | Government

‘We’d like our money back’: Municipalities press county to reimburse them for tax duplication

County officials say there is misunderstanding over agreed amount

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Municipal elected officials and city managers want their money back from Montgomery County.

Specifically, about $14.2 million that municipalities estimate the county owes them for services they provide to residents within their borders.

That’s about $5 million more than County Executive Marc Elrich budgeted in his plan — just under $9 million — for the next fiscal year.

But while municipal leaders say the county promised them full reimbursement in one payment, county officials say there is a misunderstanding and that the parties agreed to phase in part of the funding over the next two years.

Tax duplication refers to the issue of property owners paying taxes to both the municipal and county governments for a service they receive only from the municipality. Tax duplication is resolved with a rebate payment to municipalities.

The county froze the rebate at a certain level during the Great Recession because of a lack of revenue, but costs for road maintenance, crossing guards, parks and police have increased.

During a meeting with the County Council on Tuesday evening, members of the Maryland Municipal League, which represents localities, urged county officials to increase funding in the fiscal year 2022 budget for rebates.

Suzanne Ludlow, the city manager for Takoma Park, said county codes should include a method to update the formula for actual costs of services.

Ludlow said Elrich’s staff, during budget discussions, agreed to pay the full amount for the four categories of services. However, at a meeting in February, the county told the municipalities how much rebate funding they would get in FY22, which was “far less” than the total amounts owed for the four services, she said.

“This was portrayed as being the agreement that the county executive had with the municipalities and it is not. … We can’t wait any longer and this is the year to fix things,” Ludlow said. “I know different municipalities are different, but I’m proposing a tax-rate increase in Takoma Park because we can’t keep absorbing increasing costs of policing, road maintenance and park maintenance.”

Elrich said in a phone interview Thursday morning that he doesn’t dispute the need for funding the rebates, but disagrees on the timing.

“That’s what we have to do,” he said. “We told them that we were going to phase it in for the next two years.”

Elrich said phasing will ease the continued strain on the budget due to the health crisis.

Rich Madaleno, the county’s chief administrative officer, said in a phone interview Thursday that there was a miscommunication between the county and the municipalities.

Elrich proposed an increase in the rebate funding last year, but the council did not approve it, so the rate stayed where it was.

“The council never had the conversation last year about it when they decided to go with their continuity-of-services plan,” Madaleno said, referring to a decision not to increase funding in most areas. He added that there were many reasons why the council didn’t discuss it, including the pandemic.

“We’ve come back to the same concept [proposed last year]. … One of the things we’re trying to do is make this a simpler formula for everyone to understand,” he said.

A formula becomes complex when each municipality pays for different services, Madaleno said. For example, only four municipalities in the county have their own police services.

Madaleno said the executive branch and municipalities discussed a revenue-sharing approach over transportation services, since all of them are responsible for their roads.

“They should get support out of a revenue-sharing approach to help them pay for the roads that we all get to drive on. Everyone liked that approach and there is an elaborate formula that goes through and figures out exactly how much money we spend on roads,” he said.

Madaleno said the county discussed getting a portion of the funding for transportation costs to the municipalities, with more funding coming in FY23 and additional increases in subsequent years if it was fiscally possible.

An initial amount of more than $824,600 would be provided in the first year to add to the usual payment $8.3 million, for a total of about $9.1 million, according to the proposed budget. The county would provide the additional $5.1 million in fiscal year 2023.

Of the total $9.1 million for the rebates, Takoma Park would receive the most — $3.6 million. Next would be Rockville with $2.8 million and Gaithersburg with $1.4 million. All other municipalities would receive less than $300,000 each.

The fiscal year 2022 payment is based on a change to the payment formula so that municipalities would receive 60% of certain transportation expenses and 95% of computed park costs. There also would certain police and crossing guard payments for Takoma Park.

The confusion and disconnect probably come from the municipalities thinking they would get the full $14.2 million for the two-year period this coming year, Madaleno said.

Madaleno noted that Elrich also submitted a resolution with the proposed budget that would make the formula the base for calculations.

“I don’t think people realized we submitted the change in the law,” he said.

Mayor Kate Stewart of Takoma Park said during Tuesday’s meeting that nine years have passed since tax-duplication rates were largely frozen, starting in 2012.

“This is not sustainable for our municipalities to continue to pay for road repair, park maintenance and other things, and not get the increases,” she said. “Prices have gone up and we are just asking to be reimbursed for the monies that we are paying and we need it.”

Gaithersburg City Council Vice President Michael Sesma said the tax-duplication funding is money that belongs to the municipalities.

“We’d like our money back, which is really what this is all about,” he said.

County Council Member Sidney Katz, a former Gaithersburg mayor, said the tax-duplication funding issue has been going on too long.

“I don’t know that we can find [$5 million more this coming year]. … I don’t know that. But I know that we can try,” he said.
Mayor John Compton of Washington Grove said the county and municipalities must agree on a rebate formula. Problems arise when formulas are revised each year, he said.

“If you have a formula and that is agreed to, the amount falls out and it goes into the budget. … If the formula was there, it would be incumbent upon the council and the executive to overtly — to find it or simply follow the calculation,” he said. “If nothing else, the formula needs to be solidified.”

Rockville City Council Member Monique Ashton said the municipalities were optimistic about a resolution, then saw much less funding than they anticipated.

“We are very passionate about this because we were feeling like we were going to come to some solution and then it felt like we took a couple steps back,” she said.

Council Member Hans Riemer agreed that the executive branch should lead a process for negotiating a formula.

“We should fund what the right formula is, whether that gives you $10 million more, $100 million more, or the same amount that you’re getting. … The point is what’s fair is fair and let the chips fall where they may,” he said.

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