New State Assessment and Taxation Director Named

Governor Hogan has named Sean Powell as the new Director of the State Department of Assessments and Taxation (SDAT). Mr. Powell has served as the supervisor of assessments for St. Mary’s County since 2003.

In an article in the Daily Record (subscription is required to view), the Governor quoted as saying he is “confident Sean Powell will further advance SDAT’s mission of promoting fairness in taxation for Maryland property owners.” The Governor also states that SDAT will “continue to explore programs that provide property tax relief and business services.”

MACo has worked closely with SDAT over the past several years and was instrumental in the creation of a Property Assessment Workgroup (AWG) to examine issues related to the assessment process for real and personal property, tax credits, and tax exemptions. Budget narrative adopted during the 2015 session directs SDAT to establish a State and Local Advisory Council to discuss issues of mutual interest with local governments and provide guidance on the implementation of recommendations from the AWG.

MACo believes the Advisory Council would improve communication amongst state and local partners and provide a forum to discuss business process changes, the leveraging of technology with state and local partners to improve the assessment process, and other matters raised by the partners. Local government looks forward to working with SDAT on these important matters.

Charles County Approves Instituting Transfer Tax

Following a public hearing earlier this week, Charles County Commissioners, in a 3 – 2  vote, approved instituting a transfer tax in the county to assist with balancing the fiscal 2016 budget. Up until this week, Charles County was one of six jurisdictions that had not exercised its authority to impose a transfer tax. Eighteen counties, including Baltimore City, currently levy the tax.

As reported by the Southern Maryland Newpapers Online,

Many of the speakers against the tax were Realtors or those who have had experience in the real estate business, and those comments echoed that the tax would be a new burden on an already overly taxed state at the least and a “catastrophe” at the worst.

Those in support of the tax thanked the commissioners for supporting education. A portion of the tax will be pledged to fully fund the operating costs of St. Charles High School and its incoming fourth class.

The transfer tax will take effect August 8 and include an exemption for first-time homebuyers up to the first $50,000 of a home purchase.

Montgomery Officials Consider Budget Cuts Following Revenue Hit

Montgomery County officials have been instructed to prepare spending reduction plans for their agencies following lower than expected revenues and a Supreme Court decision that will result in significant tax refunds. A reported by the Washington Post,

In a memo released late Friday afternoon, the chief administrative officer, Timothy L. Firestine, ordered department heads to prepare 2 percent reductions in spending for the fiscal year that begins Wednesday. The “savings plan,” as Firestine called it, would shave about $25 million from the $5 billion operating budget, county officials estimated.

Firestine said the reductions would be submitted to the County Council for action before the summer recess that begins after its July 28 session.

The cuts are necessary, Firestine said, in part because the county’s most recent distribution of income tax revenue from the state fell $21.4 million short of projections. In addition, costs associated with last month’s Supreme Court decision in Comptroller of the Treasury of Maryland v. Wynne may run higher than estimated.

As previously reported on Conduit Street, the US Supreme Court ruled in a 5-4 decision that Maryland’s income tax system, specifically the application of the local income tax, is unconstitutional and must be altered to grant more credits for Maryland residents’ out-of-state income. At issue in the case, Maryland State Comptroller of the Treasury v. Brian Wynne, was whether the failure to allow a credit against the county income tax violates the commerce clause because it discriminates against interstate commerce.

Montgomery officials said early estimates showed the county losing $10 million in fiscal 2016. But new projections put the cost of refunds at closer to $15 million. Losses for fiscal 2017, originally estimated at $55 million, might be closer to $76 million, Firestine said.

Casino Revenues to be Awarded to Small, Minority and Women-Owned Businesses

The Department of Business and Economic Development announced this week that $11.5 million will be made available through casino revenues for investments in small, minority and women-owned businesses in fiscal 2016. The funds are being awarded to fund managers, who will then distribute the dollars to eligible businesses.

As reported by the Baltimore Business Journal,

Through the program, local fund managers can give loans or investments that will help small businesses grow locally, add jobs and contribute to the economy.

For example, Baltimore County in May awarded a $150,000 loan to food packaging company Vac Pac, which is moving from Baltimore to establish a state-of-the-art manufacturing plant in Howard County.

Fund manager awards are included in the article.

St. Mary’s Commissioners Discuss Potential Tax Reductions

St. Mary’s County Commissioners discussed potential tax reductions at a recent retreat. As reported by Southern Maryland Newspapers Online, Commissioner Mike Hewitt expressed his interest in eliminating the energy tax, a tax that has been slated for elimination in the past.

At a commissioner retreat meeting last week, he said he wants to get rid of the county’s energy tax, reduce the property tax even more and also reduce the income tax rate by next year, all the while maintaining or improving county government’s strong bond rating.

“I’d like to eliminate the energy tax,” Hewitt said, which is 1.25 percent tacked on to electricity, fuel oil, liquefied petroleum and natural gas bills.

“It’s a regressive tax that hurts the poor and the elderly,” he said this week, because they often live in poorly insulated homes and have to pay more for heating.

Other commissioners offered support as long as the reductions don’t affect services being provided to taxpayers.

Also during the retreat, finance staff provided commissioners with a listing of reserve accounts. Commissioners requested an accounting of these funds at an earlier meeting and discussed the possibility of exploring other uses.

Prince George’s Budget Battle Comes To An End

As reported by the Washington Post, Prince George’s County Executive Rushern Baker has announced he will accept the fiscal 2016 budget as approved by the County Council and not challenge it in court.  From the article,

In a statement, Baker said he decided to put the interests of county residents “ahead of a lengthy and divisive legal process” surrounding a section of county law that he and the council interpreted differently.

The litigation would have fostered “uncertainty and disharmony,” the statement said.

At issue was whether the county council was prohibited from adjusting the proposed budget by more than 1 percent. Through their budget actions and override of the County Executive’s veto, the county council cut the proposed budget by more than 1 percent, an action the County Executive claimed they could not do.

The council rejected Baker’s proposal for a 15-percent hike in the property tax rate to generate more funds for public schools. Baker then vetoed parts of the budget passed by the council, demanding a tax rate hike of 11.45 percent. But the council overrode that veto and stuck with a 4-percent property tax rate hike — the first in Prince George’s in more than three decades — and a 1.5-cent increase in the park and planning tax.

Previous coverage can be found on Conduit Street.

Anne Arundel Provides Income Tax Relief in County Budget

After much debate and scrutiny, the Anne Arundel County Council approved a fiscal 2016 budget providing tax relief and making many strategic investments. A county press release highlights the key initiatives funded in the operating and capital budget.

The amended budget delivers on the County’s Executive’s five point strategic plan for a stronger Anne Arundel County, including:

  • Reducing Taxes: The $11 million reduction in income taxes will help working families across the county.
  • Strengthening our Education System: The budget contains teacher pay increases, as well as planning funding for a new Crofton High School and to study the feasibility of building two, smaller high schools to replace the Old Mill Complex.
  • Enhancing Public Safety: The budget plan includes funding for 20 new public safety personnel, new police academy and 3% compensation increase.
  • Reforming County Government: With an overall reduction in non-public safety departmental budgets, investments in technology and a hiring freeze, the budget makes county government more efficient and effective with $4 million in annual savings.
  • Improve Our Waterways: The budget protects our waterways and the Bay through $70 million to support critical projects, including 1.5 miles of stormwater pipe repairs, over 300 outfall projects, 74 stormwater pond retrofits, and 9 miles of stream restorations.

The capital budget makes a number of investments through the “JumpStart Anne Arundel Capital Funding.”

  • Smaller Schools: The budget takes a significant financial step towards smaller schools by funding a study to examine splitting the current Old Mill Complex into two smaller, neighborhood high schools.
  • Crofton High School: For the first time in county history, there is funding allocated for a high school in the Crofton area.
  • New Police Academy and Central Booking: The County Executive has kept this promise not only to ensure more public safety personnel, but to give them the tools to fight crime effectively. Central Booking and the new Police Academy are historic investments in our public safety infrastructure.
  • Annapolis Library: To strengthen our system of libraries, the budget begins construction on an expanded 32,5000 sq. library on West Street in Annapolis.
  • Riviera Beach Library: To strengthen our system of neighborhood libraries, the budget begins the planning of a brand new, state-of-the-art neighborhood library in Riviera Beach.
  • Route 2 Bike Bridge: To improve the quality of life here in Anne Arundel County, the budget makes strategic investments in our system of bike trails including funding to study the feasibility of a pedestrian bike bridge connecting the Broadneck and B&A Bike Trails.
  • Increased Road Investments: The budget contains a substantial $10 million increase in funding to maintain and rehabilitate county roads.
  • Expanded Water Access: The budget takes a first step in expanding water access throughout the county by funding the study of possible boat ramp locations on all major rivers.

Additional coverage of Anne Arundel’s budget discussion can be found on Conduit Street. Detail of the approved fiscal 2016 budget can be located on the county’s website.

 

Harford Tax Sale Yields $988,406 in Back Taxes and Penalties

Harford County held its annual tax sale this week, selling 459 properties generating $988,406 in revenue covering back taxes and penalties owed by the property owners. An article in the Baltimore Sun describes the tax sale process.

Monday’s winning bidders pay off county taxes and any penalties owed and then have a lien against the property until the owner either pays them back, plus redemption interest at a rate set by the county, or the lien holder forecloses and, subject to court approval, takes ownership of the property.

The tax sale lien certificates are good for two years. The redemption rate the purchaser can charge the property owner is 12 percent per annum, and that interest begins to accrue the day the tax certificate is issued.

Most tax liens are purchased by individuals or groups as investments in order to receive the redemption interest, rather than to actually get ownership of the properties involved.

In the article County Treasurer Robert Sandlass emphasized the county’s process to work with property owners to avoid foreclosure.

…his office wants to work with property owners to make sure their parcels do not end up in the tax sale in the first place and aren’t later lost to foreclosure because the owners can’t pay off the lien certificate.

“These are the properties that have been delinquent in their taxes, many for several years, not just one,” Sandlass said. “This isn’t an ideal situation or anything like that, so, really, what we want to do is work with the account holders so it doesn’t come to this point.”

He said individuals have up to four months to get their properties back following the sale before they would have to face a possible court action by the lien purchaser.

County Executive Schuh Offers Income Tax Reduction Alternative

With passage of his proposed property tax reduction questionable, Anne Arundel County Executive Steve Schuh has offered the County Council an alternative, a reduction in the local income tax rate. As reported by the Annapolis Capital,

Schuh shifted his tax cutting plans Monday, announcing a plan to submit a 4.2 percent income tax cut instead of his proposed 3 percent property tax cut. This would lower the rate from 2.56 percent to 2.45 percent.

Flanked by County Councilmen John Grasso, R-Glen Burnie, Michael Peroutka, R-Millersville, and Derek Fink, R-Pasadena, the county executive made the announcement in Annapolis, saying the new tax cut is an attempt to bring along other council members on board while still saving tax payers an average of $80 a year.

During deliberations on the budget, council members expressed concern with the property tax reduction proposal saying it was not fiscally prudent because it would increase the county’s structural deficit.  As reported in a previous article in the Annapolis Capital, council members suggested setting the property tax rate at the maximum rate allowed under the county’s tax revenue cap.

Council members said by setting the property tax rate to the maximum allowed under the tax revenue cap — still a tax rate cut because of rising assessments, but making property owners pay more — that cash could be used to decrease the county’s expected $25 million structural deficit or pay for much needed capital projects Schuh wants to finance by extending the life and cost of bonds.

Last week, at the request of council members for tax reduction alternatives, the County Auditor proposed a reduction in utility rates. Council members stated that this reduction would provide taxpayers relief, while not increasing the structural deficit. County Executive Schuh opposed this reduction and instead offered an alternative to reduce the income tax rate. As reported by the Annapolis Capital,

“There were a lot of concerns raised about the property tax cut because we are a tax cap county,” Schuh said. “I was willing to give ground on it.”

The income tax cut would lower annual county revenues by about $19 million — the same as the property tax cut — but wouldn’t have the long-term ripple effect on the county budget that the property tax cut would, Schuh said.

Anne Arundel has a tax cap: Property tax revenues can rise each year by only 4 percent or the rate of inflation, whichever is less. So a tax cut there would have progressively lowered revenues each year.

 

Senate Budget Committee Briefed on Fiscal Effects of Local Income Tax Case

The Comptroller’s Office briefed the Senate Budget and Taxation Committee today on the state and local financial effects of a recent court case, Comptroller v. Wynne. The case focused on whether the failure to allow a credit against the county income tax violates the commerce clause because it discriminates against interstate commerce. The U.S. Supreme Court ruled recently in a 5-4 decision that Maryland’s income tax system, specifically the application of the local income tax, is unconstitutional and must be altered to grant more credits for Maryland residents’ out-of-state income.

In the presentation, the Comptroller’s Office explained the issue and the effects on the Comptroller’s Office and local governments. The Comptroller’s Office has estimated that it will review and process more than 10,000 protected claims and up to 50,000 amended tax returns. Protected claims are those amended returns that have already been filed by taxpayers with the Comptroller’s Office dating back to tax year 2007. Now that the case has reached its final decision point, current taxpayers will have up to three years to file amended returns for refunds. The Comptroller’s Office will review all amended returns closely for eligibility.

The decision will have severe fiscal consequences for local governments. Recent estimates indicate that up to $200 million in tax refunds could be likely, and the ongoing effect could be $40-50 million per year. To lessen the immediate fiscal blow and specify how the credit would be applied, the General Assembly adopted language in HB 72, The Budget Reconciliation and Financing Act of 2015 (BRFA).  The language specifies that the credit would be applied first to the state income tax and any remaining credit to the local income tax, consistent with the first set of refund estimates received from the Comptroller’s Office.

The refunds would be paid from the Local Income Tax Reserve Account (which protects the State’s general fund) with counties and municipalities reimbursing the account from quarterly income tax distributions in 9 equal installments. The reimbursements would not begin before June 2016. One reimbursement would occur in FY 2016, with 4 reimbursements in each of the next two fiscal years, FY 2017 and FY 2018.

In the 2014 session, the interest rate that would apply to these refunds was set at approximately 3.5%. This will save local governments approximately $40 million to $60 million.

Although the case has been decided and is now behind us, other issues may arise. Two potential law suits were mentioned during the briefing. One, could potentially be a class action suit to allow taxpayers to file amended returns back to 2007. The other suit could involve the reduction in the interest rate applied to refunds.