Wicomico County Council Approves Reduction of Homestead Tax Credit

June 9, 2011

The Wicomico County Council voted last night to approve a reduction in the Homestead Tax Credit from 10% to 5%, capping the year-to-year increases county homeowners see in their property tax bills.

While complicated, this approach works to limit tax bills while property assessments are rapidly increasing.  However, when property assessments decline (as they have recently in every county) homeowners find that their property tax bills are often still rising because the artificially reduced tax bills (due to this credit program) have yet to “catchup” with true market values.  Lowering the Homestead Tax Credit from the maximum rate of 10% to 5% means that the county can only tax 5% of the assessment increase in each year effectively reducing the property tax a homeowner would pay on that property.

An opinion piece in the delmarvanow.com highlights the complicated nature of the Homestead Tax Credit.

This change will take effect for FY 2013 and it only applies to owner occupied homes.


1st Quarter Income Tax Distribution Increases 5.3% Over Prior Year

June 6, 2011

The Office of the Comptroller released its detail of the May (1st quarter) distributions of county income taxes.  According to the electronic message, the May distribution totals $781.7 million an increase of 5.3% over last year’s distribution.  This increase can be attributed to a number of factors:

Employment in the State increased by 0.7% in the first quarter, although growth was boosted in part by the comparison period which included the back-to-back snowstorms of February 2010.  Even disregarding that event, growth of 0.7% is not particularly strong, particularly at this point of the economic cycle.  That withholding is increasing by 4.9%, however, may be somewhat encouraging, as it indicates average wage increases of roughly 4%.  Estimated payments increased by 1.7%.  Due to safe harbor provisions regarding interest and penalties, this performance is not necessarily reflective of actual activity or, for that matter, expectations for the entirety of tax year 2011.  Combined, withholding and estimated payments increased 4.6% for the first quarter.

The unallocated reserve, refund reserve, local tax, and cost of administration percentages are those developed from tax year 2009 returns; all percentages have been adjusted where necessary for Baltimore City’s rate change.  After accounting for the reserves, the local tax, and the cost of administration, local tax for distribution increased 5.1%.

The message also reminds counties that the Comptrollers Office must be notified by July 1, 2011 if you intend to change your local income tax rate for tax year 2012.

If you have questions regarding the May distribution, please contact Judy Oberist of the Revenue Administration Division, at 410-260-7606.


State Tax Revenues on the Rise, Most Counties See Decline

May 27, 2011

As reported by the Baltimore Business Journal, State tax revenues were up 7% for the month of April and 5% for the fiscal year to date.

Growth in individual income tax collection led the way. The state has received $5.1 billion in income tax receipts so far this fiscal year, compared with $4.9 billion at this point in fiscal 2010.

Sales tax receipts have also grown slightly, to $2.7 billion so far this fiscal year from $2.6 billion a year ago.

Counties are not experiencing the same up swing.  As previously reported on Conduit Street, most counties are seeing an actual decline in the property tax base.

The continuing decline in property values reinforces the widely-held belief that local government revenues will remain in major stress in coming years, even as the State government’s main revenue sources (income and sales taxes, both very much affected by immediate changes in the overall economy) seem to be reflecting overall modest growth trends.


Most Counties See Actual Decline in Property Tax Base

May 24, 2011

As property assessments are in decline in every part of the state, it comes as no surprise that the effective property tax base is now lower than it was last year for most Maryland counties. The simplest measure of this — which includes the fairly complicated effects of the various phase-in and credits that benefit Maryland taxpayers — is each county’s Constant Yield Tax Rate.

The constant yield tax rate is the tax rate a jurisdiction would need to impose to generate the same amount of property tax revenue in the upcoming fiscal year (FY12) as it did in the current year (FY11).  With property assessments declining across the state, 17 counties have found that their FY 12 constant yield tax rate is actually higher than their FY 11 tax rate — meaning that the tax base for that county has actually shrunk from the prior year’s level.  For a listing of the FY 12 constant yield tax rates click here.

The continuing decline in property values reinforces the widely-held belief that local government revenues will remain in major stress in coming years, even as the State government’s main revenue sources (income and sales taxes, both very much affected by immediate changes in the overall economy) seem to be reflecting overall modest growth trends.


Local Officials Discuss Transportation Issues, Gas Tax Hike

April 29, 2011

Today, Governor Martin O’Malley is hosting a roundtable discussion with lawmakers and key transportation officials from around the state to review statewide transportation issues, including how to pay for much needed infrastructure requirements.  Amongst the concerns confronting local governments is the possibility of a gas tax hike. This past session, legislation was introduced by Senate Majority Leader Robert J. Garagiola to increase the gasoline tax by 10 cents a gallon (25 cents to 35 cents) as a means to generate revenue for the State’s Transportation Trust Fund. The Gazette reports:

However, as gas prices continue to climb, a tax hike wouldn’t be well received, Garagiola (D-Dist. 15) of Germantown acknowledged. “If we were to have a vote today, I would be hard-pressed to say that you would get a majority supporting a gas tax,” he said.

Gas in Maryland currently sells for $3.90 per gallon, more than a dollar higher than at this time last year, according to AAA public affairs manager John Townsend. Maryland is just 15 cents below its highest-ever gas price of $4.05, set in June 2008.

Howard County Executive Kenneth S. Ulman, a member of the Blue Ribbon Commission, plans to attend the roundtable. He and other cash-strapped county executives have pushed for a tax increase to replenish highway funding.

In Howard County, where Ulman (D) has created a new transportation director position into his budget, officials are focused on road-widening projects along Interstate 70 and state Route 32 and U.S. Route 29.

Meanwhile, in Harford County, where local highway funds were cut by $16 million between 2008 and 2010, County Executive David Craig (R) said he is concerned about transportation money being directed toward mass transit systems in Baltimore and the Washington, D.C., suburbs.

“I do support trying to get [the transportation money] back in as much as possible, but when it comes to the gasoline tax, I don’t see many delegates and many senators being supportive of it,” Craig said earlier this year.

Ulman stated:

“What I can say is the leaders of the largest jurisdictions in the state have come out in favor of it,” he said. “We have come out in favor of supporting a firewall [protecting] the transportation trust fund. I think that’s an important piece of whatever solution comes out of it.”

During the meeting, County Executive Ulman presented the recommendations from the Blue Ribbon Commission on Maryland Transportation Funding and members of the Commission discussed them with the Governor.  Major recommendations discussed included:

  • enacting a constitutional amendment, or “firewall” so funds cannot be used for any other purpose or an approach where a fiscal emergency is declared and a 3/4 vote of each house is required by each house of the General Assembly before allowing a transfer of money from the Transportation Trust Fund (TTF) to the General Fund;
  • retaining the existing portion of sales tax and corporate income tax revenue that is dedicated to transportation in the TTF; and,
  • restoring Highway User Revenues to local governments.

During the session, the General Assembly approved a one-time increase of $13.3 million ($5 million for counties and $8.3 million for municipalities) for local roadways and adopted a statutory provision to require a five-year repayment plan for any future transfers of TTF revenues to the General Fund.  It also approved keeping the sales tax and a portion of corporate income tax revenue in the General Fund and retaining HUR in the TTF instead of transferring it to the General Fund.  As the Commission continues its work, it will determine if the firewall provision goes far enough, how to provide ongoing revenue for local roadways, and whether the sales tax and corporate income tax should remain in the TTF.

Governor O’Malley asked whether the Commission considered giving local governments the ability to impose their own gas tax.  The Commission did not consider this in discussions thus far, but County Executive Ulman replied, “we have one intertwined system and [such an approach] could cause inequities.”

As the Governor wrapped up the session, he commented that we need solutions for now and the future.  A gas tax may be good for the environment, but as we become more energy and fuel-efficient, it is not a good funding source overall.  He said, “diversification away from the per gallon must be a part of the solution.”


Wicomico County Budget Discussions Center on Tax Increases

April 25, 2011

As budget deliberations begin for the FY 2012 operating budget, the central question confronting the Wicomico County Council is whether to support a property tax increase of 6.5 percent to fill an anticipated $4.5 million budget deficit.  County Executive Rick Pollitt, who introduced the tax increase in his proposed budget, notes that without it would require a second straight year of layoffs,  decreased funding levels to Wor-Wic Community College, and call for an additional $2 million to be cut from the public schools system ($7 million to the anticipated $5 million). The Council, who received the budget only a week ago, have mixed reactions to the question at hand.  The increase may generate needed revenue for the County, however the implications it would have on homeowners and businesses is also of concern. DelmarvaNow.com reports:

Pollitt said he doesn’t take the tax increase lightly, but his hand was forced by a historic decline in property assessments and the county’s slow recovery from the recession. His proposal takes the property tax rate from roughly 76 cents per $100 of assessed value to about 81 cents — roughly a 6.5 percent increase, but still within the revenue cap’s restrictions. The new rate would drive up the bill for a $150,000 home by $75 and hits businesses with a triple whammy: bumping up what they pay on their building, equipment and inventory.

“There is never a good time to raise taxes — and this is probably the worst time, with the economy,” said Council Vice President Joe Holloway.

However, Councilwoman Sheree Sample-Hughes said some citizens indicate they are willing to pay more in taxes if it means preserving their quality of life.

“You have to weigh the value against the cost,” Sample-Hughes said.

In anticipation of public commentary on the proposed tax hike, Pollitt has created a “tax calculator” that is available on the county website to assist homeowners in determining what their bill would be with a 5-cent property tax increase.  There is currently not a calculator for how the tax increase would impact businesses.

To help soften the tax blow to homeowners, Pollitt suggests the county lower its Homestead Tax Credit rate from the maximum level of 10 percent to zero percent. That wouldn’t take effect until fiscal year 2013, and the council must pass a law authorizing it, Petersen said.

Councilman Bob Caldwell has lobbied for a zero percent rate for years. He said Salisbury instituted such a rate in the 1990s. He said it essentially prevents homeowners from ever having to pay for the increase in their assessments, although their homes are still assessed and those values will be passed on when ownership of a home changes.

“There is no logical reason for why somebody who has lived in a house from year to year should have to pay more because somebody walked down the street and says, ‘It’s not worth $150,000, it’s worth $175,000 now,’ ” Caldwell said.

Caldwell said it is difficult for him to comment on the budget at this point, but he already knows it will be a “tough” process.


End of Session Update: Tax and Revenue Legislation

April 13, 2011

A previous post provided the status of various tax and revenue bills that MACo took a position on. Now that the dust has settled, this post provides the final status of these bills.

Indemnity Mortgages: HB 420 would apply the recordation tax to an indemnity mortgage in the same manner as if the guarantor were primarily liable for the guaranteed loan. An indemnity mortgage is recorded to establish a lien on the property. It typically occurs when a business entity creates a LLC to purchase property and the original business entity serves as a third-party guarantor. Under current law, the recordation tax does not apply because the total amount of secured debt has not been incurred. MACo supported the bill arguing that these business relationships are created for the sole purpose of avoiding taxation  and that HB 420 would close this loophole in the current law and would ensure that all entities are paying the appropriate taxes on real estate transactions.  Status:  The House Ways and Mean Committee failed to act on this billMACo Testimony

Semiannual Payment Schedule for Business Property: HB 463 would require counties and municipalities to establish a semiannual payment property tax schedule for all business property. A semiannual payment schedule is provided for owner-occupied residential property and for a defined group of small businesses.  MACo opposed the bill, arguing that providing such a schedule for all business property lacks a compelling policy argument.  Further, there are administrative costs associated with sending multiple tax notices, and some jurisdictions will lose interest revenue and face cash flow problems. To address MACo’s concerns, the Senate amended the bill to apply to businesses with total property taxes that do not exceed $100,000.  The House concurred with these amendments.  Status:  HB 463 passed the General Assembly and is awaiting the Governor’s signature. MACo Testimony

Semiannual Payment Schedule for all Residential PropertyHB 695 would require a local government to provide for a semiannual payment of State, county, municipal, and special taxing district taxes for all residential property, not just owner occupied property.  This would extend the semiannual payment schedule to more than 355,000 properties with an estimated value of more than $83 billion. MACo opposed the bill expressing concern about the administrative burden placed on local governments to collect taxes in this manner and the possibility of increased payment defaults.  Status:  The House Ways and Means Committee failed to act on this bill. MACo Testimony

Business Start-Up Personal Property Tax Exemption: HB 1087 would grant a one-time personal property tax exemption for businesses that organize during the current tax year or relocate their headquarters to Maryland in the current tax year.  MACo supported the bill with amendments to provide counties with the option of providing this personal property tax exemption.  Status:  The House Ways and Means Committee failed to act on this billMACo Testimony

Expansion of Personal Property Exemption for Residential Business Property: SB 10 would expand the current personal property tax exemption for business personal property used in connection with a business located at an individual’s principal residence. To be eligible, the business personal property would no longer be required to be owned by the owner of the residence. MACo opposed the bill arguing that this expansion is overly broad and raising concerns with the fiscal impact on the counties.  Status: The Senate Budget and Taxation Committee failed to act on this billMACo Testimony


“Last Day” Issues Wrap Up

April 12, 2011

As reported yesterday by MACo, a number of issues with county effect remained in play prior to the midnight deadline for the General Assembly session.  Below is an overview of how each of those bills ultimately played out:

Maintenance of Effort – As reported yesterday, three bills were awaiting  final action. MACo supported HB 44 and SB 53 as a legislative initiative, to expand and balance the process for considering county MOE waiver requests —and both bills stalled in the Senate Budget and Taxation Committee. Status:  The bill that passed, HB 869,  delays the “penalty” for any county missing MOE but denied its waiver – withholding funds in the subsequent year, rather than the immediate year. The bill will become effective June 1, 2011.

Semiannual Payment Schedule for Business PropertyHB 463, was amended by the Senate to apply to businesses with property taxes that do not exceed $100,000.  The House concurred with the amendments and the bill passed and will become effective October 1 and will apply to all taxable years beginning June 30, 2012.

Ambulance Service Providers and Assignment of Benefits SB 154, which would require health insurers to reimburse an ambulance provider (must be owned, operated, or under the jurisdiction of a political subdivision or a volunteer fire company or rescue squad) directly for covered services passed both chambers.

Public Access to Electronic Records:  HB 37 / SB 740 alters the State’s Public Information Act (PIA) to address the release of public documents in electronic format.  The bill will require the State and local governments to provide records in a searchable and analyzable electronic format where possible.  Governments have the authority to remove “metadata” before providing an electronic document.  MACo supported the bill.  Status:  SB 740 passed with a 2013 sunset that was added by the Senate.  The House initially rejected the addition of a termination date but later receded from its demand.  HB 37 did not pass.

Open Meetings Act Complaints:   HB 48, which was requested by the Open Meetings Compliance Board, sets a 1-year time limit for a person to bring an open meetings complaint before the Board.  It also requires local governments to post their meeting notices online and also physically post them at a publicly accessible location.  Finally, it repeals the requirement of a written notice.  MACo supported the bill.  Status: The Senate altered the 1-year time limit to 5 years but the House has rejected the Senate change.  The two sides were unable to resolve their differences and the bill failed.

Waste-To-Energy as Preferred Renewable EnergyHB 1121 / SB 690 would move waste-to-energy from a Tier 2 source to a Tier 1 source (a more favorable position) within the State’s Renewable Energy Portfolio Standard.  MACo supported the bill.  Status:  The House amended the both HB 1121 and SB 690 to also include refuse-derived fuel as a Tier 1 source.  The Senate accepted the amendment and passed SB 690.  HB 1121 did not pass.

Funding for School Aid, School Construction and DDA Wait List - SB 994/HB 1213 increase the tax on the sale of alcohol from 6% to 9 %.  The bills are in slightly different posture.  SB 994 provides $15 million to fund the Developmental Disabilities Administration waiting list, while HB 1231 provides $47.5 million for school construction projects across the State.   As specified in the budget, funds from this revenue increase are also being used for additional school aid in Baltimore City and Allegany, Garrett, and Prince George’s Counties.

Uses of Local Program Open Space Funds SB 421 extends the recently expired practice of allowing a local government that has attained its POS land acquisition goals to use all of its POS funds on recreational facilities and projects.  MACo supported the bill.  Status:  The bill passed the Senate and encountered difficulties in the House.  MACo drafted amendments that specified that 25 percent of the funds could only be used for the following purposes:  (1) land acquisition; (2) repair or renovation of existing recreational facilities or structures; and (3) capital renewal projects (projects necessary to preserve the physical integrity of a facility or structure or to integrate two different phases of a phased-development project).  Both the House and the Senate passed the bill with the MACo amendments.

Unauthorized Signs on Highway Rights-of-WayHB 289/SB 410 would authorize removal of improperly placed signs on highway rights-of-way by state or local authorities, and authorize a civil action to recover costs of their removal or disposal.  MACo supported the bill because it would assist in the beautification of public roadways and provide reasonable authority for state and local governments to remove improperly placed signs.  Status: Both bills passed and will become effective October 1.

Towing Task Force Legislation: HB 356/SB 570 would implement the recommendations of the Task Force to Study Motor Vehicle Towing Practices. MACo raised concerns with language that stated that a motor vehicle towing and storage lienor may not sell the motor vehicle to which the lien is attached unless the lienor is licensed by the local jurisdiction.  MACo suggested that this language be amended to clarify that it only applies to those local jurisdictions that currently license towers, retaining the bill’s intended incentives, without a local mandate.  This amendment was not adopted.  Status: both bills died in conference committee on the last day of the session.

Motor Carrier Permits for Local Public Transportation Systems: HB 431/SB 402 would exempt a public transportation system established under the public laws of a county government or municipal corporation from the motor carrier permit required for a passenger motor vehicle used in the transportation of persons for hire.  Currently, local transportation systems are regulated by local government, the PSC, the MTA, and the Federal government depending upon the sources of funding used for operations.  MACo supported this bill to streamline and create efficiencies in the process.  MACo did however,  seek an amendment so the bill would also apply to local governments that entered into contractual arrangements with non-profit entities to manage and operate transportation systems on their behalf.  Status: SB 402 passed with MACo’s amendment and will become effective October 1.

Direct Deposit of Wages HB 233/SB 484 would authorize counties and municipal corporations to pay employees’ wages by direct deposit.  Status: The final version of the bill that passed (HB 233) would require direct deposit as a condition of employment and provide an opt-out for those individuals who do not have a bank account.  In addition, the bill was amended to grandfather those jurisdictions that currently may require direct deposit through a collective bargaining agreement, personnel regulation or local law.

Concussion Education and Treatment: HB 858 and SB 771 require school systems and youth sports programs to provide information about concussions to athletes, their parents or guardians, and coaches.  An athlete suspected of having a concussion or other head injury must be pulled from practice or play until cleared by a licensed health care provider.  MACo supported the bills with amendments that would clarify the bill’s notice and education requirements for local parks and recreation departments.  The amendments also clarify information that must be provided by youth sports programs when using school or local government-owned recreational facilities.  Status:  HB 858 and SB 771 were amended to become identical bills.  Both bills passed with the MACo amendments.


Semiannual Payment Schedule for Business Property Amended to Address MACo Concerns

April 7, 2011

As previously posted, HB 463, which would require counties and municipalities to establish a semiannual payment property tax schedule for all business property, passed out of the House and was awaiting action in the Senate.   MACo opposed the bill, arguing that providing such a schedule for all business property lacks a compelling policy argument.  A semiannual payment schedule exists for small business property, businesses with property taxes that don’t exceed $50,000.  However, HB 463 would provide a semiannual payment schedule for the “biggest of the big” commercial property owners — with an average property value of $8.3 million.  The modest tax deferral they receive from this doesn’t resolve any real issues like those facing homeowners or smaller businesses.  Further, there are administrative costs associated with sending multiple tax notices, and some jurisdictions will lose interest revenue and face cash flow problems

The Senate Budget and Taxation Committee heard MACo’s concerns and amended the bill to apply to businesses with property taxes that do not exceed $100,000.  The House must agree with this amendment to secure final passage.


Session Update: Tax and Revenue Legislation

April 5, 2011

This post summarizes the status of various tax and revenue bills that MACo took a position on.

Indemnity Mortgages: HB 420 would apply the recordation tax to an indemnity mortgage in the same manner as if the guarantor were primarily liable for the guaranteed loan. An indemnity mortgage is recorded to establish a lien on the property. It typically occurs when a business entity creates a LLC to purchase property and the original business entity serves as a third-party guarantor. Under current law, the recordation tax does not apply because the total amount of secured debt has not been incurred. MACo supported the bill arguing that these business relationships are created for the sole purpose of avoiding taxation  and that HB 420 would close this loophole in the current law and would ensure that all entities are paying the appropriate taxes on real estate transactions.  Status:  HB 420 has not been voted by the House Ways and Mean CommitteeMACo Testimony

Semiannual Payment Schedule for Business Property: HB 463 would require counties and municipalities to establish a semiannual payment property tax schedule for all business property. A semiannual payment schedule is provided for owner-occupied residential property and for a defined group of small businesses.  MACo opposed the bill, arguing that providing such a schedule for all business property lacks a compelling policy argument.  Further, there are administrative costs associated with sending multiple tax notices, and some jurisdictions will lose interest revenue and face cash flow problems.  Status:  HB 463 has passed out of the House and was heard in the Senate on March 29. MACo Testimony

Semiannual Payment Schedule for all Residential PropertyHB 695 would require a local government to provide for a semiannual payment of State, county, municipal, and special taxing district taxes for all residential property, not just owner occupied property.  This would extend the semiannual payment schedule to more than 355,000 properties with an estimated value of more than $83 billion. MACo opposed the bill expressing concern about the administrative burden placed on local governments to collect taxes in this manner and the possibility of increased payment defaults.  Status:  HB 463 has not been voted by the Ways and Means Committee. MACo Testimony

Business Start-Up Personal Property Tax Exemption: HB 1087 would grant a one-time personal property tax exemption for businesses that organize during the current tax year or relocate their headquarters to Maryland in the current tax year.  MACo supported the bill with amendments to provide counties with the option of providing this personal property tax exemption.  Status:  HB 1087 has not been voted by the Ways and Means CommitteeMACo Testimony

Expansion of Personal Property Exemption for Residential Business Property: SB 10 would expand the current personal property tax exemption for business personal property used in connection with a business located at an individual’s principal residence. To be eligible, the business personal property would no longer be required to be owned by the owner of the residence. MACo opposed the bill arguing that this expansion is overly broad and raising concerns with the fiscal impact on the counties.  Status: SB 10 has not been voted by the Senate Budget and Taxation CommitteeMACo Testimony


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