This article is part of MACo’s Policy Deep Dive series, where expert policy analysts explore and explain the top county policy issues of the day.
When Maryland property owners receive their annual tax bill, they pay more than just their local county or municipal property taxes. They also pay a statewide property tax, a feature that sets Maryland apart from many other states. While local governments rely on property taxes to fund essential services such as public schools, public safety, libraries, roads, and parks, the state property tax serves a similar but separate purpose. Established by the General Assembly and applied uniformly across the state, the tax is primarily used to repay debt on Maryland’s general obligation bonds, which finance major capital investments that benefit residents in every county.
Those bond proceeds support projects that would be difficult to fund through annual operating budgets alone. School construction represents one of the largest uses of state bond funding, but the program also finances community colleges, university facilities, state buildings, environmental restoration projects, public safety infrastructure, parks, and other long-term capital improvements.
Below are the FY27 State Capital Budget distributions by category.
By borrowing for these projects and repaying the debt over time, Maryland is able to spread the cost of major infrastructure investments across multiple generations of taxpayers. After the bonds are sold, Maryland repays investors over many years through annual debt service payments that include both principal and interest. Those payments are supported primarily by revenue from the statewide property tax, although in recent years General Fund revenues have made up an increasing share as debt service has grown faster than property tax collections.
See out year estimates below from the Maryland Department of Legislative Services (DLS) for annual property tax revenue growth and required general fund supplements.
While debt service reliance on the general fund is anticipated to grow, the statewide property tax rate has remained unchanged at 11.2 cents per $100 of assessed value since 2007. Despite a level statewide property tax rate, many homeowners continue to see higher property tax bills—not because the state tax rate has increased, but because rising property assessments have increased the taxable value (the “assessment”) of their homes. The result is a financing model in which collections continue to grow, yet debt service obligations are growing even faster.
Previous Conduit Street coverage:
For fiscal 2027, projected property tax revenues total nearly $1.2 billion, falling short of debt service costs by roughly $320 million. The State will cover that gap with general fund support. Projections show similar shortfalls in the following two years, with the gap widening again later in the decade.
This growing disconnect illustrates an important change in how Maryland finances its capital program. Historically, the state property tax covered most or all of the debt service on state bonds. Today, it provides a substantial share of those payments, but an increasing portion is supported by general fund revenues.
Maryland’s peculiar mechanism for setting the state property tax rate is unlike any other state-level tax — nearly all of which are directly set in statute. The rate, by law, is set by the Board of Public Works in the weeks following the General Assembly session and the passage of the annual operating and capital budgets. So, in essence, the General Assembly in recent years has appropriated general funds toward debt service payments, in an amount necessary to allow the property tax to remain at its current tax rate.
From a recent Maryland Matters article:
On average, residential property assessments increased by more than 13% this year. That is less than the 20.1% last year and 23.4% in 2023. Commercial property value assessments grew by an average of 11%.
Note that the rate of assessment increases does not immediately translate to revenue increases at that same level. The state’s phased-in assessment process eases that increase in the taxable assessment over three years, and for homeowners each year’s increase is capped by the applicable Homestead Tax Credit. Property taxes are relatively stable year-to-year, both to the homeowner and government, despite the occasional “sticker shock” of a triennial assessment increase.
For county governments, the state property tax plays an important role in delivering mandated as well as discretionary shares of funding for infrastructure. Counties continue to provide significant local funding for school construction and other capital projects, but state bond funding helps share those costs and makes many projects financially feasible. While every year, county residents benefit from new or renovated schools, higher education facilities, environmental improvements, public safety investments, and other infrastructure funded in part through the state’s capital program, the growing need and higher costs continue to strain an already dwindling state portion of revenue. In essence, counties do not control the state property tax rate, but they can be direct beneficiaries of the projects it helps finance. To the degree the state is able to increase contributions, pressure on county budgets to provide vital services and capital improvements could be relieved while residents statewide will continue to benefit.
For county officials, understanding the state property tax means understanding one of the key building blocks of Maryland’s capital financing system. Decisions about state borrowing, debt affordability, and capital budgeting have direct implications for local projects that county residents rely on every year. While the state property tax may receive less attention than local property taxes, it remains an essential component of Maryland’s ability to invest in long-term infrastructure—and a growing topic of discussion as the state balances increasing capital needs with long-term fiscal sustainability.
