$62 Million Keeps Marriott In Montgomery

After receiving a commitment from the state and Montgomery County for up to $62 million in subsidies, Marriott International, the largest hotel company in the world, announced yesterday that it plans to keep its headquarters in the county when its current lease term ends in 2022. Marriott plans to move its 3,500 employees to a new complex near the Bethesda Metro station. County Executive Leggett said that he expects Marriott to produce $1.8 billion in economic activity over 20 years, reports The Washington Post

Marriott’s incentive package includes:

  • a $20 million grant from Maryland’s Sunny Day Fund, provided Marriott maintain at least 3,500 employees and invest $600 million in the new headquarters;
  • a $2 million grant from the Maryland Economic Development Fund;
  • a $22 million grant from Montgomery County; and
  • $18 million in tax benefits, two thirds of which come from the county.

County incentives are still subject to County Council approval.

An incentive package proposed by the Hogan Administration to keep Northrup Grumman in Maryland, including a $20 million forgivable loan from the Sunny Day Fund and $37.5 million in aerospace tax credits, is comparable in size – but the Maryland General Assembly has stalled voting on granting that loan after Hogan refused to release $80 million in funding for other projects.

In March 1999, Marriott received up to $4.3 million in grants and tax breaks from the state and county – the largest incentive package ever offered to a company considering moving at the time, reports the Baltimore Business Journal.

Baltimore “Airbnb” Hotel Tax Bill Dies In Committee

A bill that would apply Baltimore City’s 9.5 percent hotel tax to Airbnb rentals died in the Baltimore City Council Judiciary and Legislative Investigations Committee yesterday after a group of local hosts campaigned against application of the tax to their rentals, reports ABC2 News.

The Administration led the charge on City Council Bill 16-0737: Hotel Tax – Short Term Rentals and Hosting Intermediaries, which would have applied the hotel tax to any short-term rental serving one or more transient guests. Under current law, the tax only applies to sleeping accommodations serving more than five guests. The bill also clarified that the tax applied to fees paid to “hosting intermediaries” such as Airbnb and VRBO.

Committee Chair Jim Kraft announced yesterday at the time of the bill’s scheduled hearing that the bill would go no further with the City Council this term, which ends at noon on Thursday, December 8. A group of Airbnb hosts hugged and blew kisses in response.

Transportation Lockboxes On NJ and IL Ballots

This November voters in Illinois and New Jersey will consider whether to set up “lockboxes” for their transportation revenues, preventing their expenditures on non-transportation-related purposes.

Thirty states have constitutional provisions limiting how transportation revenues are spent, according to the Council of State Governments. Maryland is one of the most recent states to enact such protections, which voters overwhelmingly passed in November 2014 after the state raised the gas tax.

The Illinois proposal sets up a lockbox for its transportation set-asides, like Maryland’s did.  Reports Governing

“Illinois politicians have wasted millions of tax dollars on bureaucracy and mismanagement,” said Frank Manzo of the Illinois Economic Policy Institute, pointing to $6.8 billion of transportation money lawmakers diverted since 2002. That cost the state 4,700 jobs, he says. “Requiring transportation money to be spent on transportation would improve the Illinois economy.”

The debate has been more subdued in New Jersey, where the main attention has been on what mix of taxes should be raised and lowered to replenish the Transportation Trust Fund. But [Governor Chris] Christie has pushed the amendment, even as he’s negotiated with lawmakers on a tax deal.

“Vote yes on that because otherwise that increase will be able to be spent on anything, and if you leave an unguarded pot of money in Trenton — bad move, everybody. Bad move,” the governor said in a radio interview.

 

State Tax Revenue Slowdown Hits Nationwide

While Maryland experiences a tax revenue write-down, it may be holding its own compared with other states: state and local government tax revenues weakened significantly across the U.S. during the first quarter of 2016, continuing a slowdown which began in the middle of 2015, according to the State University of New York, Rockefeller Institute of Government’s State Revenue Report. Revenues actually declined in the second quarter of 2016, according to preliminary data. Much of the slowdown appears attributable to declines in oil prices (particularly for oil-producing states) and the weak stock market. Total state tax revenue from all sources grew by 1.6 percent in the first quarter of 2016 and preliminary data indicates actual declines of 2.1 percent for the second quarter.

state-tax-revenues-1st-qtr-2016

 

States nationwide are experiencing a sharp slowdown in the income tax, caused by slow growth in wage withholdings and declines in payments associated with nonwage income. Weak sales tax revenues demonstrate weak growth in taxable consumption:  year-over-year growth in nominal consumption of durable goods slowed from 5.9 percent in the first quarter of 2015 to 2.7 percent in the first and second quarters of 2016. Nondurable goods consumption saw declines in 2015, with growth resuming this year.

Corporate income taxes are declining most sharply nationally at 4.5 percent in first quarter 2016, and preliminary data indicates declines of 9.2 percent for second quarter 2016.

Local governments have generally fared better, with total tax revenues growing by 4.4 percent. This is attributable to their general dependency on property taxes, which are generally stable and accelerated slightly in the first quarter by 5.7 percent, compared to a 3.2 percent average increase over the prior four quarters.

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Read the full report here.

Disgruntled Residents: Voters’ Choice Whether To Raise Taxes

Two Prince George’s County residents have filed a lawsuit alleging that the county government illegally disregarded a tax cap when it raised property taxes in May 2015, according to The Washington Post. The plaintiffs allege that the four cent property tax increase should have been subject to referendum this November. Reports The Post: 

Prince George’s County voters prohibited elected leaders from raising taxes for more than three decades through a tax cap imposed via referendum in the late 1970s. The tax limit was changed slightly in the ensuing decades but remained in place until May 2015, when the County Council levied a 4-cent property-tax increase after rejecting a more controversial proposal from County Executive Rushern L. Baker III (D).

County officials indicated that they have not yet been served with the lawsuit.

Barr to Hogan: Hear Counties Voices, Loud and Clear

After completing an unprecedented tour and meeting with elected officials from all 24 counties across the state before the Summer Conference, MACo President John Barr raised this accomplishment with Governor Larry Hogan at the Summer Conference. “I’d like to get you a letter, summing up what we heard in these visits,” Commissioner Barr offered, and the Governor expressed interest.

In President Barr’s letter, he raises a variety of issues that came up during the county visits. A widespread focus on transportation and infrastructure was a universal theme:

Across the state, this same anecdote came up time and time again – counties everywhere simply cannot keep up with proper maintenance at these historically low funding levels.

Barr’s letter also talks about cross-border effects of statewide policies — recognizing that nearly all parts of Maryland are close to a state border.

As we traveled to visit the manor corners of this beautiful state, it became very clear to me how important our state geography is. Our small state stretches across lengthy state borders – and that matters substantially for policy issues here at home.

In Washington County, we are very aware of cross-border pressures that face our businesses and services. At its narrow point, the county spans less than two miles from the West Virginia and Pennsylvania borders. Employers, homebuilders, and civic organizations must routinely be aware of out-of-state competition as they make decisions in the area.

These issues arise in every part of Maryland. We compete for residents and businesses with surrounding states who offer a dramatically different mix of taxes, regulations, labor standards, and
quality-of-life offerings. We are uniformly proud of Maryland, and want to see the state succeed.

Barr closes with encouragement on the benefits of open communication, and his own experience as MACo President:

It has been a great honor, and a personal pleasure, to serve as MACo president this year. One of the great privileges that has afforded me has been an avenue to get to know you, and to seize on ways to work together for all Marylanders. I know that partnership – both at the personal level, and at the larger state-and-county level – will mean better outcomes for the residents we all represent.

Read John Barr’s letter, as MACo President, to Governor Hogan.

Auditor: $8.7M In County/Muni Income Taxes Distributed Incorrectly

An audit has found that nearly $9 million in local income taxes were incorrectly distributed to municipal governments by the Office of the Comptroller.

An independent audit, contracted through the Comptroller’s office, has determined that a multi-year problem of assigning tax returns to municipal addresses in Montgomery County resulted in incorrect assignment of revenues to various cities and towns. The net result: an accumulated overpayment to some cities, an underpayment to some others, and a substantial underpayment to Montgomery County government.

As preliminary news of this administrative problem arose prior to the 2016 legislative session, the General Assembly passed a new law governing the terms of settling any such overpayments and underpayments (not jsut the incident cases). MACo supported that bill, which ultimately provided a ten-year repayment schedule for local governments found to have been over-distributed. Those under-distributed are to be made whole immediately.

In Baltimore Sun coverage of the audit (based on a pre-release copy), the paper reports:

Auditors blame the mistake on the erroneous classification of more than 14,000 returns.

Auditors also found problems with how the office handles out-of-state tax credits, keeps information secure, and issues replacement refund checks. The audit, obtained by The Baltimore Sun, is expected to be broadly released Thursday.

The comptroller’s office said it has worked diligently to correct the mistakes.

MACo Adopts 2017 Legislative Initiatives

The MACo Legislative Committee adopted its four legislative initiatives for the 2017 session during its meeting on September 21. The four topics, have all gathered broad interest and discussion across the state during the last year.

28 different initiative proposals were received from a wide swath of county officials and organizations. MACo’s Initiatives Committee met through the summer to recommend a slate of no more than four items, consistent with the MACo by-laws. The limited number of initiatives is designed to keep the Association’s focus limited — but does not preclude involvement and effort on behalf of other important issues.

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2017 Legislative Initiatives

Re-invest In Local Roads, Bridges, and Infrastructure – Recession-driven cost shifts have left local roadways lacking proper maintenance, bridges in dire need, and other public infrastructure neglected. Re-investing in infrastructure – a call being heard at every level of government – is good for Maryland jobs, business attractiveness, and quality of life across the state. Meanwhile, funding for school maintenance, water delivery systems, and public safety centers all lack predictable centralized funding commitments. MACo calls on state leaders to take action in 2017:

* Approve meaningful new FY 2018 funding for restoring Highway User Revenues – using the fair, statewide formula used for decades

* Enact a phased-in restoration of the historic 30% local share of state transportation revenues – enhancing safety and road quality for motorists everywhere

* Document and assess the state of public infrastructure across Maryland – assessing the needs and reliable revenue sources targeted for each area of service

Strong and Smart State Funding for School Construction – The State’s commitment to school construction funding needs to remain strong and smart – to best serve the modern needs of our schoolchildren, educators, and communities. Strong state funding will recognize modern cost factors as we achieve new environmental and energy standards, satisfy heightened needs for technology, ensure student safety, fulfill community resource needs, and mesh with evolving teaching methods. Smart state funding will provide flexibility for county governments seeking cost-effective solutions to meeting student and community school construction needs. A smarter state-county school construction program will reduce unnecessary regulation, revise processes to work alongside county budget decisions, provide a county voice in state school construction funding decisions, promote statewide and regional efficiencies, and provide a meaningful opportunity to pursue alternative financing for school construction.

Energy Facility Siting – For decades, the state has exercised a very narrow pre-emption of local planning and zoning authority for major power plants, grounded in the need for the larger power grid to receive ample power supply. Recent cases before the state’s Public Service Commission threaten to dramatically widen that principle, applying it to virtually any generation facility, regardless of its size or importance to the regional power grid. A new generation of power facilities – from solar farms to alternative technologies – could be freed up to ignore local zoning and oversight. This decision threatens local land use control — and the important rights of communities to guide their own historic, agricultural, and residential character.

Balancing Release of Police Body Camera Video – As governments work to implement sensible police body camera policies, the State should clarify how body camera footage is treated under Maryland’s Public Information Act (PIA). The PIA was largely created to handle paper documents and only recently updated to better handle static electronic records. However, the PIA still does not address the practical, technical, and privacy challenges facing a local government from potential requests of hundreds of hours of accumulated body camera video, all of which must be subjected to attorney review and redaction where appropriate. In light of such challenges, MACo supports legislation to strike a reasonable balance between making affected people having proper access to the footage while preventing overbroad, abusive, or invasive requests.

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In the weeks ahead, Conduit Street will feature more detail on the policy and legislative importance of each of these major topics.

IRS: Special Districts Not So Special

The Internal Revenue Service (IRS) has proposed new regulations potentially restricting special taxing districts and other special districts from issuing tax-exempt municipal bonds, reports Governing

Special districts are usually created to raise revenue for and address specific functions, such as airports, libraries, wastewater, etc. Last night the Baltimore City Council approved City Council Bill 16-0671 creating the Port Covington Special Taxing District to guarantee the Port Covington tax increment financing (TIF) deal.

The IRS traditionally found that a special district can issue municipal tax-free bonds if it is authorized to exercise at least one of three sovereign powers: the power to tax, the power to exercise eminent domain, or police power. This test would still apply under the new regulations proposed by the IRS, but in addition, the special district must serve a governmental purpose and be governmentally controlled. Per Governing:

As creatures of the state, special-purpose districts have governing boards as determined by state law. But those boards may be appointed by public officials or by private entities. Or they may be elected by property owners within the special district — even though there may be only one or two residents, or in some cases, zero residents, to participate in a board election. While most special-purpose districts have employees, some don’t, distinguishing them from every other kind of government in the country.

So if these entities don’t resemble traditional state and local governments, why should they be allowed to borrow in the same tax-exempt way? That’s just what the IRS wants to know. In February, the agency proposed regulations that would more clearly define the difference between a municipality and a special district. It may seem like a fine point, but in fact there’s big money at stake. Special districts could see a nearly 30 percent increase in the costs of borrowing, which could work out to about $700 billion. It could be prohibitive enough to force many special districts out of existence.

Governing‘s article is available here. 

Pew: Maryland Leads Country In Tax Incentive Evaluation

Bipartisan, widespread support for regular, rigorous evaluation of economic development tax incentives seems to be sweeping the country, according to recent analysis by the Pew Charitable Trusts. During the 2016 legislative session, Alabama, Colorado, Hawaii, Virginia and Utah passed laws requiring regular evaluation of tax credit programs. While each state’s law addresses its own unique needs, the five new laws bear key similarities:

  • professional staff such as legislative auditors are responsible for conducting the analyses;
  • evaluations are due on a rotating, multi-year cycle; and
  • public hearings are incorporated into the evaluation processes.

About half of the states currently evaluate their tax incentive programs regularly, reports Pew. The article cites Maryland has a successful example:

Using evaluations to improve incentive policy is the ultimate objective of each of these laws. Some states with longer-standing evaluation processes are already doing just that. For example, Maryland lawmakers this year extended the state’s historic preservation tax credit for another five years, while also modifying the scoring system used to determine which projects qualify. That action directly followed the findings of an evaluation that described the credit as a model incentive program overall but also identified weaknesses in the scoring system.

As Maryland’s example shows, tax incentive evaluation can help policymakers ensure that incentives are working well for businesses, workers, and taxpayers. The states that are adopting and implementing regular evaluation processes are well on their way to achieving similar successes.

Maryland first required tax credit evaluations under the Tax Credit Evaluation Act of 2012, which established a legislative process for evaluating certain credits. The Department of Legislative Services (DLS) is required to publish a report evaluating the tax credit. The report submitted by DLS must discuss (1) the purpose for which the tax credit was established; (2) whether the original intent of the tax credit is still appropriate; (3) whether the tax credit is meeting its objectives; (4) whether the goals of the tax credit could be more effectively carried out by other means; and (5) the cost of the tax credit to the State and local governments. The evaluation committee must hold a public hearing on the evaluation report, and is required to submit a report to the General Assembly that states whether or not the tax credit should be continued, with or without changes, or terminated.

Last session, the General Assembly passed and Governor signed Senate 843, Tax Credits – Evaluations, which altered the tax credits to be evaluated and the process and timelines for the analysis. While earlier iterations of the bill would have repealed the property tax components of the Enterprise Zone and Regional Institution Strategic Enterprise tax credit programs, these programmed remained in existing law following MACo advocacy for their continuation.