Budget Endgame Nears

Budget Endgame Nears

Councilmembers differ on Charter limit.

The letters, e-mails and handwritten notes started flowing in January. Hundreds of residents from across the county — including dozens from Potomac — have written county officials demanding relief from sharply rising property taxes.

Some of the letters include lengthy descriptions of their authors’ financial situations, with many coming from retirees on fixed incomes. Others are more pointed.

“I am a registered Democrat and will cross party lines in the next election to support candidates who will work to do something about the rising property taxes,” wrote Lorraine Okun.

The e-mail from Elizabeth Dabler contained no body text. The subject line read, “Sick of High Taxes — Will Vote You Out!”

Such sentiments are the backdrop to the most contentious Council budget negotiations in years, ones that have splintered political alliances and renewed debate about tax caps and credits. The council is scheduled to take action on revenue gathering measures Thursday and complete its budget negotiations Friday.

The overwhelming focus of the revenue debate has been whether and how to reach the Charter limit on property tax revenue.

Since 1990, the County Council has been limited to a tax yield equal to the previous year’s yield plus any increase in the rate of inflation and revenue from new or rezoned properties. The council may override that limit with a vote by seven of nine councilmembers. The council observed the cap for 11 years before overriding it in each of the last three.

A question brought to the November 2004 ballot by perennial Republican candidate Robin Ficker would have taken away the override power. It failed.

Property values for Potomac houses rose by 70 percent over three years, according to the Maryland Department of Assessments and Taxation, which reassessed Potomac for 2005. However, Montgomery County caps annual property tax increases at 10 percent a year for owner-occupied properties, regardless of the owner's income. Other property tax credits are available to low-income homeowners. Because the phase-in of increases compounds, a 10 percent annual rise means tax bills will double every seven years, assuming assessments continue to rise at least 10 percent each year.

The sharp rise in assessments is a particular challenge for seniors and others on fixed incomes, whose tax bills increase even as their available cash remains the same.

Because of the rising assessments, politicians who talk about "not raising" the tax rate may be dodging the issue of rising tax bills. Keeping tax bills in check would require lowering the rate each year that assessments rise.

WHILE COUNTY EXECUTIVE Doug Duncan's proposed $3.5 billion operating budget includes a 2 cent property tax rate cut, a 7.2 cent cut would be required to meet the Charter limit by reducing the tax rate. Other alternatives include fixed tax credits, targeted tax credits, and programs that exempt the first $10,000 or $20,000 of a house's assessment value from taxation. Tax credits and exemptions can be used to reach the Charter limit without reducing the tax rate, because the limit applies to the overall tax yield only.

The Charter limit debate has the council split. Councilmembers Phil Andrews (D-3) and Marilyn Praisner (D-4) are seen as the strongest proponents of observing the limit, and are joined by Councilmembers Mike Knapp (D-2) and Nancy Floreen (D-At Large). Proposals from Council President Tom Perez (D-5), Council Vice President George Leventhal (D-At Large), and Councilmembers Howard Denis (R-1) and Steve Silverman (D-At Large) have advocated a balance of targeted tax relief and increased services, although no proposal increases spending as much as County Executive Doug Duncan’s.

“We are doing things here that are virtually unprecedented. … Usually the County Executive’s budget is a floor. This year, the County Executive’s budget is clearly a ceiling,” Perez said after hearing the Montgomery County Public Schools’ budget May 12.

But even in that context, there is no clear agreement on how close to the Charter limit to get, or where to make cuts.

“It comes across today at this moment as incompleteness, uncertainty, and relativity,” Denis said in a Management and Fiscal Policy Committee meeting May 16 on revenue measures. “A new word has crept itself into our budgetary lexicon the last few days and that word is ‘close.’ All of a sudden, close to the charter limit is fine. … We certainly could have been spared a lot of agony if that had been stated with any degree of clarity, if that had been referred to at all earlier in the budget discussion.”

DENIS HAS played down the significance of the Charter limit, which applies only to property taxes, claiming it is disingenuous to reach the Charter limit by lowering property taxes while raising other taxes not affected by the cap.

That’s exactly what Andrews has proposed: budget cuts and an increase in the energy tax, which is nearly three times higher for businesses than for residents and farmers. “It makes sense to trade off a modest increase in energy tax for a significant reduction in the property tax. I think it’s a very good approach for homeowners,” Andrews said.

Denis called the proposal a “fraudulent shell game.”

Councilmember Mike Subin (D-At Large), and to a lesser degree Denis and Floreen, are seen as swing votes in the revenue debate. Denis may seek to resurrect a proposal to save $5.4 million by delaying construction of the Montrose Parkway project in North Bethesda, an approach which was voted down last week.

Floreen emphasized that the debate needs to be taken in context.

“We are not talking about eliminating programs or services. We are really talking about how much can we afford to add,” she said, noting that at the charter limit the county could still increase spending by $170 million.

“I’d like to get as close as I can [to the limit]” she said, but “nobody is proposing to cut current services. The only question is how much are we going to add. That’s the only question.”