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October 22, 2003

Here's A Less Onerous Solution

John W. Ashbury

The "no new tax" pledge of all too many politicians is getting out of hand. Sure, they aren't raising taxes, but the fees for everything else are going through the roof. Pretty soon we won't have to pay "taxes" anymore; there'll just be a fee for everything.

Unfortunately, as our county commissioners continue to raise these fees, they continue to add employees, another level of bureaucracy, and more hoops for every citizen to jump through at their beck and call.

One of the biggest bugaboos being discussed currently is this proposed "school excise tax" on the resale of existing homes. The homebuilders, the Realtors, the Chamber of Commerce, the Parent-Teachers-Students Association, and even the teacher's union, are behind this proposal, probably because they all figure it wouldn't dip into their pockets.

The proposal says that this "tax" will generate about $10.9 million if 5,000 existing homes are resold each year. The way it has been figured, about 20 percent of these resell houses would cost more than $275,000; 45 percent would cost less than $275,000; 25 percent would cost $180,000; and 10 percent would costs an average of $130,000.

It is also proposed that this "tax" be collected over the first five years of the mortgage as part of the escrow account on most mortgages. (Did you notice that bankers were not among the groups supporting this?)

All of this is designed to fully fund the county Capital Improvement Program for the next six years. The CIP is currently planned at a cost of $280 million, or about $47 million per year.

The catch in all of this is that the county's delegation to the General Assembly must approve this new tax, which isn't likely.

Obviously, this new "school excise tax" will not generate enough to fully pay for the CIP. So, none of the old fees and taxes are going away.

During this current calendar year, and using the same parameters, the average sale price of a new single family house is $337,757. The average price of a re-sale house is $205,458. The new home buyer is paying more than $7,000 toward school construction, while the purchaser of the existing house is paying zero dollars.

Yet, when you look at where all the students are coming from, only one third of them are from new housing, while two thirds come from existing properties or apartments.

So, in light of this, the county commissioners are looking at a way to make the buyers of existing homes pay "their fair share."

Using their very own figures, the commissioners' staff says that the Impact Fee will generate $12-$15 million per year, although in 2002 only $9.1 million was collected; that the commissioners need to contribute $15 million per year to the CIP; and that the state must continue to contribute $10 million per year. This total (on the high side) means the commissioners will have $40 million of the estimated $47 million average per year needed to fully fund the CIP.

So, why does this proposal for a school excise tax on resale homes need to generate another $10.9 million? And it would come from the resale of only 5,000 homes. In 2002, during a downturn in the economy, a drought and a moratorium of new building in Frederick City, where the largest number of new homes were being built, there were 11,240 property transfers in Frederick County.

The figures need to match in making new calculations. The way it is being figured now gives a false sense of need. Alan Imhoff made a few observations in his column on The Tentacle last week, the most significant of which is that it is possible we may well have a negative student population growth within the next two or three years. And he noted that in the current school year there was a less than one percent growth in student population.

So, do we really need to continue to build all these new schools? Are we headed down the road to school closings while we continue to build new facilities for the students?

But there is a very simple solution to this mess. It would eliminate the impact fee and make this new "school excise tax" totally unnecessary.

In calendar year 2002, as mentioned above, the ownership of 11,240 properties changed hands. This included new and resold residential, commercial and industrial properties. The total value was more than $2.854 BILLION. These figures come from the recording fees paid at the Frederick County Courthouse.

If we simply had a ONE percent transfer tax, the county would reap $28.54 million, nearly three times as much as this new "school excise tax." Adding the $10 million contribution from the state, and the $15 million pay-as-you-go capital funding from the general tax fund, you will notice that we have now have more than $53 million to use to fund the CIP every year.

And the county says it will take approximately $47 million per year for the CIP to be fully funded for the next six years. If this one percent transfer tax on all property transfers is enacted, there wouldn't be a need for that hated Impact Fee. It could be removed in the same legislation establishing the transfer tax.

The Realtors will be the ones screaming the loudest over this proposal. It would mean that the purchasers of resale homes would have to dig into their pockets a little deeper. And everyone knows that the average buyer of a resale home, now priced at more than $200,000, can't come up with another $2,000 to pay a transfer tax.

But wait, he doesn't have to come up with that. The transfer tax is usually split between the buyer and the seller. And if $1,000 is going to break the deal, the price could be raised, or the Realtors could take a lesser fee, or the buyer could ask the lender for a dispensation on the loan. Something could be worked out.

So, before the commissioners send this "school excise tax" proposal to the General Assembly delegation for approval, perhaps they should look at something like a straight transfer tax option in its place. It would reduce the bureaucracy, eliminate a hard-to-swallow imposition on buyers of new homes, and generate more funds than the proposal before them now.

Don't be surprised if political correctness rears its ugly head in this discussion. And be careful to examine the motives of those who object.

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