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February 9, 2005

Another Bump in the Road to Tax Relief

John W. Ashbury

Sen. David Brinkley (R., 4th) has stepped into a quagmire with his proposal to limit Frederick County tax assessments to a five percent annual increase for owner-occupied residential property. Thank goodness someone is concerned about the rising tax burden on the residents of Frederick County.

Alderman David Lenhart, and colleagues Joe Baldi and Bill Hall, had the foresight to impose that limit on increased property tax assessments back in late November. Unfortunately their limit applies only to Frederick City property taxes. City residents also pay county and state property taxes and the county imposed “fire tax.”

Last summer Commissioner Bruce Reeder proposed a freeze on property taxes for senior citizens who have lived in their homes for five years. In his scenario current county taxes on the owner-occupied homes of senior citizens would remain the same until such time as the property is sold.

Regrettably, his fellow commissioners shot down this idea before it made it to the county’s delegation to Annapolis.

Enter the scene Senator Brinkley! He realizes from personal experience that property taxes are driving longtime county residents out of the county to locations where such burdens are less onerous.

At last week’s meeting of the delegation, county commissioners and their staff expressed “regret” that the delegation would even consider “tying the hands” of the commissioners in such a manner. “It’s our bailiwick,” seemed to be the cry.

Other suggestions have made the rounds. Some would drop the tax rate to the constant yield. However, this would mean the commissioners would realize ONLY the same revenue as in the current year from property taxes. So, this wouldn’t work.

The commissioners received a preliminary report from staff last fall that indicated total revenues were expected to increase by more than 11 percent (more than $30 million) in Fiscal 2006. Included in this was a nearly $20 million jump in property tax revenues due to increased assessments. One assumption made by staff was that the tax rate ($1 per hundred of assessed value) would remain the same.

Thus, if the commissioners held to the constant yield rate, that $20 million would never come in. Besides, according the staff, the commissioners have already made commitments that will eat up all 11 percent of the projected revenue increase.

So, what else can the commissioners do to alleviate the property tax burden for strapped homeowners, particularly those on fixed incomes – like senior citizens?

If Senator Brinkley’s proposal were to gain General Assembly approval and the governor’s signature, it would reduce the taxable increase in assessments to five percent on owner-occupied residential property ONLY. In effect, this would reduce the projected increase in property taxes by 50 percent for those property owners. It would have no effect what-so-ever on any other type real property in the county.

Here’s an example:

2005 Fiscal Year Taxes
House’s current assessed value = $300,000
$1 tax rate per $100 of assessed value = $3,000

2006 Fiscal Year Taxes if Law Unchanged
If assessment increases 10 percent = $330,000
$1 tax rate per $100 of assessed value = $3,300

2006 Fiscal Year Taxes Under Brinkley’s Bill
If assessment increases 5 percent = $315,000
$1 tax rate per $100 of assessed value = $3,150

Without any doubt Senator Brinkley’s measure would reduce substantially the revenues the county commissioners would receive – if they leave the property tax rate where it is at $1 per $100 of assessed value. However, there is nothing in Senator Brinkley’s proposal that would prohibit the commissioners from increasing the tax rate to counter the savings realized by this bill by owner-occupied residential property tax payers.

Therein lies the rub. For generations, the commissioners have been able to say that the increased assessments are at fault for the rising property taxes. If Senator Brinkley’s bill passes, the commissioners will be faced with a far more difficult decision – and perhaps the wrath of the public – when it comes to the tax rate.

They could leave it at the current $1 per hundred level, in which case residential property owners who live in their homes will face a smaller increase in their real estate taxes – if the bill passes

Or the commissioners could reduce the tax rate to something between the current $1 and the constant yield rate, in which case property owners who live in their homes would – perhaps – realize a small reduction in their property taxes, or they could remain the same, or they could see a small increase – if the bill passes.

Finally, the commissioners could reduce spending. Now that isn’t going to happen, so get that idea out of your mind.

With the ever mounting demands on county dollars, many of which have been imposed by federal and state mandates, the commissioners are in an increasingly difficult situation. They must fund the mandates, or face penalties. And they must listen to the citizens who are always wanting more in the way of public amenities.

The primary concern for the commissioners should be to keep Frederick County the place people want to live and raise a family, and to retain those citizens who have already done that, but who want to stay here and enjoy the fruits of the taxes they have already paid.

This isn’t the time to be building new facilities for administrative staff – whether Board of Education or county employees. Surely it will cost more in the future to build these amenities, but a far more pressing need today is property tax relief for residential property owners who live in their homes. Reducing the property tax rate benefits every taxpayer, not just owner-occupied residential property tax payers.

We have – as a society – come to a point where a citizen who has lived in their home for 30 years, paid off their mortgage, retired on a small pension and a Social Security check, is now forced to move away because they can’t afford the property taxes on their home.

The commissioners have some difficult decisions to make if this Brinkley bill passes.

The General Assembly in considering Senator Brinkley’s bill also has some difficult decisions to make. Prospects are good if only in the fact that this is a local measure and not one with statewide implications.

We can only hope that both bodies will make the correct decision and provide some tax relief for taxpayers strapped by every increasing demand for the limited dollars they have.

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