Revenue From Growth Tax Falls Short of Promises

By Miranda S. Spivack
Washington Post Staff Writer
Sunday, October 29, 2006

A Montgomery County "growth tax" law designed to force builders to pay for new roads and schools to ease the impact of development has raised substantially less money than promised by its supporters.

County officials had predicted that the 2003 law, which created a tax to help pay for schools and increased an existing roads tax, would generate as much as $66 million over the past two years. Instead, the amount raised has totaled about $37 million.

Although the shortfall was caused in part by a slowdown in the housing market, more than a third -- about $13.5 million -- of the anticipated funds were not collected because the County Council allowed a four-month delay before the new taxes took effect. That lag set off a rush by builders to apply for permits before the March 1, 2004, deadline.

And many more builders than officials predicted used the opportunity to avoid the higher taxes. A Washington Post analysis of county permits shows that builders of about 1,700 homes, many of them in Clarksburg in northern Montgomery, were able to avoid the higher taxes, which in many cases would have doubled their levy to more than $16,000.

In February 2004, the month before the taxes took effect, the county received 1,007 applications for building permits -- more than four times the number of building permit applications filed in the next-busiest month since March 2000.

Under the law, builders pay the taxes when they construct a new home.

"We knew that was going to happen," said Steven A. Silverman (D-At Large), the bill's chief architect, who said the law balances the needs to reduce congestion and educate new students with the need to sustain economic growth in a county with an annual budget of about $4 billion.

Silverman, who this year unsuccessfully sought the Democratic nomination for county executive, often pointed to the growth tax on the campaign trail as he described his efforts to manage growth and keep the economy healthy.

The council's 6 to 3 vote for the measure in October 2003, which also lifted a moratorium on growth in several parts of the county, came with strong support from the "End Gridlock" slate -- Democrats Nancy Floreen (At Large), Michael Knapp (Upcounty), George L. Leventhal (At Large), Michael L. Subin (At Large) and Silverman.

Also voting in favor was Howard A. Denis (Potomac-Bethesda), the council's only Republican.

Subin and Silverman were defeated in the Sept. 12 primary; Denis has been criticized for the vote by his Democratic opponent, Roger Berliner, whom he faces Nov. 7.

Silverman said the purpose of delaying the law's implementation was to give builders and developers, many of whom had projects in the works, time to adjust their plans. Builders and developers often spend years crafting plans and say they can suffer big losses when governments make a mid-course change in the rules.

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