Tax Increases Would Be Legal, Attorneys Say

Lawyers for both the Prince George's County Council and County Executive Jack B. Johnson (D) have concluded that county leaders can raise the local income tax rate and the tax imposed on the recordation of home sales without asking voters for their approval at the ballot box.

Johnson has proposed increasing those taxes as part of a recommended $2.67 billion budget for the 2009 fiscal year, a 1.3 percent spending increase over this year. He says the revenue is needed to close a potential gap in the county's budget amid a deepening housing crisis that has caused county tax revenue to fall off.

The Prince George's charter establishes some of the nation's toughest restrictions on raising taxes, stating that county leaders must send to a referendum any proposal to increase local taxes or fees.

However, at a committee hearing of the council yesterday, county attorney Joseph R. Hamlin and council lawyer Ralph Grutzmacher both said the county's stringent charter language does not apply to the income tax or recordation tax because they were established by state law, which gives local governments guidelines for raising their rates.

Anti-tax activist Judy Robinson, who helped organize the successful 1996 effort to require tax increases to go to referendum, told the council she believed the legal advice is incorrect -- and promised a court challenge if it decides to increase the two taxes.

"I suppose the only way -- if you decide to go forward -- that we can decide who is right is to take it to the court," she said.

Johnson is asking the council to raise the county income tax rate from 3.1 percent to 3.2 percent and the recordation tax, applied when homes change ownership, from $2.20 per $500 of home value to $2.50 per $500.

The county's income tax rate was 3.2 percent, the highest allowed by state law, until 2006, when county leaders agreed to cut the rate to 3.1 percent. Raising the tax again would provide county government $13 million a year and cost the average household $40.

The recordation tax proposal would raise $5.4 million in fiscal 2009 and add $180 in taxes to the sale of a $300,000 home.

Council members did not indicate how they plan to vote on the matter. Last year, Johnson proposed raising the county's telephone tax, offering similar arguments for why the tax did not need a referendum. He was rebuffed by the council, which agreed to put the measure to voters this November.

Robinson told the council she thinks that members made the right decision on that tax and urged them to do the same this year. "Be courageous again," she said.

After the hearing, Grutzmacher said the legal constraints on the taxes differ, because state law authorized jurisdictions to set the phone tax rate just once, but it outlines a procedure to annually set the income tax and recordation tax rates.

Council member Tony Knotts (D-Temple Hills), who chairs the committee that heard the presentation, said he wants to give members time to explore the issue before calling for a vote. After the council committee votes, the two taxes would be subject to public hearings before consideration by the full council. The council must complete action before adopting the county's budget at the end of May.

As for Robinson's threat of legal action, Knotts said he was not concerned. "Sometimes, good actions land you in court," he said.