A majority of Montgomery County Council members are pledging to cut one of the highest local income tax rates in the state for the second consecutive year following predictions that the county budget surplus will exceed $80 million.
In these flush financial times, Montgomery officials are debating whether to reward residents whose taxes jumped in the early 1990s with another round of tax cuts or to spend the surplus on a long list of public works projects, education programs and measures to help the county's poorest residents.
County Executive Douglas M. Duncan (D) said last month that he would not propose tax cuts in his next budget after doing so last year, saving the money instead for schools and road construction. But at least five of nine council members say tax relief should be part of the next county budget, putting an administration that prides itself on fiscal conservatism in the potentially awkward position of opposing tax cuts.
"If he doesn't, we probably will anyway," said council member Isiah Leggett (D-At Large), who has asked Duncan to endorse a 5 percent cut in the income tax rate over two years. "It's my opinion that we can do some investment and some tax cuts."
Facing deep budget shortfalls in the early 1990s, Montgomery officials raised the income tax rate by 20 percent to help weather the recession--increasing it to the maximum permitted under state law.
Last year, as stock market windfalls drove income tax revenue to historic highs, Duncan and the council began paring the local tax rate, from 60 percent of what the state collects in income taxes to 58 percent.
The reduction will save a typical county resident an estimated $65 a year while costing Montgomery $23.5 million in lost annual revenue.
Leggett's proposal would push the rate to 55 percent over two years--the lowest level since 1992--and cost at least an additional $25 million in lost tax receipts. Because of changes in state law, the county now applies its own tax rate rather than "piggybacking" on the state share. Calculated that way, the county's current income tax rate of 2.92 percent would drop to 2.8 percent under Leggett's plan.
But the council would have to trim millions of dollars in spending to pay for the tax cut unless Duncan proposes it as part of his budget. Council President Michael L. Subin (D-At Large) said yesterday that he would prefer cutting property taxes but added that he would support income tax reductions if his colleagues preferred that approach.
"There will be a clear majority in favor of a tax cut," he said. "I don't think spending all this money is defensible. A budget built on today's economy will not be sustainable and, given that, we should be giving money back to the taxpayers."
Still, some county officials say the list of demands--such as increased education spending, aid for the poor and new ballfields for a growing population--are becoming increasing urgent.
School Superintendent Jerry D. Weast is seeking an additional $80 million in his first budget proposal. Last month, Duncan proposed a 50 percent increase in transportation spending during the next six years in his state of the county speech.
"In my view, traffic congestion is the single greatest threat to our quality of life," Duncan said yesterday in a statement that concluded, "I welcome Mr. Leggett's suggestions and will give them serious consideration as we prepare the budget I will submit to the council on March 15."
Last year, Duncan was first out of the gate with a tax plan that reduced income and property tax rates and eliminated a fee on cellular telephone lines. But this time, he finds himself as part of an opposition that includes the council's most liberal members, who oppose any reduction in the income tax rate.
"At a time when the county has thousands of working poor families struggling to make ends meet, the council should not give a $1,000 tax refund to someone who makes $1 million a year," said council member Philip Andrews (D-Rockville).
CAPTION: Council member Isiah Leggett seeks a 5 percent cut in income taxes.