The Charles County commissioners proposed this week abandoning a formula that provides a tax break to the towns of La Plata and Indian Head, citing tight budget projections in the upcoming fiscal years.
Because residents of the two towns pay municipal and county taxes, the tax credit's purpose is to prevent town residents from paying for county services they don't receive. For example, some government services, such as local road maintenance, planning, and in the case of La Plata, police protection, are provided by the town, not the county.
The formula used to calculate the value of the tax credit, or "tax differential," dates to the 1970s but was revised last year, officials said. In the current fiscal year, La Plata received a credit at a rate of 7.5 cents per $100 of assessed value, amounting to $334,800 for the town. The formula for the upcoming fiscal year calls for a 10 cent tax credit rate, which would increase the county's payout by 61 percent, up to $537,900. In addition to the formula's higher rate, new development and rising real estate values help produce the larger total credit amount.
But county commissioners said the additional $203,100 was too much of a burden on the county's finances and proposed breaking the formula and maintaining the 7.5 cent rate. By law, the commissioners do not have to pay any tax credit to town residents.
"We are having a difficult time balancing this year's budget, let alone next year's budget," commissioners President Murray D. Levy (D-At Large) said. "This $200,000 is going to be sorely needed to balance our budget this year."
La Plata Mayor William F. Eckman asked the commissioners not to "wipe out" the formula permanently. During last year's renegotiation of the formula, La Plata dropped from full reimbursement for police service to payment based on 50 percent of what it would cost the county to police the town, officials said. Eckman called La Plata's police force the "best buy the county could get." He also said the town provides several services to county government facilities in La Plata that are not included in the tax differential formula.
"The tax differential, as the formula shows, is probably what would be fair to everybody in the county," he said.
For the past two years, Indian Head officials have chosen to receive a lump sum payment from the county government rather than take a tax credit for its residents. This year the town planned to return to the formula and was projected to receive a 3.9 cent rate, for a total of $55,500. But the commissioners said Indian Head would also receive less than the calculated amount -- dropping the town to a 2.4 cent rate, for a total of $34,500.
"Now that they have to give us a bigger break they're saying, 'Since everybody is suffering now, we would like to have the town do something to share in the suffering,'" said Indian Head Mayor Edward Rice. "We really can't fight the decision, it's a county option."
For a La Plata resident with a $100,000 home, the 10 cent tax rate would have provided an additional $25 tax credit over the 7.5 cent rate, said county budget director David Eicholtz. The reason the formula called for a relatively large increase in the tax credit for the coming fiscal year could be attributed to several factors, he said.
First, the rapid growth rate of La Plata and the increase in property values has made the town a larger piece of the county's revenue pie. Furthermore, the county is expending more on police protection and an ambitious road construction program, two services for which the town qualifies for reimbursement.
"It's the perfect storm," said Eicholtz.
La Plata officials said they would have liked to get the full tax credit but could manage without it.
"Under the current budget constraints, my comment to the commissioners is I think it's fair and we can live with it," said Town Council member Thomas Fritz (Ward 2). "If we can maintain our status I would be tickled to death."
The commissioners did not decide whether the formula for the tax differential would be used again in the future or changed. At a meeting last week, Levy said the formula should be re-examined because it may not accurately reflect the costs that the county would have to pay if town governments did not exist.
"I think the basic premise of it is flawed," he said. But in front of La Plata officials this week, he stood by the formula.
"I'm not sure we disagree about the formula because we negotiated with you," Levy said to Eckman. "That's not our worry. What we don't want to do is increase the tax credit to them this year and whack it badly next year."