Montgomery County Executive Isiah Leggett says residents can expect him to propose a significant property tax increase this year or next to make up for state funding cuts and revenue diminished by a still-sluggish recovery from the recession.
Leggett (D) said in an interview that the county has done well to hold the line on property taxes since 2008, when he last proposed an increase beyond the rate of inflation. He said he will probably include a larger tax increase as part of the proposed fiscal 2016 budget he is scheduled to send to the County Council in March or in his 2017 spending plan.
“Without help from the state and without the economy roaring back, at some point you have to face reality,” he said.
Leggett said he will make a final decision after reviewing economic indicators, including income tax revenue projections from the state that are due in the next several weeks. The county faces a shortfall of about $200 million, a deficit that could deepen if revenue projections don’t improve. Also clouding the fiscal picture are budget cuts unveiled this month by Gov. Larry Hogan (R) and potential revenue losses resulting from a tax case that is pending in the U.S. Supreme Court.
An increase in the property tax rate would require an exemption from the cap mandated by the county charter. That cap limits the amount of property tax revenue the government can collect in a given year — it cannot exceed the prior year’s total, plus an adjustment for inflation and the taxable value of new construction. Lifting the cap requires a unanimous vote from the nine-member County Council, which some council members said will not come easily.
“I think he’s going to need to make a compelling case,” said council member Roger Berliner (D-Potomac-Bethesda). “I know all of my colleagues will be looking at every option before entertaining breaking the charter limit.”
Leggett, who just entered his third term in office, is unlikely to run for a fourth term. Any council members interested in succeeding him could be wary of having to explain a vote to approve a big tax increase.
Montgomery is not the only jurisdiction in the region facing difficult budget decisions. Fairfax County, which raised property taxes for the average homeowner by $357 last year, is facing a $100 million deficit that might necessitate another increase. County Executive Edward Long Jr. is scheduled to present his proposed budget to the County Board of Supervisors on Feb. 17.
Last year, because of rising home assessments, the Montgomery council had to lower the county’s property tax rate to keep revenue within the charter limit. Revenue still increased by 3.3 percent while the average residential tax bill dipped about $17. The owner of a $400,000 home had a property tax bill of about $3,200.
Leggett said the budget proposal unveiled by Hogan last week did not take as deep a bite out of county finances as expected but still poses challenges. State aid to schools is about $10 million short of anticipated levels, officials say. A major bump in school construction funds, which the county is seeking to address serious crowding, may not be available.
Moreover, state-mandated minimum education funding, also known as “maintenance of effort,” will cost an additional $25 million over last year’s level. Also in the mix are the costs of new police, fire and non-uniform employee labor contracts, which have not been finalized.
And while the county has set aside some money to prepare for a potentially costly outcome to the tax case, an adverse decision could still cost extra millions, officials said.
Without a property tax increase, based on current estimates, county departments would have to cut spending by 6.1 percent to produce a balanced budget, county budget officials say.
The county’s broader economic picture is also cloudy. The housing market has yet to fully recover from the recession, according to county data. Home sales were flat last year, limiting revenue from real estate transfer and recordation taxes.
“At best what I see is a standstill budget, or a step back,” Leggett said.
He told community activists last month that budget constraints would make it hard to keep a campaign promise to commit 2.5 percent of property tax revenue to affordable housing. He has delivered similarly downbeat messages to audiences at other budget forums, warning that absent new revenue, there will be difficult choices on spending.
“I’m prepared to say to the people of Montgomery County, here are the options,” Leggett said. “Do you further invest in education, do you further invest in libraries and roads and all the other things that we have? Or do we take a bigger step back?”
Antonio Olivo contributed to this report.