If The Moyer Administration Is Our Guide, Property Taxes Need A Cap

A couple of weeks ago Mayor Moyer took the offensive against critics who say property taxes have been allowed to grow too rapidly under her administration. Due to my extensive experience with having money taken by the government, I feel uniquely qualified to rebut some of the claims made by the Mayor.

The editors noted, accurately, that the city's property tax rate was last increased in 1999 to 68 cents and that today it is 53 cents. This is a 15-cent reduction, something no other jurisdiction has achieved over the last 10 years.

The Homestead Credit is what allows the Mayor to make this goofy claim. So, the amount of property taxes you pay is calculated by the tax rate times the value of your house. If either one of them goes up, your taxes will go up. For the majority of the Moyer administration, the value of your house went up like crazy. The fact that the tax rate went down doesn't mean the city saved you any money. The reason that other jurisdictions haven't lowered the rate that much is that they limit the growth of the taxable value of your house to 2% per year, and the city lets it grow at 10% per year.

During the same period of time when property values were going up statewide, the county tax rate was going up by 2.1 cents. In fact, the county tax rate over the last 10 years - at 54 cents in 1999 after going up to 56.1 cents in 2005 - is now 1.7 cents less than the 1999 rate.

By law, a resident of AA County cannot pay an increase in property taxes of more than 4.5% over the previous year. This is due to the tax cap. Here are the collected property taxes in the city, going back to 2002, and the percent increase over the previous year:

2010 $34,536,000 (budget) 9.6%
2009 $31,489,000 (proj) 11.7%
2008 $28,190,000 12.7%
2007 $25,011,400 7.6%
2006 $23,245,060 6.3%
2005 $21,862,569 7.9%
2004 $20,248,310 6.3%
2003 $19,049,000 4.7%
2002 $18,187,380

THIS IS CRAZY! The best way to increase city revenue is to successfully lobby the state and county for more money. You know this wasn't happening because the Mayor doesn't even talk to the county executive. The next best way to increase city revenue is to increase fees because at least people can control how much they use and reduce their cost (water, sewer, etc.) The worst way to increase city revenue is to raise property taxes, because the citizen has absolutely no control over how much they are paying without moving, which is really hard to do. Look at those percentages! Remember, if we were looking at the county, none of those percentages would be more than 4.5%. Property taxes increased more in the city than in the county in every year of the Moyer administration.

If you live in the city, your tax bill includes taxes for all three jurisdictions. As the assessed property value rose, the state property tax rate went up, the county property tax rate went up and the city's property tax rate went down 15 cents. The city could have done what most jurisdictions did, and simply maintained or increased the property tax rate to really take advantage of increased value.

This is the ultimate pot-calling-the-kettle-black situation. The city took massive advantage of increased home value, allowing their assessed base to grow by 10% per year. Lowering the tax rate "mercifully" lowered the increase in your taxes to, say, the rate charged by a car dealership--instead of the rate charged by my credit card companies. In 2008 and 2009, the city maintained the tax rate in such a ridiculous fashion that your property taxes actually went up by MORE than the 10% which is inconceivably arrogant.

The editorial ends with, "Does Annapolis need elected officials who will reduce spending - or a law that does it for them?" The last statement suggests the editors have already started an argument for the city tax cap, an idea that would certainly lower our excellent AA + Bond rating, eliminate our stable economic outlook and eventually bankrupt the city. If the tax cap is their agenda then the editorial is an example of manipulation of public opinion.

I recently made the argument that a good bond rating is at least partially a measurement of the city's willingness to stick it to the taxpayers. The increase in property taxes proves my point. Contrary to what politicians might say, good finances can actually be achieved by cutting costs as opposed to always raising taxes. Hopefully the next Mayor will realize this, but since they probably won't, we need a tax cap to realize it for them.

Property Tax Cap!

My favorite politician is Herb McMillan, mostly because I agree with almost everything he agrees with, but also because he gives it to you straight. I once attended a campaign meeting for Herb where he was soliciting advice, and his own father-in-law told him he had to stop coming across sounding so mean! I love it.

Perpetually the fiscal conservative, Herb has spearheaded an effort to put a tax cap measure on the ballot. I originally decided to support the measure blindly, as a political courtesy. When people began debating the issue, however, I realized that some research and factual support would be necessary.

Then, a local yokel published an anti-tax-cap column in the paper, which immediately gave me a forum to broach the topic. I will first deal with the column, as well as the "the county can do it" argument, the "the county can't do it argument", and the "everybody hates taxes until they start losing services" (liberal) argument.

Guest Column: Life in Annapolis will be less pleasant if city adopts tax cap

In his 1964 acceptance speech for the presidential nomination of his party, the Republican icon Barry Goldwater made the point that the American people had made the mistake of following "false prophets."

I already don't like where this is going. In an effort to prepare myself for what I expect to be the sour tone of this article, I've poured myself a cup of grapefruit juice.

His solution was to "return to proven ways - not because they are old, but because they are true." Goldwater was talking about conservative principles, but his words could be applied to present day "false prophets" who are disingenuously seeking to apply a "tax cap" to Annapolis city's efforts to fund its budget.

This is the second mention of 'false prophets', a term used in religion to as a part of a profound belief system. Relative to the notion of false prophets, a municipal tax cap is mundane, and those seeking to apply such a cap are not "disingenuous"; but rather, "logical".

Furthermore, Goldwater's reference to false prophets, while perhaps a lesser degree of profundity then biblical prophecy, still was used to define the most essential philosophy of conservatism: the value of freedom over collectivism. Here is the context from the speech:

In this world no person, no party can guarantee anything, but what we can
do and what we shall do is to deserve victory, and victory will be ours. The
good Lord raised this mighty Republic to be a home for the brave and to flourish
as the land of the free-not to stagnate in the swampland of collectivism, not to
cringe before the bully of communism.

Now, my fellow Americans, the tide has been running against freedom.
Our people have followed false prophets. We must, and we shall, return to proven
ways-- not because they are old, but because they are true.

We must, and we shall, set the tide running again in the cause of
freedom. And this party, with its every action, every word, every breath, and
every heartbeat, has but a single resolve, and that is freedom.

The initiative is nothing more than a right-wing ploy to make it impossible for elected officials to address the needs of the city. The ''I've Got Mine'' crowd currently pushing for this misguided legislation likes to portray their efforts as nothing more than putting limits on "government waste." The truth is that tax caps end up limiting the ability of state and local municipalities to maintain a just and workable society.

It's a conspiracy! Right-wing extremists say they just want to keep more of their hard-earned money, but we know they want our society to crumble beneath our feet! I, for one, will never forget that government is wise, and will look out for my family just as well as I could if I were actually able to control my own destiny!

P.S.: rich people smell.

In a recent article (The Capital, July 6), one of the leaders of the cap movement made the point that, "If the county can maintain schools and provide public service with a tax cap, then so can the city."

Statements like this show just how out of touch with reality the tax cap proponents are with the conditions in Anne Arundel County.

Note: the "county is/isn't doing it" argument will be covered below.

First off, anyone who knows anything about our schools knows we are not maintaining them on any acceptable level. Far too many of our children attend classes in substandard conditions. In addition, the system currently has a billion dollar maintenance backlog. The county executive's consistent answer to this tragic situation has been to throw up his hands and remind everyone that Anne Arundel is "a tax adverse county."

The city of Annapolis has a maintenance backlog without a tax cap, and without any semblance of a responsible homestead credit. City property taxes are allowed to rise meteorically. Conclusion: the maintenance backlog is more a function of management than constraints of a tax cap.

When a city limits taxation it makes the rich richer but at the same time it makes it difficult, if not impossible, to maintain the services and institutions that allow communities to remain viable.
If you don't believe it take a look at California, that state is currently operating under a misguided initiative instituted in 1978. This "cap" on property taxes has forced the Golden State to deny medical care to 1 million children, cut college scholarships, shut down countless state's parks, end benefits to welfare recipients and lay off thousands of state employees.

Enough! When a city limits taxation, it makes EVERYONE richer. Every time somebody wants to lower taxes, a liberal claims that essential services will grind to a screeching halt. Police, fire, and schools are not what will be cut; instead, maybe the government will stop paying over a million dollars to fix a door. And California? California! No doubt the state is experiencing losses related to business cycle downturns, but the cuts you mention have been driving the budget deficits that are crippling California. This from an article in The Economist on July 9:

High taxes, coupled with intrusive regulation of business and greenery taken to
silly extremes, have gradually strangled what was once America’s most dynamic
state economy.

Our American Revolution was fought largely to protest unjust levels of taxation. It is also true that politicians sometimes go too far in their demands for additional revenues. People of all political stripes need to understand there are times when it is both prudent and appropriate to raise taxes.

There is also a time where it is both prudent and appropriate NOT to raise taxes, perhaps when the entire world is in recession, unemployment is at it highest level in 26 years, NOW, etc. Frustratingly, most politicians don't understand this. Even if their idea to invest or spend more is not wholly awful and worthless, they feel pressure to make their name and fully ignore the timing of what they are trying to do.

Since the age of Ronald Reagan, countless false prophets have tried to make us believe we could have both low levels of taxation and a high quality of life. Unfortunately, modern schools, roads, and police and fire services cost money to maintain.

Note to scared readers: police, fire, and roads will still exist in the land of a tax cap. Remember that a tax cap doesn't even cut taxes!!! If you listen to liberals, you might think that the money taken from you by the government is decreasing!! GASP!! Not the case...the tax cap would only limit the growth of how much they can take from you (to the lower of the rate of inflation or 4.5% per year).

Those who tell us we can have the aforementioned and still place limits on the amount of revenue a county or city takes in are living in a dream world. When politicians go too far in raising taxes the problem should be solved through the ballot box.

It's too bad that the problem of confusing newspaper columns can't be solved through the ballot box. Here is a summary of the logic of that last paragraph:

essential services + limited government = dream world. (wrong logic)

politicians who raise taxes = should be voted out. (good logic)

taxes should be controlled by elected politicians and not a statutory mandate. (implied logic that if stated would have made the paragraph more understandable, although still wrong, because politicians cannot be trusted to spend money wisely as a general rule).

In short, when it comes to solving the modern day problems in our county the financial hands of our leaders are tied. If the residents of Annapolis are smart they will avoid making the same grievous error and ensure that city leaders have the ability to raise the revenues required to allow our city to grow, thrive and most importantly maintain the ability to meet the almost certain challenges of the 21st century.

If there is anything that our leaders have figured out, it's how to raise revenues (taxes).

I'm done with this columnist from Severna Park, but if you're not, you can read HERE.

"The County Does It, So Can The City"

This argument will be at the forefront of the argument made by supporters of the tax cap. The county executive described Anne Arundel County as a 'tax averse county', and the data would probably support that. The homestead credit is 2% (city of Annapolis: 10%), there is a property tax cap (city of Annapolis: no cap), and the piggyback income tax is 2.56%, which is the second lowest of all 23 Maryland counties.

Further support of this argument lies with the fact that the city does not have schools. The city's main operating expense is labor (about 85% of the budget), and the problem of maintenance backlogs can be addressed through the capital budget.

"The County Really Can't Do It"

Opposition to the tax cap argues the point that the county really can't sustain a tax cap. County budget officer John Hammond acknowledged that a "fair criticism" of the tax cap was the hardship it placed on keeping up with repairs, particularly to schools.

"People Always Complain About Taxes Until Their Trash Doesn't Get Picked Up"

I wish I knew how many unnecessary taxes were paid because some politician scared the voters into thinking that the hospitals would turn them away unless taxes were raised immediately. Governor O'Malley was able to increase sales taxes by 20% as a measure to balance the budget, only to concurrently pass some health bill that spent another $500 billion in new money.

The most important thing to remember is that the tax cap does not propose to cut tax revenue! It only proposes to limit its growth to what can be considered a fair level. If the city can't figure out how to maintain the same level of services with a guaranteed income stream that increases by 4.5% every year, then I will be happy to explain it to them for a very reasonable price.

Who Is Right?

I really, REALLY would like to say that supporting the property tax cap is a no-brainer. The only reason why it's a slight-brainer is that the city's only means of taxation is the property tax--they don't have sales tax, or income tax. Maybe it's because I had too much grapefruit juice, but I figure I should verify that the city's hands are sufficiently untied to meet the service requirement of the citizens. Tragically, I had to do some research, but I feel comfortable to present the reasons to support a property tax cap in Annapolis. While writing these reasons, you will see that many of them overlap with other aspects of city government, or perhaps reforms of city government. Issues don't exist in a bubble, and it's beneficial to see each issue as part of an overall vision of how local government should be executed.

-The city is not losing any money. Limiting the growth of something is way different than reducing it. I couldn't find data for Maryland (after looking for like 45 seconds), but judging by the national data, the rate of inflation will fall below 4.5% and be the cap on property tax revenue. The city can control the property tax rate, so they still have control over property taxes (subject to the cap). If you think inflation rates would be low and you wanted to play it safe, you could set the cap at the rate of inflation plus 1%, with a max of 4.5%. It would still be better than the current situation, which saw the budget increase by 6-8% in most years of the Moyer administration. In any case, the budget would still be allowed to grow.

-Services can be sustained. In other words, I am not convinced that the city is on the brink of financial disaster, and I am convinced that there are areas that can be cut before essential services would be affected. The Moyer administration was characterized with expansion, the pinnacle of which is probably the Department of Economic Development. With a director, a staff, and a healthy special projects budget, the department is good for over a half-million dollars in cost. And that doesn't include the rent on their building on West St., which is somehow listed as "0". Eliminating this department would be a great place to start, and would provide significant savings without affecting essential services.

-The city will be forced to become more efficient. There's nothing like a law to change the way you do things. How can the city become more efficient? Cutting jobs is certainly one way. To look a step further, there is perpetual talk about combining services with the county: police, fire, public works, etc. The county headquarters lies in city limits, for goodness sake. A tax cap would encourage the city to take a real look at this and could provide savings to the taxpayer.

-The city will have to find creative ways to secure revenue. 'Governments getting creative with revenue' is normally a scary thing, but the city is fortunately constrained by jurisdiction. Lobbying efforts to get money from the county and state would gain more importance, and fees for the Enterprise Funds (water, sewer, dock fees, parking fees, etc) would probably increase, but at least the taxpayer could control how much they use those services. Perhaps more importantly, the city would be forced to look to expand their tax base. This could come through annexation, or through property already within the city limits: public housing. Many Annapolitans would cite public housing as centers for crime in the city, and many would support a reduction in public housing. A property tax cap would certainly be better received if it was accompanied by a reduction in crime and an increased tax base.

-The city will have to find creative ways to cut costs. Similarly, I envision a world where the city would be forced to make a significant structural change to the benefit of the taxpayers. The number one driver of costs is labor (salaries and benefits), and the determinant of that is union contracts. A property tax cap would give the city negotiating position with the unions to say "hey, we can't give you everything you want, because we have to comply with this law".

-Lower property taxes will attract businesses. Since we will be eliminating the department of economic affairs, we have to figure out a way to develop the economy! Lower property taxes will do this. Lower property taxes will mean lower rents, lower fixed costs for businesses, and an easier pill to swallow for entrepreneurs making risk/reward decisions. With competition coming from the neighboring county, this would be a welcome change to the business environment in the city.

-City economic situation will reflect overall economic situation. As noted, reliance on transfers and grants from other jurisdictions would gain more importance. It has been shown that in tough economic times, these transfers are reduced. The city, therefore, would be forced to cut back in tough economic times, which is also a welcome change. As it is, politicians seem to be oblivious to current economic circumstances, willing to incorporate tax and fee increases without remorse.

-Maintenance projects can be funded by bonds, and debt payments could be excepted under the cap. A maintenance backlog has been cited as an example of why the county's property tax cap isn't working. An astute observer (meaning someone who read the top part of this post) would note that the city also has a backlog, and does not have a tax cap. Bond funding for maintenance projects would still be available! As the city will tell you, they receive a very favorable interest rate on bonds, minimizing the cost of borrowing that money. Furthermore, debt service can be exempted when computing the spending allowed by the tax cap. Along with a requirement that bond funding be used only for infrastructure projects, this would allow the cap to work while permitting investments in infrastructure.

City Council Meeting 10/27: Live Blog

Yes, live!

This is a public hearing meeting, which ironically means that there will probably be less public speaking than at a regular meeting, because at least at this meeting people have to talk about what's on the agenda.

7:01

Yikes, the Maritime Republic of Eastport is here. They have children, confirming the worst fears of mainland-ers that they are developing a youth indoctrination program. Their annual Declaration of (Tug Of) War will come be expressed in a battle on November 8.

7:10

The city just received a grant that will allow them to buy yarn. I'm sure I'm leaving out some relevant information but that's what struck me.

7:11

We are now being treated to a presentation on the Legacy of Slavery in Annapolis. There is a screen, and a projector--likely causes of "a case of the Mondays" for the MIT department. The right side of the room must now move to the left side, because the screen is set up on the right side of the room. Lesson: when looking for factual information, always look to the right.*

(*Political pun!!)

7:15

The presentation has come to a halt because the presenter tried to access a web page and it says "page cannot be displayed". Finally, vindication!! Presenter: if you are reading this right now, I will sell you the secrets of my internet "borrowing" for $5, payable in $.05 installments for however long it takes.

7:17

As an aside, the pre-meeting conversation included the nature of the whereabouts of former city attorney Shaem Spencer, who is now a district court judge in Glen Burnie. I was informed that an unofficial city delegation was sent to heckle the honorable magistrate, a field trip that I imagine to be hilarious.

7:20

I noticed that Alderman Paone is drinking a diet coke--an endurance technique that I pioneered some 18 months ago when this blog first began. Well done, sir.

7:36

The presentation is over. I believe that now the public will be heard.

Bill: O-05-08, to correct a technical error in the code regarding free standing signs.
-P/Z director John Arason gives a brief.
-nobody speaks for or against.

Bill: O-18-08, more technical changes to.....wait for it......sign regulations!
-Arason testifies again.
-I dare say that the public is again, ambivalent. Alderman Arnett seems to know the deal.

7:42

I will send $2 to anybody who writes a comment while I am writing this blog. You only pay the $4.95 shipping and handling.

7:42:30

Of shipping and handling, which is the more expensive undertaking?

7:42:38

Handling!

7:44

My goodness, I think it's easier to make yourself a criminal in this town by putting up an illegal sign than anything else. If I were the Downdown Dictator (one of my pet name's for the office of mayor), the sign code would read like this:

15.535.9525 Signs:
If you put up a sign, we will grab 20 random people who passed by your sign. If none of those people say "that is a dumb-ass sign", or "who thought this would be OK?", then you can keep the sign.

7:50

Alan Hyatt, a local mogul, is representing Shopper's Food Warehouse--who apparently have been aggrieved via signs.

7:52

For the record, my favorite signs are THIS ONE (watch for immigrants cross the road!), and THIS ONE (not overly wordy, yet you understand completely the choice you have to make.)

7:54

Classie Hoyle, whose ward this concerns, has not commented at all during this exchange.

7:56

Bill: O-30-08, clarifying the duties of DNEP and the Public Works Administration.

-an unidentified employee is testifying.

-small government tip of the day: if two government departments can't figure out who does what, maybe one of those departments doesn't need to be there

-since when was Public Works an 'Administration' and not a 'Department'?

-a man with a briefcase is talking about sprinklers. I don't know why this is relevant, but then again I haven't read this bill, and he just referenced the bill, so he is probably making a valid point.

8:16

I haven't stopped blogging, I've just stopped paying attention to the meeting. I plan to be interested soon.

8:23

Ok, I read O-30, and there is a provision that changes the requirement to install sprinklers from a renovation that exceeds 50% of the market value of a house to a renovation that increases living space by more than 50%. I don't know if this is the first time this came up, but people are really focused on it.

8:30

Bills: O-31-08 and O-34-08, reducing the Homestead Credit to either 1o5% or 102% depending on which bill you like

-Doug Smith: reduce it to 102%

-Mayor Moyer suggests that the 110% level is necessary to achieve the level of services that the citizens have come to expect.

-Randy Landis (who gets called "Gimpy" by the mayor on the way up to the podium): also likes both proposals, likes the reduction to 102% better

-fyi, for the purposes of this bill, 102% means that the tax-assessed value of your house cannot increase by more than 2% each year. currently, it can increase by 10% (or 110% using the semantics of this bill)

-Mayor Moyer applauds herself for reducing the property tax rate, a statement that doesn't
matter

-Mike Dye: in favor of both, don't care which percentage is chosen as long as any effort is made to lower the percentage. the real purpose of this is transparency (because if the Homestead Credit is low, then you can only increase taxes through the rate, and everybody knows about it). Mike is taking some direct shots at the mayor on this because she let the credit be 10% then claimed to lower taxes because she lowered the rate.

-Brian Gill: the transparency argument is a good argument.

-Mike Dye: "I have heard a host of excuses!". Brilliant! The Mayor keeps saying "don't just complain to us, because the state and the county do it to", and Mike says "right now, I'm worried about the city". Very awesome.

8:47

I lost track of where we are because a luminary came to speak with me.

Ok, nobody spoke about O-32-08 (City of Annapolis Exempt Service) or O-33-08, a confusing bill that I will post about soon.

8:51

Legislative Action!

O-24-07: Sandwich Board Signs!! Specifically where and when they are allowed. WITHDRAWN.

R-45-08, job description and pay grade for elections board position. PASSES. 9-0 vote.

R-52-08, creating a historic West St. gateway committee.

-Alderman Stankivic proposes an amendment that there should be a person from each ward on the committee, and somebody who may or may not work for the city is at the podium arguing against this. So, the city is arguing with itself on this amendment.

-The above mentioned person just named like 300 people who are already on the committee, and Alderman Paone just said "well, it sounds like you have everybody represented but the residents", and I just upgraded to the platinum membership to the Alderman Paone fan club.

-Alderman Cordle: this is a moot point because the state owns part of the road.

-The '1 person from every ward' amendment passes (I think).

-bill PASSES. 9-0 vote.

9:06

Alderman Stankivic excuses herself.

R-54-08 (first reader), Establishment of a Council Compensation Commission. passes/referred to committee. Rules suspended and this bill PASSES on second and third readers. 9-0 vote.

9:08

Adjourned.

Mayoral Candidates Compete To Lower Homestead Credit

When I first got in on this blogging game, I made a promise to myself: if ever I got 48 comments on a post before making another post, I would retire. The last post has 47 comments, so here we are.

Economic theory suggests that countries, or other sovereignties, may engage in a "race to the bottom", a phrase describing a phenomenon of continuous reduction in taxes and regulatory burden that is supposed to attract capital investment to the country that 'finishes first' and has the least burdensome business environment. Think Cayman Island and Swiss bank accounts.

Limitations of the race-to-the-bottom theory usually involve logistical costs. For example, a business or person wouldn't relocate from Annapolis to Annapolis Royal (Canada) for a tenth of a percent off of property taxes. However, a person has great financial incentive to move outside of the Annapolis city limits. I took advantage of this incentive, and I now write the leading "outsider" and the #7 "maverick" blog involving city of Annapolis politics from a non-resident.

The incentive is lower property taxes.

(Post intermission: Property taxes are asinine. So are income taxes, and many more. Consumption (sales) taxes are the most efficient and the most free-market/free-will way to go. I've always felt this way, but then I read the Fair Tax book by Neal Boortz, and now I really feel this way.)

As we know, there are 2 things that determine how much property tax you pay each year: the property tax rate (PTR) and the tax-assessed value (TAV) of your house. For you math lovers:

PTR x TAV = $$$$$$$ out of your pocket

The rate is the more straight-forward of the 2. The council sets the rate in their infinite wisdom and goes on their merry way. But, even if the rate doesn't change, we could still get screwed. Houses are assessed every 3 years. During real estate bubbles, some house values double over that time. Luckily, the government recognizes that people's incomes will almost never double in 3 years, and they offer protection in the form of the Homestead Credit. The state mandates that the assessed value of a property cannot increase by more than 10% each year. Local jurisdictions are free to lower that percentage, but they cannot raise it.

Anne Arundel County has further lowered the Credit to 2%. Race-to-the-bottom theory would suggest that the City of Annapolis might do the same; yet, true to form, the city has left its rate at 10%.

Three aldermen, in the form of 2 separate bills, have sought out to remedy this. Alderman Israel, a mayoral candidate, introduced O-31-08 which would drop the number to 5%. As required by the Republican National Committee, Alderman Cordle (another mayoral candidate) and Alderman Paone (a crafty and rather tall Ward 2 rep with a fan club on this blog) have sponsored O-34-08, which is the same thing except the number is 2%.

I have a hard time believing this is anything other than election strategy (but that doesn't make it bad). All of these people have had plenty of time to officer this ordinance in the past--they didn't, and it's not because they didn't know it was important. In the last mayoral election, Independent Gilbert Renault got like 2,700 votes and finished second to Moyer by only a few hundred--running a campaign that's only issue was lowering the Homestead Credit from 10% to 4%*.

(*"only issue" is a reach, but that was the main thing)

I don't care who passes it, but the lower, the better.

City Taking Steps To Affect Structural Budget

The original title of this post was to include the word "problem" at the end, but then I realized that there wouldn't be a problem if there was responsible leadership, and I didn't want to mislead my loyal public.

In any case, the city is taking a positive and proactive step to improve its financial situation. It has created a blue ribbon panel* to investigate certain aspects of the city's finances. The bill was sponsored by Alderman Israel, which means that it was well researched and/or based on viable theory. The rest of the city council is always eager to look as if they are part of such excellent research, and they ALWAYS request to be added as co-sponsors to Alderman Israel's legislation. In this particular case, comically, every other alderman plus the mayor are listed as co-sponsors to the bill.

(*I am so tickled by the phrase "blue ribbon panel". It reminds me of a prize pig a state fair. In 1998, I made a New Year's Resolution that one day I would commission a Blue Ribbon Panel to investigate the difference between a sun-roof and a moon-roof.)

The story goes like this. Annapolis is in a unique tax situation--it is home to many state buildings, many public housing projects, and many Naval Academy buildings--none of which are subject to property taxes. The state government (and I think the county government as well), instead pay PILOTs, which are Payments In Lieu Of Taxes. But, nobody has ever crunched numbers to see if the PILOTs offset the value of the lost property taxes, PLUS the value of the services that the city provides these to these locations, such as police, fire, water, sewer, and shoe-shining.

The unfairness of said situation is somewhat widely acknowledged, at least by city officials. The sidewalk tax was an attempt to circumvent this problem, with bills sent to every property owner in the city--even the ones exempt from property taxes.

(Post Intermission: Legislation in general is typically worded as follows. First, the word "whereas" is listed any number of times, followed by various, typically vague, assertions. Later, the phrase "Be It Resolved" is used, and is followed by what would change if this bill were to be adopted. In a perfect world, the 'be it resolved' changes would be at least partially justified by the 'whereas' facts. Example: Whereas dogs do not wear makeup, and whereas one of my friends misguidedly opened a dog cosmetic business, be it resolved that every dog must wear makeup in public so my friend won't go out of business.)

This bill basically says: whereas we don't get as much money as we should, be it resolved that several citizens determine how much money we should be getting, so come budget time we can ask for that much from the institutions that don't pay taxes. At least that's what I hope it's saying.

Another Property Tax Post

The more I think about it, the more I am convinced that Mr. Burdon is incomplete in his argument that we need to focus on the property tax rate.

A 10% property tax cap is plain too high. People's income does not rise by that much money, and to say that they will be able to afford 10% higher taxes because of the future value of their house is to recklessly claim accurate knowledge of future markets, as well as penalizing a smart investment. And expecting politicians to accurately compensate through a lower rate is overly optimistic.

My other issues with property taxes are within the realm of normal spending restraint parameters.

Property Tax Confusion

Scott has this comment on the last post regarding property taxes:

Taking into account 'constant yield' - does that make any sense in the real world? I am over-simplifying, but tell me if I am way off in my argument.

I think the revenue HAS to go up. Firemen and Policemen are paid via property taxes. If the yield is constant, than there will never be an increase in pay for these people, nor will they be able to buy new equipment, because the amount the city takes in never increases. In theory the city takes a little extra to cover growth in expenses, and floats bonds to purchase new firetrucks, etc. But things get more expensive over time, so in theory the amount of money the city has to spend on those things has to grow concurrently, or you get deficits. Bear in mind, I only took the 2 required Econ. classes (and no Public policy was offered) when I was in school, so I admit my argument may be full of holes.

His point is absolutely correct.

Property tax revenue must go up over time. Even if we pay for new fire trucks, etc. with bonds, we still will need more property taxes to service the bonds (which means making monthly payments to 'pay back' the bond holders).

And the nature of prices is to go up--nobody would make the point that taxes should remain at a constant level.

The purpose of the constant yield tax rate is entirely informational--to let the public know how much their taxes are being increased. The value of your house goes up over time, so over time the city's taxable base also increases, as the taxable base is comprised of the total value of everybody's houses (and the total value of all business properties). So, if the taxable base grows, and the property tax rate stays the same, the total property taxes collected increases.

Going a step further, if the taxable base increases by a lot, then the city could actually collect more property taxes even with a lower property tax rate. The constant yield rate will tell us the rate that will give us the same taxes as last year, so that we can see by how much our property taxes are going up.

In other words, if last year the rate was $.50 per $1000 in value, and this year's rate is $.45, a politician could make the claim that they lowered rates. But, if the constant yield rate is $.40, they actually raised rates by $.05 more than last year's equivalent.

Again, the constant yield rate is for informational purposes.

The point that I tried to make was that capping increases in assessed value at a very high 10% per year creates unnecessary confusion, and we could be better served by a lower cap, say 2% or 4%.

Property Taxes

The city’s main way to get money from you and me is property taxes, and there are 2 things that affect the property taxes that we pay every year: the assessed value or assessment of our house, and the property tax rate. (Counties collect property taxes as well, but also enjoy piggyback income taxes.)

The Way It Works.
Let’s start by explaining the assessment. The SDAT (State Department of Assessments and Taxation) comes to your house once every three years and decides what it is worth. The SDAT tells the city how much your house is worth, and the city taxes a certain amount per $1,000 of assessed value.

Now, let’s consider the case of rapidly rising assessments, like we had for the first 5 years of this millennium, where the assessed value of some houses doubled during the 3 years between assessments. In cases such as this, the property taxes you pay, by law, cannot double. The maximum increase in annual assessed value allowed by the state is 10%, and naturally, Annapolis uses that maximum value. Anne Arundel County, by comparison, caps it at 2% (I think. But it might be 4%. It’s definitely way less than 10%). So, if your house in Annapolis used to be worth $500,000, and 3 years later it’s worth $1,000,000, you will “only” have to pay taxes on an assessment of $550,000 ($500,000 plus 10%).

(The next year, you will pay taxes on $605,000, which is $550,000 plus 10%).

Now, for the rate. Maryland has a system called the constant yield rate, which is supposed to give taxpayers a voice in how their property taxes are determined. Once the SDAT has the total amount of assessments for a given year, they tell the county or city what property tax rate they should charge that will result in the same dollar amount of property taxes as the year before--a constant yield. So, if the city of Annapolis had $100 million in assessments last year and taxed them at $.50 per $1000 in assessed value, then this year’s assessments total $200 million, the property tax rate would drop to $.25 per $1000 in assessed value, because that would provide Annapolis with the same amount of property tax revenue. Over time, assessments increase, and rates decrease.

(Note that this can only happen theoretically, because assessments can only increase 10% per year for tax purposes. But you get the point.)

How, you might ask, would a city raise taxes under the constant yield system? If a municipality wants to collect more in property taxes than they did the year before—i.e. if they want to charge a rate higher than the constant yield rate—they have to notify the public and hold hearings. Then they can raise it to whatever they want.

The Policy Question
As we know, there are 2 ways to affect how much people pay in property taxes: increase in annual assessment and rate. So which one do we change when we want to affect tax policy?

I recently spoke with Bob Burdon, who is the commander-in-chief of the Annapolis/Anne Arundel County Chamber of Commerce. He has argued over the years that we should focus on the rate, because that is what determines how much we have to pay. He is at least partially right—whether assessments increase by 10% or 2% per year, if the rate is high, at some point we are going to have to pay the piper.

But AP is not convinced that we should spend all of our efforts focusing on the rate alone. And the main reason is that I just don’t trust politicians enough.

When assessments rise by 10% every year, property tax rates go down, but they rarely go down to the constant yield rate. So, we are paying more in property taxes. And have you every been formally notified by the government? Have you been invited to any hearings as required by law? Have these hearings even occurred?

Politicians can make the claim that taxes went down under their stewardship, because the rates go down according to constant yield principles. But we are paying more! If the increased assessed value was capped at 2% or 4%, the politicians would have to focus more on the rate if they wanted to raise taxes, and it will be easier for people like us to see what is going on.

This is slightly boring and confusing, even for a person with a high dork quotient like myself. But it is very important. My points are this:

-Don’t believe anyone who tells you that your property taxes are going down.
-10% increases in assessments are too much.
-We should focus on the rate AND the increase in assessed value.