Tax Reform

While not initially a campaign pledge, tax reform has become a priority for me during year two. In 2018, many residents experienced a sharp hike in their tax bill as a result of the County assessing our home prices substantially higher than they were in the past. For example, a home that used to be valued at $200,000 suddenly found itself valued at $400,000. Even though the City actually lowered our tax rate to .83 cents for every $100 of assessed value last year, the resulting price hike meant more assessed value to tax. For a $400,000, you pay $3,320 in city taxes.

For many residents, this sticker shock was unpalatable. While many newer residents can afford this increase, we have many residents who are senior citizens on fixed income. They did not foresee this increase, making it difficult to afford and even harder to age in place.

This is a tough one and it could be a multi-year process.

My goal is to give a $500 annual savings to a homeowner whose house is worth $400,000 (so your tax cut would be higher or lower depending on your home value...not exactly progressive, but it's what we are stuck with in part). If we cut our property tax rate in such a manner, our revenue from property tax would decrease from $3.2M (the bulk of our revenue) to $2.88M (still the bulk of our revenue). That means we have to find $400k+ savings in the budget.

Now, you can meet that goal in one of two ways – change what you tax or change what you spend. For this rub, I think we do both because of hard it is to load up on just one.

For changing how you tax, we could try and find a targeted way to tax large apartment owners without passing the tax onto renters.

For changing our expenses, I ask that we seek at least a 2% reduction in a way that is agreeable to all of the Mayor and Council. That amounts to a a $140,000 reduction in spending.

If we find $140,000 referenced above, that leaves us having to find just $272,000 by changing how we tax or making additional cuts to spending. I think we can get there.

Currently, the City has different tax rates depending on property type. For example, there is a tax rate for single-family home owners and a tax rate for multi-family units (e.g., apartment buildings). When determining how to set a reasonable tax rate for each category, the City has historically taxed the two the same. While simple and easy to understand, it may not be the best practice because one property type might be more expensive to provide services for than the other. 

To continue with the comparison of single-family homes and apartment buildings, there is a clear distinction in services provided by the City for each of these property types. For example, we do not service trash and recycling pick-up for the apartment buildings. As a result, one could say these apartments buildings should not be responsible for paying into that service. On the other hand, the majority of our police calls do come from our two largest apartment complexes, Kaywood and Queenstown. Furthermore, it costs more to run the Police Department than any other City Department, with the cost per employee far higher than any other department. The net result is a single-family tax rate that heavily subsidizes City services. 

It is important to also note that the owners of these apartment buildings are not strapped for cash. For example, Kay management, who owns Kaywood Apartments, owns large apartment complexes across the mid-Atlantic netting itself large profits. Considering they account for the majority of our most expensive City service, I think it is fair that these owners pay a little more in taxes. 

One could see drawing a line between these large complexes and some of our smaller multi-family units - e.g., those with units of 20 or less - as is the case with other jurisdictions; or we could considering implementing a special policing district. That being said, forcing large apartment owners to pay their faire share seems like a reasonable proposal if it can result in a lower tax rate for single-family home owners. 

The obvious downside with such a proposal would be the potential for increases in rent for residents in these buildings. Figuring out such probability or considering rent control measures will need to be part of the conversation. I do not pretend to have a solution, which may make this a multi-year process. Either way, I do not want to raise rents on lower or middle income families so I would prefer to find cuts to spending before increasing too much tax liability for apartment owners.

Overall, this will not be an easy conversation, and I do not pretend to hold the key. But taking a closer look at our spending while trying to diversify our tax revenue is worth the conversation. I do not want to force anyone out of their home because they can no longer afford City property taxes. That is not what being a community is about.

  • Luke Chesek
    published this page in Issues 2018-10-13 12:06:29 -0700

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