Pass the CARR Bill

Montgomery County faces a $297 million budget deficit. Prince George’s County is projecting a $100 million budget deficit. Baltimore City is seeing a 20-30% drop in recordation receipts and transfer taxes. So there is lots of talk in these jurisdictions and others of raising taxes and fees, freezing hiring and perhaps even delaying compensation increases for employees, all traditional methods of dealing with budget deficits. But new District 18 Delegate Al Carr has a better idea.

Carr points out that state law allows Baltimore City and the counties to set just one property tax rate that applies equally to all categories of real property. So in Baltimore County, for example, the county levies $1.10 per 100 dollars of assessed value regardless of whether the property is a house or a giant office building. Baltimore City’s rate is $2.27, again applied equally to housing or commercial properties. No county government is allowed to establish different rates for different property types.

Over the long run this can cause problems. Take Montgomery County. According to the county’s Department of Finance, residential property (including condominiums) accounted for 69.6% of the county’s total assessed value of real property in 1991. By 2007, that percentage had climbed to 76.8%. On the other hand, commercial property’s percentage of total assessed value fell from 30.4% to 23.2% over the same period of time. The state’s homestead tax credit limits tax increases on owner-occupied homes to 10% per year, but that merely delays tax increases rather than eliminates them. The bottom line is that, at least in Montgomery, the property tax burden has been slowly shifting from commercial owners to residents.

Maryland’s municipal governments, unlike the counties, are free to set different rates on different classes of property. The District of Columbia charges 85 cents per 100 assessed dollars for residential property and $1.85 per 100 assessed dollars for commercial property. A new Virginia law allows counties and cities in Northern Virginia to establish different property tax rates and Arlington County is considering doing so. Carr’s bill, HB 676 – cosponsored by Delegates Barkley, Bobo, Feldman, Gilchrist, Hucker, Kaiser, Lafferty, Manno, McIntosh, Montgomery, Tarrant, Taylor and Waldstreicher – would give Maryland’s counties and Baltimore City the same ability to establish different property tax rates that these other jurisdictions have. (District 18 Senator Rich Madaleno is sponsoring the companion bill in the Senate.) Hereinafter, this bill shall be designated the Commercial Assessment Rate Review (CARR) bill by the authority vested in me as the author of this blog post!

Won’t raising commercial property tax rates cause real estate and job losses? Not necessarily. Consider the District, which charges a commercial property tax rate more than double the residential rate. Commercial property manager Transwestern estimates the District’s office vacancy rate at 5.8%, one of the lowest rates in the country. Transwestern proclaims, “The District remains one of the top-performing areas in the nation with a strong tenant base, low vacancy rate and high barriers to entry.” Sounds like that higher commercial rate is really killing their economy.

And the CARR bill would even enable counties to lower commercial property tax rates below residential rates. Consider a county seeking to revitalize a run-down commercial center. Right now it could not do it through cutting the commercial property tax rate. With the CARR bill, it could.

The point is that this bill gives county governments new options for changing their revenue mix in good times and bad. And at this moment, Montgomery, Prince George’s, Baltimore and other jurisdictions need those options. Otherwise residential taxpayers and public employees could pay the price. So what are you waiting for guys? Pass the CARR bill!