Hybrid tax plan to close county budget gap

Hybrid tax plan to close county budget gap

(May 22, 2015) After contentious discussions, failed motions and other agonizing over the best way to fund the 2016 budget, the Worcester County Commissioners on Wednesday agreed to, a plan that will involve increases in both the property and income tax rates.

The final plan calls for a property tax rate increase of 6.5 cents per $100 of assessed value, taking the current rate of 77 cents up to 83.5 cents. In addition, the commissioners agreed that the piggyback tax rate will go from 1.25 percent of taxable income to 1.75 percent.

The piggyback tax structure in Maryland was recently declared unconstitutional by the U.S. Supreme Court, but that didn’t do away with the system, just mandated changes.

This plan also has not yet been formally adopted, and is expected to be ratified during the June 2 public meeting of the county commissioners.

He commissioners had asked their staff to produce three scenarios, based upon savings realized primarily from cutting funding for teacher and county employee raises for the coming year.

On the income tax side, the commissioners requested bumps from the existing state-low rate of 1.25 percent to 1.5, 1.75 and 2 percent. County Administrator Harold Higgins said staff recognized quickly that the 1.75 rate was the way to go, but didn’t elaborate on the reasons nor did the commissioners question his findings.

On the property tax side, the staff explored rates of 6, 6.5 and 7 cents higher than the existing rate. Higgins recommended the 6.5 cent rate, and said it was the one that most aligned with the commissioners’ stated desires of funding flat budgets and replenishing budget stabilization funds.

The goals, Higgins said, were to keep the budget stabilization fund “muted,” or unspent, until 2018 and to replenish the fund to bring the balance back to around $10 million. It is also an election year for many on the board.

The current year’s spending relied on a budgeted $6.5 million use of stabilization funds, but estimates made public for the first time on Wednesday revealed the amount spent was greater than $8 million. Budget stabilization funds are spent last to keep the lights on at the county when regular revenue ran dry.

Commissioner Chip Bertino was the champion of the flat 8-cent property tax hike, which he said allowed the county to do everything it wanted to do without reaching into people’s paychecks.

“In the abstract, it looks like it balances out, but simple kitchen table economics says this isn’t true,” Bertino said.

His figures bore him out as he provided an example that showed that the owner of a house assessed at $225,000 would pay an estimated $180 more in property taxes annually. Meanwhile, that half a percent increase in the income tax on a taxable income of $60,000 would cost the family a total of $309.

While persuasive, the commissioners ran through several other scenarios involving increasing rent, grocery costs, insurance rates and other expense factors, and ultimately discarded Bertino’s plan.

“We’re not going to make everyone happy. We need to find something where the state isn’t going to look at us and see the richest people in the world,” Commissioner Diana Purnell said.

Bertino made a motion of his property-tax increase only plan, which failed due to lack of a second. Commissioner Ted Elder made a motion to adopt a 6-cent hike in the property tax coupled with the suggested income tax increase to 1.75 percent, which also failed due to a lack of a second.

At least two full minutes passed without further comment. Eventually, Commission Vice President Merrill Lockfaw made a motion to accept staff’s recommendation of a 6.5-cent hike to property taxes and the proposed income tax adjustment.

The vote was 6-1 with Bertino against. The commissioners then voted to cancel the scheduled May 26 budget work session, signaling that major work on the budget was, for all intents and purposes, complete.

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