Friday, June 16, 2006
The tax cut that wasn't!
Last week, the Frederick County commissioners approved a $436.7 million operating budget for fiscal year 2007.
The budget included a change in the county's property tax rate that has been touted as a tax reduction for Frederick County property owners. If that's all you heard about this last minute election year maneuver, you might assume your tax bill will be lower next year.
But it turns out that is not necessarily so.
In addition to lowering the property tax rate across the board, the county commissioners eliminated a $100.00 per home property tax credit.
When put together - the rate cut and the elimination of the credit - it turns out that the only people who will actually be seeing a tax reduction are those who own homes assessed at more than $600,000.00.
Here is an excerpt from the Frederick News Post article ("Budget gains narrow approval") the next day:
Commissioner Jan Gardner shared Mr. Reeder's wariness of the tax rate. She handed out a two-page document of calculations to underscore her argument that setting the tax rate at the constant yield would only benefit homeowners with houses worth $600,000 and more.
Owners of homes worth less than that would get an increase in taxes, Ms. Gardner said, primarily because commissioners eliminated a $100 per home property-tax credit from this year's budget.
The bill for a $200,000 home would increase $65, Ms. Gardner said. Owners of a $600,000 residence would pay an additional $3 on their bills. The owner of a $1 million house could expect to see a $72 reduction in each year's tax bill, according to Ms. Gardner's math.
The wealthy will benefit at the expense of the average homeowner, she said.
"I think that creates a significant social injustice where we're asking the average person to pay more taxes and in theory (allowing) the wealthier people to pay less taxes," she said, adding that she had supported a $225 tax credit proposed early in the debate.
"The average person in the county would be better off with that," she said.
Owners of homes worth less than that would get an increase in taxes, Ms. Gardner said, primarily because commissioners eliminated a $100 per home property-tax credit from this year's budget.
The bill for a $200,000 home would increase $65, Ms. Gardner said. Owners of a $600,000 residence would pay an additional $3 on their bills. The owner of a $1 million house could expect to see a $72 reduction in each year's tax bill, according to Ms. Gardner's math.
The wealthy will benefit at the expense of the average homeowner, she said.
"I think that creates a significant social injustice where we're asking the average person to pay more taxes and in theory (allowing) the wealthier people to pay less taxes," she said, adding that she had supported a $225 tax credit proposed early in the debate.
"The average person in the county would be better off with that," she said.
One has to wonder if the commissioners who voted to lower the rate AND eliminate the credit believed they could take credit (in an election year) for cutting taxes, even though most homeowners in the county will see their property tax bill go up?!
Below is a Letter to the Editor from Commissioner Jan Gardner about this, an email from her explaining the issue in greater detail, and a set of tables that compares the fiscal year 2006 and 2007 tax burdens for homes of various assessment levels.
| LETTER TO THE EDITOR of the FREDERICK NEWS POST: The tax cut that wasn't! Friday, June 16, 2006 ByJan Gardner Frederick County Commissioner Tax cuts for the rich and tax increases for everyone else! Does this sound fair to you? The Frederick County Commissioners recently reduced the property tax rate from $1 per $100 of assessed value to the constant yield rate of $0.936 per $100 of assessed value. Thus, residents expect their upcoming July tax bills to be lower than last year. Guess again! Unless you own a home that is taxed at an assessed value over $600,000, your tax bill is going up! The reduction in the property tax rate was coupled with the elimination of the existing $100 flat tax credit on all owner-occupied properties. Since the tax rate reduction is worth less than the $100 tax credit for properties with assessed values less than $600,000, these property owners will experience an increase in their property tax bill. For example, property owners with property valued at $200,000 will pay $65 more; with property valued at $350,000 will pay $40 more; and, with property valued at $500,000 will pay $14 more. Meanwhile, a property owner with a home valued at $1 million will pay $72 less and those with a home valued at $750,000 will pay $29 less. I proposed increasing the $100 tax credit on all owner-occupied properties to $225 or providing a combination of a tax credit and a tax rate reduction. Commissioner Bruce Reeder also supported this approach. A social injustice has been perpetuated on the residents of Frederick County. The commissioners have approved a tax cut for the rich, while raising taxes on the majority of Frederick County citizens. This should be remembered as the tax cut that wasn't!. |
| Follow up email from Commissioner Gardner (to undisclosed recipient): From: Jan Gardner <jgardner@fredco-md.net> Date: 16 June 2006 3:18 p.m. Thank you for your e-mail regarding my letter to the editor about property taxes and the exchange on this topic on the FNP forum. The purpose of my letter to the editor was to let the general public know that most citizens will not experience a reduction in their FY '07 property tax bill as compared to their FY '06 tax bill even though the tax rate was reduced by 6.4 cents to the constant yield rate. The tax rate reduction was coupled with the elimination of the $100 flat tax credit on all owner occupied residential property tax bills. All residential property owners will also experience an increase in their property's assessed value capped by the commissioners at 5%. Properties with taxable assessed value over $600,000 will experience a reduction in their tax bill from the lower tax rate because the reduction is greater than the $100 tax credit, while properities with taxable assessed value less than $600,000 will see an increase in their tax bill even with the lower tax rate because the benefit of the tax rate reduction is less than the $100 tax credit. Attached is a chart comparing several examples of tax bills from one year to another. I would note that I assumed that all residential properties will experience an increase in assessed value capped at the 5% rate. This is certainly a reasonable assumption since property values have risen significantly each of the last several years. These numbers were reviewed by the County Finance Director and the County Manager for accuracy. This chart was also distributed and discussed in a public session. Cliff Cumber included some of this information in a FNP article written about the budget. Thus, this is not really new information. Your question was specific to an example of a home valued at $300,000. In year one or the current year, the house would be taxed at $1 per $100 of assessed value resulting in a tax of $3,000. When the $100 flat tax credit is applied, the net property tax bill to the homeowner in the current year is $2,900. In year two or the upcoming year, the house would have a taxable assessed value of $315,000 ($300,000 x 1.05 to reflect the 5 % capped increase in assessed value). The $315,000 value would be taxed at $.936 per $100 of assessed value resulting in a tax bill of $2,948. Since the $100 flat tax credit has been eliminated, the net property tax bill to the homeowner in the upcoming year is $2,948 or $48 more than the current year. This is an accurate comparison of one year's tax bill to the following year's tax bill taking into account all known changes. Commissioner Reeder and I supported a motion to increase the flat tax credit to $225 while maintaining the $1 tax rate. Under this scenario, the same $300,000 house in your example would see their tax bill go up but by a smaller amount. In the current year, the tax bill would be $2,900 on the $300,000 home same as above. In the upcoming year, with the 5% assumed assessment increase to $315,000 and the $1 per $100 of assessed value tax rate, the property tax would be $3,150 less the $225 flat tax credit for a total tax bill of $2,925. The tax bill from the current year to the upcoming year would increase by $25 but would increase $23 less than under the adopted scenario (described in the preceding paragraph). Another option discussed but not adopted was to maintain the $100 tax credit and lower the tax rate by some amount less than the adopted 6.4 cent reduction. This would have provided a more even benefit from the combined tax reduction to all property owners rather than providing a greater percentage benefit to those with more expensive homes. I believe this would be more fair and equitable. I hope this explanation is helpful. Please let me know if you need additional information. You are welcome to post this information including the attachment on the FNP forum. Interested persons can e-mail me at jgardner@fredco-md.net. Citizens who doubt this math can certainly wait until the first week of July and compare their new tax bill to last year's tax bill. I assure you that everyone with a home valued at less than $600,000 will see their tax bill increase, while those with homes valued in excess of $600,000 will see their tax bill decrease. This outcome seems unfair to me. I am on record supporting tax reduction. I simply supported it in a manner that I believe was more fair and equitable. Regards, Jan Gardner Frederick County Commissioner |
| From: Jan Gardner <jgardner@fredco-md.net> Tax Reduction Realities/Comparison
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As a lifelong resident of northern Frederick County, I know Kai Hagen will represent my interests as a Frederick County Commissioner. His dedication to our community, his commitment to finding the best solutions, and his integrity are unsurpassed. If you're looking for a County Commissioner who will finally stand up to the developers, and stand with us, someone who doesn't see Montgomery County as a model for our future, then Kai Hagen...
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