Over the next several weeks and months, as the budget-making season unfolds in Harford County, there will be much discussion about government finances, to include calls for increasing tax rates, as well as demands that taxes be cut.
Local government employees – among them teachers – will rightly point out that it's been a few years since they've had raises. How to fund a round of raises? Increase tax rates is an answer likely to be proposed. The county teachers union already has made such a pitch, claiming that Harford County's wealth to local tax burden ratio is such that higher taxes are justified.
In discussions of public policy, it generally isn't good to rule out any option. The prevailing political sentiment that tax cuts are the answer to all economic woes notwithstanding, many government services are necessities – schools, police, roads and such – and expensive. Taxes are the way we, as a community, pay for those services, so cutting taxes at some point means cutting services.
The latest round of commercial property reassessments in Harford County, however, seems to indicate that taxes will be going up, even if tax rates are held steady.
Each year, about a third of the properties in Harford County are evaluated by the Maryland Department of Assessments and Taxation and their values adjusted accordingly. Changes are then phased in over the next three years until the next reassessment. Most recently, properties along the Route 40 corridor were subject to evaluation and the overall result was a small dip (less than 2 percent) in the value of residential land, coupled with a fairly substantial increase (just shy of 15 percent) in the value of commercial property.
The state's reassessment seems to reflect the overall economy nationally and regionally. The 2008 recession was linked inexorably to property values, especially residential property values, and those values have largely stabilized, or in the case of the commercial land along Route 40, recovered.
The impact on county revenue may not be quick in coming, but as the land market heals and the economy improves, the result will be increased taxes, even without tax rate increases. Revenue increases that come with an improving economy can then be used to offset the austerity of the county's recession budgets without unnecessarily further burdening the people who pay the taxes.
The years prior to 2008 should stand as a warning to the county government. Starting in the early-2000s, property values across the U.S., including in Harford County, increased dramatically. In Harford County, this translated to a substantial increase in the county's real estate tax revenues. During the same period, the county also had a substantial increase in its income tax revenues, partially because people were doing better financially, but also because the county had in the 1990s increased the local income tax rate at a time when the economy was faltering.
The result: Harford County had a lot of revenue and was able to not only pay for raises for government employees, but also to fund some projects and positions that, strictly speaking, may not have been needed.
Given that the economy appears, after many false starts, to be emerging from the most recent recession, now is probably a bad time to increase tax rates. A bad time not because of the potential effect a tax rate increase might have on the overall economy, but rather a bad time because the local tax take appears on the verge of increasing at a reasonable level without adjusting the rates.
A rate increase this year, were it to be followed by a major assessment increase next year, when another third of the county is reassessed, could result in a tax take that is unreasonable.
It may, however, come to pass that the demand for public services necessitates a corresponding increase in tax rates, but the county is better off waiting until the overall economic picture is more fully developed next year before making any decisions either way.
There are times when tax policy needs to be adjusted to either cut the government's take, or increase it to cover the cost of the services we, the voters, demand. The county would do well, however, to wait a year before doing either and see what effect an improving economy has on public revenue.