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What would a progressive recordation tax increase mean for Howard County?

Howard County Council members Christiana Mercer Rigby and Opel Jones introduced legislation at Monday’s legislative session to restructure the county’s recordation tax.

The CB85-2020 proposal, first announced by County Executive Calvin Ball at his fiscal 2021 operating budget presentation on April 20, is his recommendation to avoid cuts due to the coronavirus pandemic.

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With County Council approval, the bill will bring in $21 million in revenue by increasing the recordation tax rate — a one-time fee paid when real estate is sold to a new owner — which currently stands at a flat rate of $2.50 per $500 transaction.

“I put forward this proposal because I think it is the most responsible path forward,” Rigby said. “I’d really rather not be doing this right now, but if we don’t, then we have to face some really harsh realities that will significantly impact every single resident in Howard County. And this is a solution that is not felt every year like a property tax increase would be or significant service cuts would be. Those are things that are felt by every resident every year.”

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Rigby and Jones are proposing the rate incrementally increase based on the transaction price: $2 on each $500 of the transaction price for the first $250,000, $5 on each $500 for the second $250,000, $8 on each $500 for the next $500,000, and $11 on each $500 above $1 million.

The recordation tax is one of three taxes that are charged in Howard County on the sale of a home, with the other two being a local real estate transfer tax and a state transfer tax.

According to Lisa May, government affairs director at the Howard County Association of Realtors, the recordation tax is typically split between the buyer and the seller. In cases of new construction, the buyer typically pays the whole amount.

May is worried that an increase in the recordation tax on top of the proposal to increase the real estate transfer tax a half percent from 1% to 1.5%, that Ball presented in his capital budget on April 1, is too much for Howard County residents, particularly during the economic difficulty brought on by the pandemic.

“Now on top of that increase they’re also looking at a recordation tax increase. When you take those two things together, you’re really talking about some large fees on home purchases,” she said.

“Particularly right now, how is this going to impact those who need to sell their homes, and how will this impact housing recovery we need coming out of this pandemic?” May questioned.

As of Tuesday, there are 850 homes in Howard County on the market or pending a sale. More than half of those homes are in the $500,000 to $900,000 range. Fifty-six of those are under $250,000.

Rigby’s proposed legislation would decrease the recordation tax for residents purchasing property under $250,000.

“By lowering the lowest rate, that’s making home ownership more accessible,” Rigby said. “It is especially important considering we know home ownership is one of the most important ways to build intergenerational wealth and break the cycle of poverty.”

Karyl Leggio, professor of finance at Loyola University Maryland’s Sellinger School of Business and Management, agreed with Rigby’s assessment of housing under $250,000, but said this is a proposal that is going to particularly impact high-income residents.

“If you’re in Howard County and you own a home over $1 million, there may be less demand for your home [with this legislation],” Leggio said. “[The bill] has the potential to make the county less appealing to upper-income individuals because of the tax structure.”

Rigby wouldn’t say when she decided to introduce the legislation, but did say the coronavirus “provided a heightened urgency” to increase revenue in the county.

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“We don’t even know the total cost we will incur yet [from the pandemic]. We don’t even know yet. We’re certainly accounting for less. We just don’t know what that will look like,” she said.

During his presentation of the operating budget, Ball said the county has sustained nearly $4 million in coronavirus response costs to date. He estimated revenue losses would total more than $35 million from the pandemic in fiscal 2020, which ends June 30.

According to Rigby, the $21 million in revenue was projected based on a combination of the previous year’s revenue and three months of lost dollars from the pandemic.

May is worried that Howard County residents will dismiss this legislation if they don’t have plans to move anytime soon or home ownership is not in their future.

“Sometimes life happens along the way. You can, especially at a time like this, you can face a job loss or have an illness or divorce and financially need to sell and there’s really no way to exempt those situations from these taxes,” May said.

“If you have someone in the near future who is going to need to sell for financial reasons, this is going to take more of their money when they go to sell.”

Councilman David Yungmann, who also works as a real estate agent, was disappointed in Ball’s budget presentation and felt the county should have presented the council with a flat operating budget with no tax increases. Yungmann said he feels Ball, Jones and Rigby are using the pandemic to justify a permanent tax increase.

“It was interesting that, while they were talking about the increase in the recordation tax, they were talking about COVID,” he said. “It’s not like [the recordation tax] goes back to its old level in a few years.”

Yungmann also said he was concerned with the practicality of buying and selling during and after the pandemic, and questioned whether the projected income from a recordation tax increase would come to fruition if people were still worried about safety.

“[It’s] the little things that are going to make it hard for people who want to buy and sell homes. The functional issue of people don’t want strangers coming in and out of their houses,” Yungmann said.

County Council Vice Chairwoman Liz Walsh is concerned the proposal forces Howard County residents to face an additional burden that the county government itself has not.

“I will be looking for ways for the county to share in the financial austerity that will invariably hit many of us who live in Howard County,” Walsh said. “I would expect that we could find other ways to bridge that so-called $21 million gap.”

Walsh also said she has concerns about how the tax increase would affect homeowners who are refinancing. Rigby, however, cautioned that the many residents who are financing won’t have to pay the recordation tax.

“If you’re refinancing to receive a lower payment on your principal, then you do not pay recordation,” Rigby said. “If you are seeking a home equity loan that is lower than $300,000, then you would actually receive a tax cut under this proposal.”

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The County Council will discuss the bill at their May 18 legislative public hearing.

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