Top state officials voted last night not to raise Maryland's property tax rate despite a warning from Treasurer Nancy K. Kopp that the decision will worsen the state's already dim financial prospects.
Gov. Martin O'Malley agreed that Maryland faces difficult decisions over the next year, likely including tax increases to deal with an expected budget shortfall of as much as $1.5 billion. But he said he believes the property tax hurts low- and fixed-income people. He said he will try to lower the rate as part of a comprehensive fiscal package within the next year.
"I think we need to look at our entire tax structure and make it more modern and fair, and I don't think the property tax is one we should be raising in our state," O'Malley said. "I'd like to see if there are ways we can reduce it."
O'Malley, one of three members of the state Board of Public Works, joined Comptroller Peter Franchot in voting to keep the state tax at 11.2 cents per $100 in assessed value for the fiscal year that begins July 1. Kopp cast the dissenting vote.
Most of the property tax homeowners pay is set by and goes to local governments. Although the state rate will remain the same, most homeowners will pay more because of rising assessments.
The state portion of the property tax is dedicated to paying interest and principal on the bonds Maryland issues to finance schools, roads, prisons and other major projects. Without an increase, the state will have to contribute $29 million this year from another part of the budget to cover debt payments.
If the rate stays steady, the subsidy will have to grow to nearly $225 million over five years, further complicating efforts to close projected annual budget shortfalls. For that reason, Kopp argued that the rate should be increased by nearly a penny to 12 cents.
"That's the rate at which it would provide sufficient revenue to fully cover debt service next year and for the next five years ... that we have to pay if we want to have the schools and the roads and all the other things we build for the people of Maryland," Kopp said.
She added that maintaining a self-sufficient revenue stream for bond payments is an important principle of fiscal management and one that would comfort bond-rating agencies as Maryland deals with its fiscal problems. Maryland is one of just a handful of states with a AAA bond rating from all major rating agencies, a distinction that allows it to sell bonds at low interest rates, saving taxpayers millions.
"I think we should vote before I change my mind," Franchot interjected as Kopp made her pitch.
Franchot was quick to point out that he routinely voted for tax increases when he was a member of the Maryland General Assembly, including a hefty sales tax package that passed the House of Delegates three years ago. More recently, he said, he supported a $1-a-pack increase in the tobacco tax that would have been used to expand health care.
"I have always voted as a member of the General Assembly for revenue measures designed to expand state services or keep our fiscal house in order," Franchot said.
This time, however, he said he would vote to keep the rate steady.
"I really believe we should not address this large problem in a piecemeal fashion," Franchot said of the state's financial picture. "We really should have a comprehensive discussion about how we should move forward."
O'Malley said his staff is looking at options for spending reductions and tax increases, but said he is not ready to talk specifics about the direction his administration might go.
He also said it's too early to say whether the General Assembly will have to come back to Annapolis for a special session to deal with fiscal issues, as some leaders, principally Senate President Thomas V. Mike Miller, have suggested. O'Malley said members of his staff are closely following updates to the state's revenue estimates and projections to gauge the necessity of acting before the legislature meets in its regular session in January.
Maryland held its property tax rate steady at 8.4 cents per $100 for years through subsidies from the general fund, but facing difficult fiscal times in his first year in office, Gov. Robert L. Ehrlich Jr. agreed to a 4.8 cent increase. When Maryland's finances improved later in his term, he persuaded the Board of Public Works to reduce it by 2 cents to the current firstname.lastname@example.org
Property tax at a glance
The state property tax rate will remain at 11.2 cents per $100 in assessed value. This is separate from the property tax homeowners pay to their local governments.
The state property tax is used to pay interest and principal on bonds that finance schools, roads and other projects.
The property tax does not bring in enough to cover those costs, so the state will use $29 million from other parts of the budget.