Across Maryland, county and municipal leaders are facing difficult choices not only in balancing budgets knocked out of whack by the coronavirus pandemic and historic job losses that have come with it but in planning for the budget year that begins in two short months. For most, it means substantial reductions in anticipated spending, perhaps even worker furloughs or givebacks of promised wage increases. Even in Howard County, per capita Maryland’s wealthiest subdivision, County Executive Calvin Ball has mapped a fairly austere route with a $1.78 billion proposed spending plan that reduces by $40 million what its school system had requested for the coming year and raises the possibility of further reductions in the future if tax revenues continue to fall.
But Mr. Ball’s budget also has something uncommon in the current climate — a tax increase. At first blush, that’s surprising. Conventional wisdom is that the last thing needed during an economic downturn is to further burden individuals or businesses who are already financially stressed. At least that was the argument Gov. Larry Hogan made earlier this month in vetoing a panoply of legislation passed by the General Assembly he perceived as expanding taxes and/or spending unwisely. And there’s much common sense in that approach — with some exceptions. And Mr. Ball appears to have found one in a recently-released plan to raise Howard County’s recordation tax.
First, a quick lesson for those not in the real estate business. A recordation tax, much like local and state transfer taxes, represents a onetime fee charged on property sales often split between buyer and seller. Howard County currently charges $5 per $1,000 of value. Sell a house worth $500,000, and that’s 500 times $5 or $2,500 more in closing costs. Under legislation introduced earlier this month by two Howard County Council members, Christiana Mercer Rigby and Opel Jones, the tax would be made more progressive with a slightly lower rate than the existing one for purchases valued at $250,000 or less and a top rate of $22 per $1,000 for homes valued at over $1 million.
That’s quite an increase, but some perspective is required. Howard County’s current recordation tax is tied with neighboring Baltimore County as the lowest of any subdivision in the state. Counties like Talbot on the Eastern Shore and Frederick to the west already charge more than twice as much in real estate recordation tax, and some already charge more (including Baltimore and Baltimore County) in local transfer taxes, too. If anything, the markup was overdue on the theory that better to balance the county budget on the backs of those who could best afford to pay (and $1 million real estate transfers are, let’s face it, rarefied financial air) than on the middle class or below.
And so the argument offered by the council members and Mr. Ball boils down to this: If sacrifices must be made, which should it come from — schools or real estate profits? This is not some theoretical choice given that K-12 public schools are the single biggest line item in any county’s budget. It could easily boil down to class sizes versus closing costs. Or investments in distance learning versus closing costs. And which serves Howard County best as it attempts to rebound post-pandemic given that the quality of its school system, often ranked top in the state, is what drives its robust real estate prices in the first place? It’s not a question of balancing business interests against government spending, the two are inextricably tied.
It’s a classic example of how raising taxes, even in some of the most adverse circumstances imaginable, isn’t necessarily a blow against economic prosperity. It could prove exactly the opposite. Preserving the quality of public education ought to be the county’s top priority if it wants to attract real estate investment. That’s Howard’s identity, its selling point. The higher recordation tax? Perhaps that’s just the price of admission. Mercifully, it isn’t a tax increase destined to be paid by average blue collar workers unless they happen to have half-million-dollar homes. Is it perfect? The top rate seems high but overall, the trade-off seems reasonable. There are no good choices as local governments scramble to keep up vital services from police and fire safety to schools and roads, there are just less bad ones and a higher recordation tax may suit Howard County.
The Baltimore Sun editorial board — made up of Opinion Editor Tricia Bishop, Deputy Editor Andrea K. McDaniels and writer Peter Jensen — offers opinions and analysis on news and issues relevant to readers. It is separate from the newsroom.