County Executive Marc Elrich plans to change course and submit amendments on his budget proposal to the County Council. Elrich has announced he will no longer seek a property tax increase of 3.5% and instead will propose raising the County income tax from 3.2% to 3.3%. If approved, the tax increase would be retroactive to January 1 of this year.
Elrich said he made the change because the state General Assembly approved a bill towards the end of its session this month to allow Counties to raise their income tax level from 3.2% to 3.3%. Overall, the County’s proposed budget is $7.7 billion.
Elrich said at a news conference on Wednesday he believes this tax increase is fairer and a more progressive approach to raising revenue than the property tax.
Property Tax Was Not Popular
The idea of raising property taxes was not popular with the County Council. Three Councilmembers, Andrew Friedson, Evan Glass and Laurie-Anne Sayles spoke out against it.
MCM spoke with County Council President, Kate Stewart, who represents District 4 which encompasses Takoma Park, Silver Spring, Kensington, Garrett Park, and North Bethesda.
She said, “We were not going to pass a property tax increase on the Council. I told the County Executive that. So I was not surprised by Wednesday’s announcement.”
Elrich hopes the Council will now support his new proposal.
“I am hoping they are more amenable to it. There is no way to fund the things we need to do in the budget if we don’t do this. So you are going to have to come up with cuts that everyone worked hard over the past few years to put in place. The worst cuts you can make would be to the school system. But everything else would come out of social services and environmental programs,” Elrich said.
Benefits of Income Tax Increase
Montgomery County’s Chief Administrative Officer, Richard Madeleno said the proposed tax increase should generate revenue of between $70 and $80 million. He said other income tax actions the General Assembly took should provide the County with an additional $14 million. However, the state also has shifted some financial burdens to the County that it now must pay. For example, the state used to split costs with the County for tax assessors to do their work. Now the County will have to pick up 90% of that cost.
Madeleno explained other jurisdictions in the region also face similar budget problems and plan to raise taxes. He said just this week Arlington County raised its sales tax on restaurants from 10 to 11% where the meals tax in Montgomery County is just 6%.
Other Budget Proposals
Meantime, the spending plan Elrich is proposing would help low-income residents. Elrich wants to raise the property tax credit by $60 from $692 to $752. This also is known as the Income Tax Offset Credit. Residents who qualify would receive the property tax credit. He also has proposed increasing the refundable Earned Income Tax Credit, also known as the Working Families Income Supplement. The County would match the state refundable credit to 65%. That means if a taxpayer received a $100 refund from the state, the County would provide an additional $65.
The proposed budget also would keep the County’s reserves at above 11% or around $100 million. Elrich said it is an uncertain time right now, and the County needs extra reserves to offset any harmful actions the Trump administration could take that would impact the budget.
Council Will Weigh In
The Council already is examining the budget. It held its first set of hearings this week. Stewart said the Council will take a hard look at Elrich’s updated proposals.
“We have not received formal amendments from the County Executive. We will be on the lookout for formal amendments and documentation of the fiscal analysis of the possible income tax increase,” Stewart said.
“If the Council is going to consider an income tax increase we need to know more specifics on the revenue it will generate. We need to know the impact this will have on residents. At this point increasing taxes on our residents needs to be considered very carefully. That is because many of our residents, given what is happening on the federal level, are greatly impacted either directly or indirectly. Some have lost their jobs or could lose a job. There is a great deal of uncertainty and anxiety. As a result, we need to be very thoughtful with this budget,” Stewart added.
Stewart said she does not agree with all of the County Executive’s budget recommendations. While the Council understands it has to provide the money for services, she said there will be some push and pull as the budget process unfolds over the next couple of weeks. That could include some cuts. Stewart said the Council is working with the County’s departments to look at potential reductions.
Tough Time to Plan a Budget
She said this is a difficult time to come up with a budget plan.
“We are dealing with great unknowns. When we had the Great Recession and we had Covid-19, we had a federal government that was supporting local governments. We knew we had a partner. Right now, we have a federal government that is actively undermining and creating chaos for residents and the County,” Stewart said.
Adjustment for Parks Department
Another change Elrich proposes to his spending plan includes restoring money to the Parks Department budget. Elrich said a budgeting mistake occurred and he will add back $1 million to correct the error.
Stewart said that error caused a lot of anxiety among workers at the Parks Department. She is glad the amended budget will restore the funding.
