Phantom Tax in Montgomery

January 06, 1992

The need for new revenue is painfully obvious in virtually every jurisdiction in the region. But adding thousands of dollars to the cost of new houses, office buildings and apartments is the wrong way to do it. Early last month, a razor-thin majority of the Montgomery County Council passed a construction tax that would add as much as $10,000 to the price of a new home. Like other so-called impact fees, this one is directed at raising cash to fund the schools, roads and other services that growth demands.

Fundamentally, at least, the idea is a good one. In a robust economy, such fees calibrate the pace of development with the needs of the community. In a recession, however, they choke off already slack demand. This puts additional financial pressure on builders and already depressed real estate transfer and recordation tax receipts. Worse, this sort of levy works to maintain Montgomery's exclusivity by inflating home prices beyond the reach of lower and middle class buyers.

Supporters are floating the fantasy that competition will keep Montgomery builders from passing on higher costs to buyers. That may have been true in greener days, but it isn't likely in an environment of thin profits and thinner demand in both the residential and commercial building markets. There's no mystery here; higher incremental costs simply mean that projects won't get built. Advocates also are clinging to the hope that the economy improves before the tax swings into action -- it is scheduled to take partial effect in 13 months and full effect in 25 months.

Fortunately, the council can take another look at the tax's starting date next summer, which would presumably result in delayed implementation if things aren't turning around. This leads us to the obvious question: Why waste time approving a phantom tax that can't possibly help cover today's massive budget shortfalls? The first priority for Montgomery, along with every other jurisdiction in the Baltimore-Washington region, ought to be trying to concoct ways to make it through this fiscal year.

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