'Sales Tax' For Property Hits The Wrong People Hard

THE OBSERVER

February 16, 1992|By Mark Guildera

It's unfortunate that a majority of Harford's state legislators haverushed to submit legislation giving the county the authority to charge a local property transfer tax -- a fancy name for a sales tax whenyou buy a house.

In the hysteria to find new revenue, it seems the legislators turned a blind eye to those to be hardest hit -- the low-income and first-time buyers.

The delegation should have demanded a more convincing explanationfrom County Executive Eileen M. Rehrmann as to why she doesn't use the tools at hand to raise money she needs to build schools and preserve farmland: property taxes and bond issues.

Rehrmann's strongest argument for a local 1 percent property transfer tax, as opposed to hiking the property tax rate, is this: "People creating the burden (onthe public school system) should bear the cost of the burden."

From that rhetoric, we are led to believe that all 15 of the new schools the Board of Education wants built by 1997 are needed because hordes of new people will move into the county.

But the cavalcade came years ago. And most of the students now crowding the county's public schools arrived then -- or at least their parents did.

According to the Board of Education, the biggest surge of kids are those moving into and through the secondary school years -- grades six to 12. The current secondary school population is 15,165. In 1997-1998 it will be an estimated 20,793.

That estimate is based on kids already in the schools and new kids expected to move to the county.

The total increase in public school enrollment due to kids moving to Harford from out of state was approximately 1,300 this school year. And it willbe about the same next year and the year after that, predicts the board.

What these figures tell us is this: The people already here are responsible for a significant share of the student surge into public schools. So, if Rehrmann wants to send the bill to those creating the burden she should use the tool created specifically for that purpose: the property tax rate.

In Harford, each penny on the propertytax rate raises about $305,000. So to raise the $2.4 million Rehrmann says is needed for school construction, you'd have to raise the current rate of $2.73 per $100 of assessed value by 8 cents. That would result in a $32 increase on the tax bill on a $100,000 home.

The other alternative is to sell bonds to raise the cash, as the county did for two schools this year.

The local real estate and building industry has screamed bloody murder that Rehrmann's proposed 1 percent tax, charged at the time of settlement on a property, will lock buyers out of the market.

But this argument has its share of smoke, too.

Move-up buyers -- people selling a $65,000 one-bedroom Riversidecondo to buy a $125,000 three-bedroom Bel Air colonial -- have equity in their homes to help them at the settlement table. An added $1,000 or $1,250 isn't going to drive them from the deal.

The people who would be hardest hit are buyers in the lower-income brackets and people trying to buy that very first home.

These buyers typically don't have significant savings and investments to draw on.

If they are fortunate, they may have extended family with financial resources to help them come up with the settlement cash. But this is rare for low-income wage earners.

The executive's proposal is particularly disturbing because it comes when developers already are planning to pass on to homebuyers new costs that county and state laws will add to homes built this year.

These include several thousand dollars per home to plant trees under a new tree preservation bill; an average $2,500 tab of $2,500 for new water and sewer hookups; and about $1,500 to $2,000 for fire sprinkler systems. These costs will, in turn, increase settlement costs, some of which are based on the selling price.

In Maryland, settlement costs average between 6 percent and 8 percent of the purchase price of a home, says Joe McGaw, director of the Greater Baltimore Board of Realtors. Maryland's settlement costs already are among the highest in the nation -- in the top five, says McGraw.

If the County Council doesn't have the chutzpah to stop the local transfer tax in favor of hiking the seemingly untouchable property tax rate, there should be several exemptions to the tax and severalcaveats in the law.

The exemptions should be these:

* First-time buyers who will use the residence as a principal home and not an investment.

* Buyers with combined incomes of less than $40,000.

The caveats should be these:

* Money raised can be used only to build schools and buy rights to farmland.

* When the school population experiences three consecutive years of student declines of 5 percent or more, the local transfer tax automatically would be canceled.

Canceling a tax, of course, would be a first in government history. As any sane taxpayer knows, once government enacts a new tax it is virtually certain it will never be repealed even after its purpose has long ago been served.

Yet another reason to red-flag this proposal.

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