Hoping to avoid a repeat of last spring's legal fight, Anne Arundel and Annapolis leaders are trying to eliminate a perennial point of political friction between them:
How to set a fair property tax break for city property owners.
The issue, known as the tax differential, has broad financial implications for Anne Arundel, Annapolis and 11,000 city property owners who have seen their tax break from the county shrink for the past three years. Last spring, a dispute over the tax break landed Annapolis and the county in court.
"It's the only issue that locally elected officials really go to the mat on," said Monika Thompson, a staff consultant with the University of Maryland's Institute for Governmental Service.
Required by state law, the differential is a tax credit Anne Arundel grants Annapolis property owners for providing redundant municipal services, such as police and fire protection, park maintenance and road work.
But determining the amount of the credit has not been easy: Each penny Anne Arundel subtracts from the city's property tax rate means $100,000 in revenue that has to be made up by county residents.
Frustrating for Annapolis leaders is the fact that the City Council has cut city property taxes each of the past three years, only to see county tax-break reductions consume any benefit to city property owners.
"This year is very, very important to us," said Alderman Carl O. Snowden, the Ward 5 Democrat who chairs the city finance committee. "Where the rubber is going to meet the road is what the county actually proposes. We hope to hold the line on taxes again, but what the county does will determine that."
A team of Annapolis finance officials will be meeting with their county counterparts to pore over revenue numbers, outline criteria used to set the differential, and decide whether to hire a consultant to resolve the issue.
Anne Arundel department heads are preparing individual budgets to be submitted to the Finance Department by mid-January. Those will help determine the amount of tax revenue Anne Arundel needs next year. Meanwhile, County Executive John G. Gary and Annapolis Mayor Alfred A. Hopkins have exchanged letters to start formal negotiations.
The differential will be proposed by Gary, a Republican, when he submits his budget in April. The County Council will set the credit when it approves the budget, which will guide county spending through June 1998, in late May.
Annapolis has already set aside $50,000 to pay James A. Lindsey Jr., a certified public accountant, to determine whether the differential is fair. Lindsey met with County Financial Officer John R. Hammond earlier this month to study tax differential policies. More meetings are set for next month.
"What we are going to be talking about is how city taxpayers can receive the best break," said M. Kathleen Sulick, the Annapolis ,, finance director, who will head a four- or five-person team.
But county leaders say Annapolis also will have to cooperate in preliminary fact-finding excursions -- as well as pledge to live with the results.
"We need the city to open up its books," said County Councilman William C. Mulford II, a Republican who represents Annapolis. "If the city can show that the county's calculation is incorrect, then it will have to be adjusted. But that works both ways. If it is fair, then the city has to abide by it."
Anne Arundel charges property owners outside city limits $2.38 for every $100 of assessed property value. For city property owners, the county subtracts $1.01 from the rate, which is the current differential. That credit is worth $606 to a property owner with a home assessed at $60,000, roughly the Annapolis average.
Anne Arundel finance officials have said the differential could shrink to 92 cents, according to the formula they have used for the last 10 years to set the rate. "We have traditionally given the city a larger credit than the calculation would allow," Hammond said.
A new $27 million Glen Burnie Detention Center and $63 million County Courthouse -- services that benefit all county residents -- BTC are helping shape Anne Arundel spending priorities. Property taxes account for almost half of the county's revenue.
Last spring, Gary proposed cutting the tax credit by eight cents, taking it from $1.09 to $1.01. That reduction translated to an additional $760,000 in tax revenues for Anne Arundel, while bumping up the average Annapolis property tax bill by $61.
Furious Annapolis leaders sued Gary, top finance officials, and the County Council over what amounted to a tax increase on city property owners. Annapolis' Hopkins accused Gary of failing to negotiate the change first.
The city's lawsuit failed, leaving both sides pledging to work more closely to solve the problem short of Anne Arundel Circuit Court in the future.
Anne Arundel officials want to hire the Institute for Governmental Service to determine the tax break. Thompson, the institute consultant, has studied tax differentials in Allegany, Talbot and Wicomico counties in the past three years. The cost of a study is roughly $3,000.
The most recent study, finished in May, examined the tax break Cumberland property owners receive from Allegany County. The result: Cumberland residents deserved a larger tax credit.
But so far, Annapolis officials have refused to agree to a third-party study. Lindsey will help determine whether that's in the city's best interest. "He will have to decide whether that would benefit city taxpayers," Sulick said.
Pub Date: 12/18/96