Top state officials voted last night not to raise Maryland's property tax rate despite a warning from Treasurer Nancy K. Kopp that the decision will worsen the state's already dim financial prospects.
Gov. Martin O'Malley agreed that Maryland faces difficult decisions over the next year, likely including tax increases to deal with an expected budget shortfall of as much as $1.5 billion. But he said he believes the property tax hurts low- and fixed-income people. He said he will try to lower the rate as part of a comprehensive fiscal package within the next year.
"I think we need to look at our entire tax structure and make it more modern and fair, and I don't think the property tax is one we should be raising in our state," O'Malley said. "I'd like to see if there are ways we can reduce it."
O'Malley, one of three members of the state Board of Public Works, joined Comptroller Peter Franchot in voting to keep the state tax at 11.2 cents per $100 in assessed value for the fiscal year that begins July 1. Kopp cast the dissenting vote.
Most of the property tax homeowners pay is set by and goes to local governments. Although the state rate will remain the same, most homeowners will pay more because of rising assessments.
The state portion of the property tax is dedicated to paying interest and principal on the bonds Maryland issues to finance schools, roads, prisons and other major projects. Without an increase, the state will have to contribute $29 million this year from another part of the budget to cover debt payments.
If the rate stays steady, the subsidy will have to grow to nearly $225 million over five years, further complicating efforts to close projected annual budget shortfalls. For that reason, Kopp argued that the rate should be increased by nearly a penny to 12 cents.
"That's the rate at which it would provide sufficient revenue to fully cover debt service next year and for the next five years ... that we have to pay if we want to have the schools and the roads and all the other things we build for the people of Maryland," Kopp said.
She added that maintaining a self-sufficient revenue stream for bond payments is an important principle of fiscal management and one that would comfort bond-rating agencies as Maryland deals with its fiscal problems. Maryland is one of just a handful of states with a AAA bond rating from all major rating agencies, a distinction that allows it to sell bonds at low interest rates, saving taxpayers millions.
