Most Howard County homeowners will pay more in property taxes this July despite sharply falling assessments in Maryland, but the outlook beyond next year is unclear, a citizens group studying spending was told Thursday.
County budget director Raymond S. Wacks told the Spending Affordability Committee that he expects property tax revenue to grow about 3 percent, about half as much as was typical in past years, despite the average 23 percent drop in home values in the one-third of the county that was reassessed in 2009.
A similar drop is expected in December for the western and southern portions of the county, and if property values continue to fall, the county's revenue growth could come to a halt in two or three years. Since property taxes represent about half of the county's locally raised revenues, that could spell trouble; income tax revenue is off, too, because unemployment has risen during the recession.
"The money people did not earn in 2009, they are not going to pay taxes on in 2010," Wacks said. But Wacks said he is hopeful, based on state economic projections that forecast slowly rising incomes statewide over the next three years. With federal employment in Central Maryland expected to surge as part of the military base realignment and closure process, known as BRAC, Howard could lead that trend.
The committee, composed of county officials, business people, school advocates and academics, meets annually for about a month to advise the county executive on spending and borrowing before the budget comes out in April. Property and income taxes make up nearly 85 percent of the county's tax income.
The overall rise in property tax revenue is due to the county's 5 percent assessment growth cap.
"Some people will actually see a drop in their property tax bill," Wacks said, though most are still enjoying the protection of the assessment cap and resulting tax credit.
Maryland protects homeowners from sudden changes in assessments in two ways. First, the state phases in value increases over three years, though declines take effect immediately. Second, the Homestead Tax Credit program further cushions the blow by limiting the increased value of a home that can be taxed each year.
In Howard County, only 5 percent of a home's increased value can be taxed when prices are rising. The cap does not apply for one year after a purchase, however, to allow assessments to slowly catch up over time as properties change hands.
This fiscal year, Wacks said, homeowners did not have to pay taxes on property that could have brought in $104 million in revenue, but that figure is dropping. "Our best estimate at this point is that number will fall to about $70 million," he told the group gathered at the county's temporary offices in East Columbia.
State assessment supervisor Howard Levenson said the value drop was steepest for properties worth more than $1 million and for condominiums at the lower end of the price scale, especially units reserved for people 55 and older.
The north-central portion of the county, from West Friendship to parts of West Columbia, was reassessed in 2009. Those homeowners got their notices Dec. 31, and have until Feb. 12 to appeal. Levenson and Renee Mierczak, assistant supervisor, said those appeals are down this year, with just 100 filed out of 30,000 properties that got notices.
Ten times that number of appeals have been filed from other areas of the county, however, where the three-year assessment schedule hasn't caught up to the dropping prices.
County finance director Sharon Greisz said the New York credit rating services "love" Maryland's system because it smooths out the jerky highs and lows in property values and keeps things stable and predictable, unlike the system in states such as Virginia. The regulated slow revenue increases also take away any temptation for government officials to spend too much during a boom only to be crushed in a downturn.
Commercial real estate values are falling, too, said Charles "Chip" Watson, the state's commercial assessor for Howard County, but the few properties sold in the past 18 months do not show much of a decline in price.
"No owners are selling [commercial property] in this market unless they have to," said Todd Snyder, a committee member who works in that field.
"Office lease rates are plummeting in the county," said Richard Clinch, an economist at the University of Maryland, Baltimore County, another committee member.
Watson said tenants are demanding and getting much lower lease rates. Looney's Pub in Maple Lawn, for example, is paying half the rent the failed Trapeze restaurant paid before closing, he said. Commercial real estate may now be "in the eye of the storm," Watson said, with building owners trying to wait out the recession while dropping rents and passing the losses on to banks.
"Do we have to end this with a prayer now?" car dealer Kevin Bell joked, eliciting laughter at the meetings' end.