Maryland property taxes may increase to tackle rising debt

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Local,Maryland,Andy Brownfield,Taxes

Marylanders, already paying the ninth-largest tax burden in the country, are facing higher property taxes as the state grapples with the rising cost of paying its debt.

The cost of repaying bonds used for construction projects is rising faster than the revenue used to pay them off.

Maryland's General Obligation Bonds give local governments money for construction projects -- with more than half of that going toward building schools and other education construction. Money from the state's property tax is used to repay investors, but with the collapse of the real estate market during the recession, that pool of cash has been largely stagnant while debt service has been rising.

"[Bond debt] does vary from year to year, but only in one direction, and it goes up," said Warren Deschenaux, director of the state legislature's Office of Policy Analysis. "And we've been issuing more rather than less in the past few years to help stimulate the economy."

Maryland will owe bondholders about $1 billion in fiscal 2014, but property tax revenues are projected to fall more than $100 million short of that amount.

Gov. Martin O'Malley plans to cover that shortfall by shifting $101 million from the General Fund, which pays for the daily operations of the government, but the Department of Legislative Services projects the gap will increase to $530 million by fiscal 2018.

A property tax increase would be needed if O'Malley's shift is rejected and the state doesn't raise extra cash from bond sales.

Maryland's property tax is 11.2 cents for every $100 of a home's valuation, in addition to the property taxes charged by the counties. Deschenaux said that would have to be raised to 16.2 cents to cover the gap in what the state owes bondholders -- and that would only cover fiscal 2014.

"They would have to be increased again in '15 and '16 and '17," he said.

Deschenaux said his office does project that the housing market -- and property tax revenues -- will improve, but not until 2016. He said the only sources of cash to repay bond debt are property tax money and transfers from the General Fund.

O'Malley's budget does not include a property tax increase, and his office did not respond to questions about whether one is being discussed.

It wasn't uncommon for Maryland to use General Fund money to pay debt service throughout the 1990s. Former Gov. Bob Ehrlich raised the tax to 13.2 cents per $100 of value in 2003, dropping it to its current rate in 2006. That, coupled with a housing boom in the mid-2000s, eliminated the need for other state monies to repay bonds.

abrownfield@washingtonexaminer.com

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