By Adam Pagnucco.

Yesterday afternoon, the county council rejected the hidden tax hike that was buried in the county executive’s recommended budget.

The primary issue that bothered the council was the lack of transparency surrounding the tax hike. It was not mentioned in the executive’s budget but it would have raised $5.1 million next year and more money cumulatively in later years. Tax increase proposals attract major attention at budget time with much discussion and public testimony. But this one, which was not published but still included in revenue numbers, flew under the radar until near the end of the FY21 budget process.

Multiple council members complained about process issues. Council Member Hans Riemer noted the failure of the budget to mention the tax hike and said, “This is about our values and our approach to government… The reason why I am so concerned about this proposal is because I really think it flies in the face of our approach to good government and to transparency.” Council Member Andrew Friedson said, “Public policy means public input. And we cannot have transparent and accountable policy making unless there are transparent and accountable decisions for how we make those decisions, how we calculate the policies that we make.”

Council Member Evan Glass put on his CNN journalist hat to investigate what happened. Glass asked council staff how the issue surfaced. Staff replied, “I did not read anything published that this was included,” and said the issue was uncovered through discussions with executive staff. Glass then asked budget director Rich Madaleno why the administration proceeded with it. Madaleno defended the executive’s proposal as an appropriate calculation of the charter limit and said the executive would have discussed this upon release of the budget but that event was canceled because of COVID-19 concerns. Madaleno also said this:

Council Member Riemer is correct that in the final iteration of the budget book the piece that explained this was taken out for revision and did not make it back in before it went to the printer. For that I am profoundly sorry but other than that there would have been deep conversation and of course many of you have heard the county executive say over and over that he thinks the charter interpretation is wrong and has been talking about that for months.

Glass acknowledged that he had heard Elrich express various opinions at forums. (Remember those back in the good old days?) But he replied, “To say something in a forum but then not convey it to the council or not to, as you noted, not to even include the cover page in the budget for whatever reason is a problem.”

Even Council Member Gabe “Mr. Rogers” Albornoz had nothing nice to say about the process for considering the tax hike. When Mr. Rogers is unhappy, there is a problem.

Riemer proceeded to claim that the executive’s proposal was actually illegal because it allegedly violated the charter. The charter’s exact language on the property tax charter limit says:

Unless approved by an affirmative vote of all current Councilmembers, the Council shall not levy an ad valorem tax on real property to finance the budgets that will produce total revenue that exceeds the total revenue produced by the tax on real property in the preceding fiscal year plus a percentage of the previous year’s real property tax revenues that equals any increase in the Consumer Price Index as computed under this section. This limit does not apply to revenue from: (1) newly constructed property, (2) newly rezoned property, (3) property that, because of a change in state law, is assessed differently than it was assessed in the previous tax year, (4) property that has undergone a change in use, and (5) any development district tax used to fund capital improvement projects.

So the charter applies the rate of inflation to adjust “the total revenue produced by the tax on real property in the preceding fiscal year” to calculate the charter limit. The methodology used by the finance department for the last 30 years uses actual taxes paid on real property, including partial-year taxes on newly constructed property which was in use for only part of the year, to calculate current year total revenues. The executive’s new methodology would use taxes that new construction would have paid if billed on an annual basis to calculate current year revenue even though full-year taxes on those properties were not actually collected.

Riemer alleged that the use of hypothetical revenues rather than actual revenues to calculate the charter limit violates the plain language of the charter and asked a council attorney for his opinion. After explaining the technical issues and the possible steps for analysis by the courts, the council attorney replied, “My opinion is that the courts if asked – the court of appeals if asked – would ultimately rule for all the reasons I explained that this provision means actual revenue received during the relevant year for newly constructed property and not the potential revenue you could have received had everything been online for a full year.”

Riemer was bothered by both the transparency issue and the legal risks of the executive’s proposal and he linked the two.

The fundamental issue here is, given how risky it is, the fact that the county council and even more importantly, the public was not informed of this proposal is highly problematic. If you look at the county executive’s budget, you will not find an explanation of this decision. It’s not there. The county executive did not present a budget explaining this method of calculation. The fact is it is a $5 million increase in property taxes from all payers of property taxes in the county. But there is no explanation of that in the county’s budget. It is unthinkable to me that we would have a tax increase that has not actually been transparently presented to the community and, what more, is actually illegal. It is a violation of the charter. The combination of those two aspects of this proposal are just profoundly troubling.

Let’s remember that the principal charter limit activist in the county – Robin Ficker – is an attorney who has sued the county before and prevailed multiple times. A legal challenge to a change in charter limit administration is far from a hypothetical thing.

It’s not clear that a majority of the council agrees with Riemer on opposing the merits of the executive’s proposal. But there was obvious discomfort in dealing with this issue both late and without public input. That goes on top of other tensions with the executive branch on the budget and issues ranging beyond that. Add in stir craziness during the lockdown and these are strange times in Rockville.

After 40 minutes of discussion, the council killed the executive’s hidden tax hike on a 9-0 vote.