Monday, June 9, 2014

Parents' Coalition Exclusive (part 2): Ike Leggett's $692 extra credit for Montgomery County landlords

Part 2 of a 2 part series.  For part 1, click here.

County Council Members were alerted that something was amiss with Ike Leggett’s budget when a resident (this writer) provided testimony at the April 22nd ITOC [Income Tax Offset Credit] public hearing. The resident claimed that the county would be receiving a $64 million property tax windfall because of final implementation of the principal residence verification process.

The resident was wrong. The county government will not be receiving a $64 million dollar windfall.

But the resident’s testimony raised enough questions to spur the County Council to get more information from their legislative analyst.

As it turns out, the $64 million windfall will be given to landlords in the form of an illegally issued $692 reduction on the property tax bill for each of their properties.   And the rest of the taxpayers will be covering the $64 million payment through higher taxes on their properties.

Based on information provided by the County Attorney and the County Finance Director, County Council legislative analyst Jacob Sesker prepared a response to the resident’s claims. (See the Council Memorandum below or just scroll ahead to see the most interesting parts of the response.)

In his response, Mr. Sesker included a memo (see the last two pages of the Sesker document above) written by Finance Director Joseph Beach, in which it is asserted that the principal residence verification law does not apply to the ITOC.  Mr. Beach wrote:

There is a huge problem with the Montgomery County attorney’s legal analysis: He cited the wrong section of the Maryland Code when determining that the county needs authorization under state law to deny a homeowner eligibility for the ITOC. In fact, authorization of the ITOC is covered by State Tax – Property Article § 9-221, Offsets of local income tax rate increases -- not § 9-105.
(a) Authorized. -- The Mayor and City Council of Baltimore or the governing body of a county or municipal corporation may grant, by law, a property tax credit against the county or municipal corporation property tax imposed on real property in order to offset in whole or in part increases in the county or municipal corporation income tax revenues resulting from a county income tax rate in excess of 2.6%.

(b) Eligibility. -- The credit granted under this section is available only to the owner-occupied property of a homeowner as defined in § 9-105 of this title.(c) Amount; implementation. -- The Mayor and City Council of Baltimore or the governing body of a county or municipal corporation may provide by law for:

(1) the amount of a property tax credit under this section; and

(2) any other provisions necessary to carry out this section. 

The law is clear that both the homestead credit and the ITOC are reserved for principal residences. The reference to § 9-105 in § 9-221 further confirms that the rules for determination of principal residence for the homestead credit apply identically for the ITOC.

Furthermore, § 9-221 (b) makes it clear that issuance of the ITOC to the owner of a non-owner-occupied property would, in fact, be a violation of state law.

The county attorney’s interpretation (even if incorrect) of the law should have been enough to defend any claims that the principal residence verification law did not apply to the ITOC. But in an apparent attempt to deflect any criticism of the county attorney's opinion, Finance Director Joseph Beach added the following explanation of the county’s plan to continue issuing the ITOC to landlords.

Substantial recoding? Unlikely, based on this writer's nearly 40 years of programming experience. No estimate of hours of recoding or cost is mentioned by Mr. Beach. Besides, even if substantial recoding is needed, that’s not a justification to disregard the law. And why is the county only now discovering that recoding is needed? The law that requires homeowners to affirm principal residence status was passed in 2007.

Again, not a reason to disregard the law. Also, the “tens of thousands of challenges” could be averted by including an explanation with the property tax bill, along with a reminder that homeowners can still submit the principal residence verification form so that it will be effective next year.

If the County does not remove eligibility for the ITOC, there’s a good chance that there will be a legal challenge for failure to remove it, since hundreds of thousands of homeowners will have to pay more tax than they would have if the ITOC had been issued only to those who are entitled to receive it.

This claim may be true, but it overlooks the fact that individual homeowners who are bona fide principal residents will pay significantly more in property taxes to fund the continued illegal issuance of the ITOC to property owners who are not entitled to receive it.

Property tax bills will be issued in early July. Homeowners who use their homes as their actual principal residence will pay more in tax than they would have if the ITOC had been correctly issued.

The tens of thousands of landlords who didn't submit a principal residence verification form will pocket a $692 per property handout, courtesy of Ike Leggett.

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