Change To Tax Differential Important First Step For City Taxpayers

George Wenschhof

After the city election, numerous workshops and public meetings were held, resulting recently in the city mayor and board voting to go to a tax differential system, effective for fiscal year 2013.

City taxpayers will now see a reduction in their county taxes and a slight increase in their city taxes to cover what had been previously paid to the county prior to their tax equity rebate to the city.

The 2013 city budget also included a 4 cent reduction for taxpayers.

This is an important first step in the right direction for city taxpayers away from paying a duplication of services tax to the county with the hope the county would reimburse the city.

In 1997, during my campaign for City of Frederick alderman, one of the issues I ran on was the need to examine the existing tax equity system with the county government, arguing the double taxation city residents faced was unfair. 

I pointed out city taxpayers were paying the same county taxes as county residents, in addition to their city tax while city government was providing many of the same services provided by the county.

It has long been understood, that half of the county budget is for education and municipal taxpayers benefit from the school system. So, a level of county taxes is appropriate for municipal taxpayers.

However, it is the amount of duplication of services provided by municipal and county government that is the question.

The county attempted to deal with this issue some thirty years ago, by developing what would become known as the tax equity program.  Based on a formula, the county, after collecting taxes, would rebate to municipalities, their share of tax revenue resulting from duplication of services.

In theory, municipalities were able to keep their tax rates lower, with the knowledge of the expected rebate coming from the county.

Unfortunately, I did not argue loud or well enough to effectuate a change or to win election for that matter, failing to be included in the five Democratic candidates to move on to the general election by twelve votes.

Years later, during the 2009 City of Frederick election, tax equity had become a front line issue, aided by actions taken by the Frederick Board of County Commissioners (BOCC) to reduce the amount of money they would reimburse the city for the duplication of services provided by both levels of government.

The reason given by the county was they were short money due to the recession resulting in lower tax revenue and could not afford to rebate to municipalities the entire amount their own tax equity formula determined was due.

A series of unfortunate actions followed, with first the BOCC voting 3-2 to withhold payment to the city and Commissioner John “Lenny” Thompson, correctly pointing out the City of Frederick had failed to send a required formal letter to the County requesting payment.

Delegate Galen Clagett would get involved, filing a bill requiring the county to make minimum tax rebates to municipalities.

In the end, the motion to withhold payment was brought up again by Commissioner David Gray, who changed his vote to no, resulting in a 3-2 vote against withholding payment to the City of Frederick.

But, the damage had been done, and these actions had highlighted the unfairness in the county tax equity system.

Tax equity beacame a campaign issue in the 2009 city election and candidates were asked their position on it by the Frederick News Post.  All of the elected alderman candidates supported a change to tax differential. Their responses can be read here.

Alderman Carol Krimm, who was one who campaigned on this issue, is pleased with the change, but in a recent interview acknowledged “more needs to be done”.

Carol informed me much of the tax equity formula is based on what she refers to as the “4 P’s” (Police, Planning, Parks and Public Works). However, she pointed out duplication exists in many other administrative areas such as Finance, Budget and Legal.

Krimm would prefer a new formula developed for municipal governments and have it addressed in state statute, pointing out counties presently control the process in state statute. 

Alderman Krimm is correct in wanting to see a new tax formula developed for municipalities and the city would be wise to pursue this with county officials and the local state delegation.

All in all, the move to a tax differential system was a good bipartisan move by city government and long overdue.

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