Is a property tax hike in future? -- Gazette.Net


While officials say the state is facing a much sunnier budget picture for fiscal 2014 than in years past, the rising annual cost of Maryland's public debt has some concerned that the state may need to raise property taxes within the next few years.

The state’s property taxes are intended to cover the repayment costs of Maryland’s general obligation bonds, but those revenues haven’t kept pace with what the state owes.

Gov. Martin O'Malley’s fiscal 2014 budget proposes setting aside $101 million from the state’s general fund to supplement the tax to cover debt service, and the Department of Legislative Services projects that more than $530 million in additional funds will be needed by fiscal 2018.

“The bottom line is that the debt-service number is going up faster that the property-tax revenue number,” said Warren Descheneaux, director of policy analysis for DLS. Either more general funds will have to be spent, or the property tax will need to increase, he said.

Maryland’s property tax rate has been 11.2 cents per $100 of assessed value since 2006.

But Deschenaux isn’t convinced the state will need to spend the general funds it is setting aside, thanks to possible revenue from bond premiums — a sort of cash advance the state can receive from a bond sale.

Such premiums have kept the state from having to use general funds for debt service in the past, said Neil Bergsman, director of the nonprofit Maryland Budget & Tax Policy Institute.

Past projections of debt-service costs, which were “appropriately” conservative, also forecast the need for general-fund supplements, but it hasn't happened yet, Bergsman said.

Furthermore, property-tax revenues were likely to perform better than previously expected thanks to the gradual recovery of the housing marking, Bergsman said. But that doesn't mean the projected $530 million is a false alarm, he said.

Del. Gail H. Bates (R-Dist. 9A) of West Friendship said she was troubled by the rising debt costs.

“We’re going to get to the point with a lot of other pressures on the general fund that the answer to fixing the amount of money is going to be to raise property taxes. I'm very concerned by that,” Bates said. “You've got to pay it; you have to pay your debts.”

The administration doesn’t believe plans to subsidize debt-service payments from the general fund will have significant impact on the state budget, according to O’Malley’s (D) office.

The governor’s current plan to eliminate the state’s remaining structural deficit accommodates debt-service payments without assuming mitigating factors like bond premiums — which likely would cover debt service payments through fiscal 2016 — and the expected increase in tax revenue from the housing market recovery.

“It’s a cause for concern, but not a lot,” Bergsman said. “It bears watching.”

Maryland’s debt level hasn’t kept it from earning top-level “Triple A” bond ratings from the so-called Big Three credit-reporting agencies.

While the state has a relatively high debt burden, with $10.15 billion outstanding as of July 2012, the constitutionally required 15-year amortization period for tax-supported debt somewhat helps to offset that burden, according to Moody’s Investors Service.