Howard County Maryland Blog

Local Politics and Current Events

Property Tax Information

Posted by David Keelan on Saturday, January 6, 2007

In response to a question asked of me on the HCAA list serve I wrote the following.

I referred to the Homestead Tax Credit as a tax deferral.  I mislabled it and responded to additional questions specifically what options to seniors have today when one considers that property assessments have risen 72%, 100% and 150% depending on where you live in the County.  These assessment increases are HUGE!  The county is like a kid in a candy store.  Aside from Statement 43 and 45 they are flush.  I suspect that they are going to get a lot of elbow room on implementing the new accounting standards. 

Anyway, you may find the information somewhat interesting or useful.

You are absolutely correct. I mispoke. I was referring to the PROPERTY TAX DEFERRAL. Too much reading on my part – pardon my error. Also, these are very good questions. I hope that the HCAA readership is interested enough to stay with us on this.

From the SDAT website:

http://www.dat.state.md.us/sdatweb/hog.html

PROPERTY TAX DEFERRAL
This program allows property owners, age 65 or older, to elect to defer the increase in their property tax bill. Each local government must first adopt the program. The local government then has the authority under State law to impose income restrictions and interest rate amounts. The deferred taxes become a lien on the property and must be repaid when the property is transferred. Montgomery County makes this deferral program available to homeowners of all ages who meet certain residency and income requirements.

The Homestead Tax Credit is not a deferral As the SDAT website says

HOMESTEAD TAX CREDIT PROGRAM
Another tax relief program is the Homestead Tax Credit. First enacted in 1977, the program has since been amended so that homeowners may be eligible for a state tax credit if the assessment of their owner-occupied principal residence increased more than 10% over the prior year. State law requires that county and municipal governments set a Homestead Credit Percentage between 0% and 10% for purposes of local property taxation. Upon qualification as the principal residence of the homeowner, this credit is automatically processed and is applied to the property tax bill.

This is the same thing as Howard County’s 5% assessment cap. I went into this in great detail on my blog (here) this past March. There was a great deal of discussion in the event you would like to read the commentary. This is available to all home owners. By State law Howard County could raise the phase in to 10% but they keep it at 5%.

On that post I wrote:

“Maryland uses a triennial assessment process. In that process one third of the County is reassessed each year and the assessment adjustment is phased in over a three year period. So revenue is predictable. If a triennial reassessment increase on a property is more than 15 percent, it will take more than three years to fully phase in the increase. Since the current assessment cap is at 5 percent and 5 goes into 15 equals 3 it will take three years to phase in the increases. This year (2006) the residentaial portion of the assessable base in the third assessment area (Northeastern third of the county) grew by an average of 74% from reassessments. If these properties remain with the same owner, it will take fifteen years for those properties to be fully phased in. We know not all homeowners are going to stay for 15 years, but at a 74% reassessment how many have to leave to meaningfully change the numbers? Now consider and add the other assessment areas of the county. Additionally, during this same time period those same properties will be assessed up to three more times before THIS assessment increase is fully implemented.”

I should add that when a property is sold the new home owner begins to pay taxes on the full assessed value of the home and not the phased assessment. What this also means is that every year every property owner in Howard County receives an automatic tax increase. On top of this our property tax rates in Howard County exceed the State’s Contstant Yield Tax Rate. The CYTR is a State law that prohibits local government from setting the tax rate at a level that will generate revenues that exceed the previous years revenues.

Again from the SDAT

The Constant Yield concept is that, as assessments rise, the tax rate should drop to the point that the revenue derived from the property tax stays at a constant level from one year to the next, thus assuring a “constant yield” from this tax source. The Constant Yield Tax Rate is simply a property tax rate that, when applied to new assessments, will result in the taxing authority receiving the same revenue in the coming taxable year that was produced in the prior taxable year.

That does not happen in Howard County. Howard County doesn’t have to follow the provisions of the CYTR.

Again from the SDAT:

Although setting of the local property tax rates is the task of elected officials, Maryland’s Constant Yield Tax Rate Provision gives property owners a voice in the process before the final tax rates are determined. This is done by requiring each taxing jurisdiction to give advance notice and hold public meetings prior to the rate setting if they are considering a tax rate higher than the Constant Yield Tax Rate. Most meetings are held during April, May and early June. Tax rates must be set by July 1, which is the beginning of the tax year.

Can anyone on this list tell me if they ever attended such a public meeting?

What this means is that local government has an every increasing revenue stream and they do not adhere to the CYTR. That is why I stated earlier “Howard County takes in more revenue than projected every year. Given the tri-annual property assessment process and the phase in provisions of property tax increases Howard County is experiencing increased revenues every year.”

I digress

There is also the Homeowners Property Tax Credit for those whose property is assessed at less than $300,000 and whose income is less than $55,000. It can limit property taxes to anywhere from $0.00 to less than $4,000 depending on the mix of income and assessed property value. Taxes must be paid at the full assessed value on anything above $300,000 in assessments. This is also available to renters though I didn’t look into it. There is other criteria for this Tax Credit, but it is a good place to start if they meet at a minimum the income criteria.

If I were a Senior, had the equity in my home, and did not mind having a lien placed on my home I would pursue the Tax Deferral. Another reader suggested a reverse mortgage as an alternative – but the intent (as I understand it) is that homeowner would give up ownership of the property and would incurr a debt against the home – in fact they may end up borrowing more than the property is worth. In a tax deferral that would be unlikely to happen. News reports have been such that seniors have not taken advantage of this program as expected and the most common explanation is that they do not want to be nor have their heirs to be encumbered by a tax lien.

However, given that property assessments are so large (72% or more in some areas, 100% in others as you noted, and 150% in my case) I think a freeze in assessed value and a property tax reduction are the most prudent and effective ways to help our seniors who meet the eligibility requirements (age and income) as proposed in the latest Senior Property Tax program.

For those who don’t like this tax cut because it is a targeted tax cut we could pursue another course of action that would help all tax payers. We could lower our tax assessment phase in from 5% to 4% as Charlie Feaga proposed and the Council passed in 2006 but it was vetoed by Jim Robey, and/or insist that the County adhere to the CYTR provision of State law. I think we could revisit Councilman Greg Fox’ proposal of making assessments portable for senior citizens who meet the same age and income requirements.

Let me close with this comment I made at Hayduke’s place:

Let me ask everyone a question just to see if we are all at least starting from the same point.

Are we all aware that property assessments have gone up from 72% to 150& depending upon where you live in the county?  Are you also aware that these will be phased in over a number of years (take 72% and divide by 5% = the number of years it will be phased in) and while they are being phased in the property will be reassessed in three year increments ensuring increased assessment values?

We will not get any relief here – no one.  However, most of us are earning income and earn more every year.  Seniors don’t have that kind of earning power.  They are stuck.

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15 Responses to “Property Tax Information”

  1. Dan Burdette said

    You mention reverse mortgages in your text. I have had personal experience with reverse mortgages and can share some information.
    A reverse mortgage is a loan against your home that you don’t have to pay back as long as you live in that home.

    You must be 62 and own the home.

    I helped a friend obtain a reverse mortgage after a corporation, McDonnell/Douglas, reneged on their promise of a pension and health care for her and for her husband for the rest of their lives. The husband had worked for the corporation for 34 years.

    McDonnell/Douglas was sold to Boeing which was able to legally break the contract they had with their retirees. My friend spent all of their joint life savings when her husband became too needy to be cared for at home and moved to assisted living. By the time her husband died, she was left with only the home they had bought some 40 years previously.

    My friend was home-equity rich but cash-flow poor. She was able to get a reverse mortgage against the value of her home. The reverse mortgage provides a modest but adequate monthly cash flow.

    If she leaves the home to her heirs, they will be responsible for repaying the loan.

    As an example, if the value of the home at the time of her death is $450,000, and the total of the reverse mortgage loan amount is $110,000 (10,000 a year for 10 years plus interest), then her heirs will inherit a home worth $340,000.

    In the case of my friend, the value of her home is growing so nicely that the growth in equity is matching the value of the reverse mortgage loan, so far.

  2. bsflag2007 said

    Dan Burdette wrote : “McDonnell/Douglas, reneged on their promise of a pension and health care for her and for her husband for the rest of their lives. …

    McDonnell/Douglas was sold to Boeing which was able to legally break the contract they had with their retirees.”

    This is a “trend” which needs to be stopped. It has been “allowed” and now “encouraged” by regulatory and legal manipulations of the “rich get richer…” and (pardon the generalization – but largely republican) perversion of the golden rule “he who has the gold makes the rules…”

    The legislative, executive and judicial branches are all complicit in this travesty — so far. One of them needs to step up and call the “renegging” what it is — massive fraud and theft by the rich/powerful against the poor/weaker.

    If McDonnel/Douglas, or the airlines, or the other compaines that have “had to” reorganize their business plans to “survive” by “eliminating” their pension or benefit packages —- by stealing the money from their former and current employees — then maybe the should not “survive”.

    Cindy Vaillancourt

  3. Dan Burdette said

    Soooo…..maybe we should give the corporations a tax cut!

    We all know how tax cuts stimulate the economy. Just look at the U.S. economy.

    In 2000, when Bush was elected president, the National Debt was 5.6 TRILLION dollars. In 1999 there was no federal deficit and the debt was gradually being repaid. Now, after several massive tax cuts, the National Debt is 8.67 TRILLION dollars! A THREE TRILLION dollar increase in 6 years.

    But hey, they cut the national deficit in half compared to the early Bush years. Now the deficit, the shortfall in the annual federal budget, is only, get this, only expected to be $477 BILLION this year!

    I’m not worried about these numbers though. First of all they are way too big to really comprehend and, secondly, I don’t have to worry about repaying the debt these bozos have gotten us into. I will be gone and my kids and their kids can deal with this problem.

    We can thank our representatives in the 107th through 109th congress for their stewardship of our tax dollars.

  4. Dan,

    I agree with you. The problem with these tax cuts (as opposed to the Reagan era tax cuts) is that they didn’t come with corresponding spending cuts.

    I think it has been proven that with the Reagan and Bush tax cuts government revenues actually increased. However, when the GOP congress acts like drunken sailers and Bush acts like the pirate captain they won’t work. You need both. The GOP showed no discipline.

    I hope the democrats do – I have my doubts.

  5. Dan,

    I don’t know but I am going to research it. I suspect that the County is going to be flush with a lot new property tax revenue based upon the huge 73% to 150% property tax assessments.

    David

  6. Dan Burdette said

    David,

    I think you’re correct. Have you ever checked Zillow.com?

    It is a great web site for current property values. Our properties have actually decreased in value over the past 30 days.

    I think the freeze on property tax for seniors who make less than a certain amount of money each year is a very good idea. Not only a good idea for Howard County, but for all of Maryland.

    The friend I referred to in an earlier post about reverse mortgages lives in California. Her property taxes are frozen at a mid 1970’s assessed value. Otherwise, even with the reverse mortgage, she would not be able to live in her home.

    Daniel

  7. Dan,

    Yeah. Zillow is an interesting tool. I play with it once in a while.

    Although our property values fluxuate in the market place, but our assessments won’t fluxuate (is that good or bad?).

    What would happen if our property values plummeted below the assessed value of our homes? It has happened before. However, I don’t think that will happen as it did in the 80’s. I don’t think the State would reassess our property to correct for the market flux.

    Interesting question in my mind.

  8. Dan Burdette said

    David,

    I own property in California. During the 1990s the property declined in value over 30%. I wrote to the County office of taxation and requested a re-assessment. The county complied, my property was re-assessed at the then current market value, and my property taxes went down over 30%.

    On another note, I want to clarify something you mentioned earlier. You said “the problem with these tax cuts (as opposed to the Reagon era tax cuts) is they didn’t come with corresponding spending cuts.” I would like to share a quote with you from the White House. “The traditional pattern of running large deficits only in times of war or economic downturns was broken during much of the 1980s. In 1982 (Reagon’s first budget year), partly in response to a recession, large tax cuts were enacted. However, these were accompanied by substantial increases in defense spending. Although reductions were made to nondefense spending, they were not sufficient to offset the impact on the deficit. As a result, deficits averaging $206 billion were incurred between 1983 and 1992. These UNPRECEDENTED PEACETIME DEFICITS INCREASED DEBT HELD BY THE PUBLIC FROM $789 BILLION IN 1981 TO $3.0 TRILLION (48.1% OF GDP) IN 1992.” (capitalization added)

    The above quote is taken from “Historical Tables, Budget of the U.S. Government, Fiscal Year 2006.” See the web site http://www.whitehouse.gov/omb/budget/fy2006/pdf/hist.pdf.Page 5.

    Until Republicans are willing to put the Pentagon budget on the table, and until Democrats are willing to suggest putting military spending on the table (for fear of being labled weak on defense), the Congress is not going to be able to get a handle on runaway spending.

    Daniel

  9. Dan,

    That is a good experience regarding your CA assessments. I hope that if the market turns down here we can expect the same treatment. Although they reassess every three years anyway.

    As to the Reagan era defense spending… That is a whole other post. The dividends received through that spending were the collapse of the Soviet Union and the surpluses of the 90s. We can talk about it over a homebrew and a cigar – I got a bunch for Christmas.

    David

  10. Len VMetter said

    How about the disabled but are not seniors,do they have anything?

  11. timactual said

    Tax receipts did indeed increase during the Reagan administration. They actually increased by more than the increase in defense spending. Total(note the word total) domestic spending also increased during the Reagan administration. Part of the reason for the increasing deficit was that in spite of the Reagan administration’s attempts to cut total domestic spending most, if not all, of the budgets he submitted to the Democratic congress were declared ‘dead on arrival’ by Tip O’Neill. I give a source below. I have used others before, but I am unwilling to spend the time going through my papers to find them. Google is much faster.

    http://www.gpoaccess.gov/usbudget/fy06/sheets/hist03z1.xls
    http://www.gpoaccess.gov/usbudget/fy06/sheets/hist06z1.xls

    There is some good news for those worried about the pension travesty. I am sure the new Democratic majority in Congress will resolve the situation as soon as they get through with all that important stuff they are going to do in their first 100 hours.

  12. Len,

    I could not find anything in terms of tax cuts that specifically benefited the disabled. However, I would think Homeowners Property Tax Credit would be worth reviewing if that person is income limited.

  13. cynthia vaillancourt said

    “Len” brings up an interesting point.
    To be clear, however, the following are not his words – they are mine.

    What is being proposed with the senior tax credits/freezes/cuts is in many ways the authorization of a “preferred class”.

    “Fixed Income” is not really the qualifying issue — there are many other HoCo citizens who live on incomes even more “fixed” than social security or pensions (minimum wage earners, disabled folks for example).

    Age is the qualifier. “Seniors”. The AARP crowd. The single most politically organized sub group (evangelicals may be closing in – but so far seniors still top the list i think).

    There are still plenty of good reasons to give this “class” of homeowners a “break” in their real estate taxes — but once we start itemizing the economic justifications, it opens a pandoras box of “me too” and “that’s not fair”.

    For example – senior citizens tend to consume fewer taxpayer services … they don’t use the schools, they aren’t big users of the justice system, they generate less trash.

    There must be other, emotion based justifications for developing this preferred class. Maybe it is anticipated self-interest since most of us hope to be senior citizens one day too.

    If we could sort out the relative values of the contributing factors to why we “feel” willing to offer this preferential treatment, I think it would be easier to iron out the details in a fair and equitable way.

    Here is my bottom line thought. “We” do not want to see people “lose their homes” because of unmanageable tax burdens – especially for taxes that provide services which the particular homeowner seldom uses.

    The problem is – there are factors other than “age” that may qualify a homeowner for that status while there are folks of qualifying age who may not fit the rest of the “formula” (unmanageable burden or use of services).

    We are a generally humane and “fair” people. We just have such a hard time defining who is “deserving” sometimes.

    Cindy V.

  14. Cindy,

    You are correct. The more and more I look into this I am considering changing my position slightly.

    Instead of just the Senior Tax Cut I think the County should adjust the assessment cap and/or the CYTR in order to ensure that the home owners in the County don’t get hammered with these huge assessment increases.

  15. Len,

    I did find that there are tax breaks for the blind and for disabled veterans. I would suggest you contact Howard County Finance to discuss what tax benefits for which you might be elegible.

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