Editor’s note: This story was updated at 4:40 p.m. on May 11 to include a statement from Montgomery County Council of PTAs Capital Improvements Program Committee chair Laura Stewart.
The Montgomery County Council voted 7-4 Tuesday to pass a recordation tax rate increase to fund capital projects in the county, including renovations to county schools. It will apply to homes valued at $600,000 and above.
The increase comes as the council also considers a 10% property tax increase proposed by County Executive Marc Elrich.
Councilmember Kate Stewart (D-Dist. 4), who led work on the legislation, said the recordation tax addresses a structural deficit the county had in how it was funding infrastructure projects.
“We were able to make sure that we continue to take steps to fully fund our infrastructure projects, particularly our school projects in the county, which are so important to our communities, to our students, to our educators and families, as well as to our economic development moving forward in the county,” Stewart said.
The county’s recordation tax is applied whenever real estate is transferred from one party to another or refinanced in the county. The current ‘base’ recordation rate is $2.08 for each $500 on the sale price. It’s a one-time tax that occurs when buying or selling a home.
One-third of the recordation tax premium will go to Montgomery County Public Schools capital projects, one-third will go to county government capital projects, and one-third will go to rental assistance programs in the Housing Initiative Fund.
The legislation was initially proposed by councilmembers Will Jawando (D-At-large) and Kristin Mink (D-Dist. 5) and was amended by the council’s government operations and fiscal policy committee, led by Stewart. It keeps the base rate of $2.08 per $500 the same and keeps the school increment rate to $2.37 per $500.
The Greater Capital Area Association of Realtors voiced strong opposition to the original proposal, saying that, in tandem with Elrich’s proposed increase, the recordation tax hike “would hurt anyone even thinking of buying a home in the county.”
“This proposal will further hurt our county’s economic growth,” the group said in a statement in March.
In contrast, the Montgomery County Council of PTAs advocated strongly for the recordation tax increase.
“I am relieved that revenue has been expanded for the county CIP through Bill 17-23 … This overdue revenue solution will reduce the need for even more delays and associated expenses in the future,” Montgomery County Council of PTAs Capital Improvements Program Committee chair Laura Stewart wrote in a statement to MoCo360.
The approved tax will increase the premium from $2.30 to $5.75 for home sales over $600,000, a rate of $6.33 per $500 of value between $750,000 and $1,000,000, and $6.90 per $500 of value over $1,000,000. That means $1.725 goes to the county’s capital improvement program and $1.725 to rental assistance per $500.
Stewart said the difference between the initial bill from Jawando and Mink and the bill that was passed is that it does not affect homes assessed under $600,000. This was in order to not impact residents buying affordable and starter homes, Stewart said.
Recordation tax rates in Maryland range from $2.50 per $500 transaction in Baltimore and Howard counties to $7 per $500 transaction in Frederick County. Most counties have tax rates set between $3 and $5. Recordation tax revenues, which declined because of decreased economic activity due to the pandemic are beginning to trend upward, according to county reports.
The councilmembers who voted for the increase said this is needed to help fund capital projects in the school system. Specifically, it would almost close a $207 million gap in the proposed Capital Improvements Program (CIP).
The CIP is a six-year plan for capital improvements in the county that works in tandem with the proposed budget. It lays out the objectives of capital programs, the relationship between these and the county’s long-range development plans, recommendations for construction, and estimates of costs, revenue sources and impacts.
This year’s CIP includes proposed renovations of multiple MCPS schools, including Burtonsville Elementary and Damascus Elementary, as well as roof renovations and Americans with Disabilities Act compliance projects in multiple schools. According to council staff, the new recordation tax legislation will prevent some of these projects from being delayed.
“This is a call for us to take action and do something. I know this recordation tax is not something that is very popular with everybody. But it’s a need,” said Councilmember Natali Fani-González (D-Dist. 6), who noted she worked on and advocated for a recordation ax increase when she was on the Planning Board.
In 2020, the Planning Board recommended increasing the recordation tax, but the council did not increase it at that time.
However, while all councilmembers at Tuesday’s meeting they supported an increase, not all members supported this high of an increase.
Councilmember Andrew Friedson (D-Dist. 1) proposed an amendment to Stewart’s version of the legislation that would fund the school requests, but not the government capital projects or rental assistance programs. His legislation would have required no additional premium for homes between $600,000 and $1 million.
“There are going to continue to be hard decisions because you can’t tax your way out of making hard decisions,” said councilmember Dawn Luedtke (D-Dist. 7). “Incredibly important projects may not be funded because we don’t have the revenue. That’s going to be an issue with every budget.”
Councilmember Gabe Albornoz (D-At-large) voiced concern for the increase in this tax in addition to other tax increase proposals the council is weighing, including Elrich’s proposed 10% property tax increase.
“I support the notion of the need for an enhancement of the recordation tax … but this tax cannot and should not be looked at in isolation. We are deliberating right now the possibility of a 10% property tax increase across the board,” said Albornoz.
Councilmembers Albornoz, Friedson, Luedtke, and Marilyn Balcombe (D-Dist. 2) voted for the Friedson version and against the Stewart version of the legislation.
The new tax rate will go into effect in October.