Annapolis Should Adopt Property Tax Cap

My favorite politician is Herb McMillan, mostly because I agree with almost everything he agrees with, but also because he gives it to you straight. I once attended a campaign meeting for Herb where he was soliciting advice, and his own father-in-law told him he had to stop coming across sounding so mean! I love it.

Perpetually the fiscal conservative, Herb has spearheaded an effort to put a tax cap measure on the ballot. I originally decided to support the measure blindly, as a political courtesy. When people began debating the issue, however, I realized that some research and factual support would be necessary.

If you read below the fold, I will expound on the reasons Annapolitans should support a tax cap, which include:

-the city is not losing money
-services can be sustained
-city will be forced to become more efficient
-city will have to find creative new revenue sources
-city will have to find creative new cost cutting measures
-lower property taxes will attract businesses
-city economic situation will reflect underlying economic situation
-maintenance projects can still be bond funded

Then, a local yokel published an anti-tax-cap column in the paper, which immediately gave me a forum to broach the topic. I will first deal with the column, as well as the “the county can do it” argument, the “the county can’t do it argument”, and the “everybody hates taxes until they start losing services” (liberal) argument.

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Guest Column: Life in Annapolis will be less pleasant if city adopts tax cap

In his 1964 acceptance speech for the presidential nomination of his party, the Republican icon Barry Goldwater made the point that the American people had made the mistake of following “false prophets.”

I already don’t like where this is going. In an effort to prepare myself for what I expect to be the sour tone of this article, I’ve poured myself a cup of grapefruit juice.

His solution was to “return to proven ways – not because they are old, but because they are true.” Goldwater was talking about conservative principles, but his words could be applied to present day “false prophets” who are disingenuously seeking to apply a “tax cap” to Annapolis city’s efforts to fund its budget.

This is the second mention of ‘false prophets’, a term used in religion to as a part of a profound belief system. Relative to the notion of false prophets, a municipal tax cap is mundane, and those seeking to apply such a cap are not “disingenuous”; but rather, “logical”.

Furthermore, Goldwater’s reference to false prophets, while perhaps a lesser degree of profundity then biblical prophecy, still was used to define the most essential philosophy of conservatism: the value of freedom over collectivism. Here is the context from the speech:

In this world no person, no party can guarantee anything, but what we can
do and what we shall do is to deserve victory, and victory will be ours. The
good Lord raised this mighty Republic to be a home for the brave and to flourish
as the land of the free-not to stagnate in the swampland of collectivism, not to
cringe before the bully of communism.

Now, my fellow Americans, the tide has been running against freedom.
Our people have followed false prophets. We must, and we shall, return to proven
ways– not because they are old, but because they are true.

We must, and we shall, set the tide running again in the cause of
freedom. And this party, with its every action, every word, every breath, and
every heartbeat, has but a single resolve, and that is freedom.

The initiative is nothing more than a right-wing ploy to make it impossible for elected officials to address the needs of the city. The ”I’ve Got Mine” crowd currently pushing for this misguided legislation likes to portray their efforts as nothing more than putting limits on “government waste.” The truth is that tax caps end up limiting the ability of state and local municipalities to maintain a just and workable society.

It’s a conspiracy! Right-wing extremists say they just want to keep more of their hard-earned money, but we know they want our society to crumble beneath our feet! I, for one, will never forget that government is wise, and will look out for my family just as well as I could if I were actually able to control my own destiny!

P.S.: rich people smell.

In a recent article (The Capital, July 6), one of the leaders of the cap movement made the point that, “If the county can maintain schools and provide public service with a tax cap, then so can the city.”

Statements like this show just how out of touch with reality the tax cap proponents are with the conditions in Anne Arundel County.

Note: the “county is/isn’t doing it” argument will be covered below.

First off, anyone who knows anything about our schools knows we are not maintaining them on any acceptable level. Far too many of our children attend classes in substandard conditions. In addition, the system currently has a billion dollar maintenance backlog. The county executive’s consistent answer to this tragic situation has been to throw up his hands and remind everyone that Anne Arundel is “a tax adverse county.”

The city of Annapolis has a maintenance backlog without a tax cap, and without any semblance of a responsible homestead credit. City property taxes are allowed to rise meteorically. Conclusion: the maintenance backlog is more a function of management than constraints of a tax cap.

When a city limits taxation it makes the rich richer but at the same time it makes it difficult, if not impossible, to maintain the services and institutions that allow communities to remain viable.
If you don’t believe it take a look at California, that state is currently operating under a misguided initiative instituted in 1978. This “cap” on property taxes has forced the Golden State to deny medical care to 1 million children, cut college scholarships, shut down countless state’s parks, end benefits to welfare recipients and lay off thousands of state employees.

Enough! When a city limits taxation, it makes EVERYONE richer. Every time somebody wants to lower taxes, a liberal claims that essential services will grind to a screeching halt. Police, fire, and schools are not what will be cut; instead, maybe the government will stop paying over a million dollars to fix a door. And California? California! No doubt the state is experiencing losses related to business cycle downturns, but the cuts you mention have been driving the budget deficits that are crippling California. This from an article in The Economist on July 9:

High taxes, coupled with intrusive regulation of business and greenery taken to
silly extremes, have gradually strangled what was once America’s most dynamic
state economy.

Our American Revolution was fought largely to protest unjust levels of taxation. It is also true that politicians sometimes go too far in their demands for additional revenues. People of all political stripes need to understand there are times when it is both prudent and appropriate to raise taxes.

There is also a time where it is both prudent and appropriate NOT to raise taxes, perhaps when the entire world is in recession, unemployment is at it highest level in 26 years, NOW, etc. Frustratingly, most politicians don’t understand this. Even if their idea to invest or spend more is not wholly awful and worthless, they feel pressure to make their name and fully ignore the timing of what they are trying to do.

Since the age of Ronald Reagan, countless false prophets have tried to make us believe we could have both low levels of taxation and a high quality of life. Unfortunately, modern schools, roads, and police and fire services cost money to maintain.

Note to scared readers: police, fire, and roads will still exist in the land of a tax cap. Remember that a tax cap doesn’t even cut taxes!!! If you listen to liberals, you might think that the money taken from you by the government is decreasing!! GASP!! Not the case…the tax cap would only limit the growth of how much they can take from you (to the lower of the rate of inflation or 4.5% per year).

Those who tell us we can have the aforementioned and still place limits on the amount of revenue a county or city takes in are living in a dream world. When politicians go too far in raising taxes the problem should be solved through the ballot box.

It’s too bad that the problem of confusing newspaper columns can’t be solved through the ballot box. Here is a summary of the logic of that last paragraph:

essential services + limited government = dream world. (wrong logic)

politicians who raise taxes = should be voted out. (good logic)

taxes should be controlled by elected politicians and not a statutory mandate. (implied logic that if stated would have made the paragraph more understandable, although still wrong, because politicians cannot be trusted to spend money wisely as a general rule).

In short, when it comes to solving the modern day problems in our county the financial hands of our leaders are tied. If the residents of Annapolis are smart they will avoid making the same grievous error and ensure that city leaders have the ability to raise the revenues required to allow our city to grow, thrive and most importantly maintain the ability to meet the almost certain challenges of the 21st century.

If there is anything that our leaders have figured out, it’s how to raise revenues (taxes).

I’m done with this columnist from Severna Park, but if you’re not, you can read HERE.

“The County Does It, So Can The City”

This argument will be at the forefront of the argument made by supporters of the tax cap. The county executive described Anne Arundel County as a ‘tax averse county’, and the data would probably support that. The homestead credit is 2% (city of Annapolis: 10%), there is a property tax cap (city of Annapolis: no cap), and the piggyback income tax is 2.56%, which is the second lowest of all 23 Maryland counties.

Further support of this argument lies with the fact that the city does not have schools. The city’s main operating expense is labor (about 85% of the budget), and the problem of maintenance backlogs can be addressed through the capital budget.

“The County Really Can’t Do It”

Opposition to the tax cap argues the point that the county really can’t sustain a tax cap. County budget officer John Hammond acknowledged that a “fair criticism” of the tax cap was the hardship it placed on keeping up with repairs, particularly to schools.

“People Always Complain About Taxes Until Their Trash Doesn’t Get Picked Up”

I wish I knew how many unnecessary taxes were paid because some politician scared the voters into thinking that the hospitals would turn them away unless taxes were raised immediately. Governor O’Malley was able to increase sales taxes by 20% as a measure to balance the budget, only to concurrently pass some health bill that spent another $500 billion in new money.

The most important thing to remember is that the tax cap does not propose to cut tax revenue! It only proposes to limit its growth to what can be considered a fair level. If the city can’t figure out how to maintain the same level of services with a guaranteed income stream that increases by 4.5% every year, then I will be happy to explain it to them for a very reasonable price.

Who Is Right?

I really, REALLY would like to say that supporting the property tax cap is a no-brainer. The only reason why it’s a slight-brainer is that the city’s only means of taxation is the property tax–they don’t have sales tax, or income tax. Maybe it’s because I had too much grapefruit juice, but I figure I should verify that the city’s hands are sufficiently untied to meet the service requirement of the citizens. Tragically, I had to do some research, but I feel comfortable to present the reasons to support a property tax cap in Annapolis. While writing these reasons, you will see that many of them overlap with other aspects of city government, or perhaps reforms of city government. Issues don’t exist in a bubble, and it’s beneficial to see each issue as part of an overall vision of how local government should be executed.

The city is not losing any money. Limiting the growth of something is way different than reducing it. I couldn’t find data for Maryland (after looking for like 45 seconds), but judging by the national data, the rate of inflation will fall below 4.5% and be the cap on property tax revenue. The city can control the property tax rate, so they still have control over property taxes (subject to the cap). If you think inflation rates would be low and you wanted to play it safe, you could set the cap at the rate of inflation plus 1%, with a max of 4.5%. It would still be better than the current situation, which saw the budget increase by 6-8% in most years of the Moyer administration. In any case, the budget would still be allowed to grow.

Services can be sustained. In other words, I am not convinced that the city is on the brink of financial disaster, and I am convinced that there are areas that can be cut before essential services would be affected. The Moyer administration was characterized with expansion, the pinnacle of which is probably the Department of Economic Development. With a director, a staff, and a healthy special projects budget, the department is good for over a half-million dollars in cost. And that doesn’t include the rent on their building on West St., which is somehow listed as “0”. Eliminating this department would be a great place to start, and would provide significant savings without affecting essential services.

The city will be forced to become more efficient. There’s nothing like a law to change the way you do things. How can the city become more efficient? Cutting jobs is certainly one way. To look a step further, there is perpetual talk about combining services with the county: police, fire, public works, etc. The county headquarters lies in city limits, for goodness sake. A tax cap would encourage the city to take a real look at this and could provide savings to the taxpayer.

The city will have to find creative ways to secure revenue. ‘Governments getting creative with revenue’ is normally a scary thing, but the city is fortunately constrained by jurisdiction. Lobbying efforts to get money from the county and state would gain more importance, and fees for the Enterprise Funds (water, sewer, dock fees, parking fees, etc) would probably increase, but at least the taxpayer could control how much they use those services. Perhaps more importantly, the city would be forced to look to expand their tax base. This could come through annexation, or through property already within the city limits: public housing. Many Annapolitans would cite public housing as centers for crime in the city, and many would support a reduction in public housing. A property tax cap would certainly be better received if it was accompanied by a reduction in crime and an increased tax base.

The city will have to find creative ways to cut costs. Similarly, I envision a world where the city would be forced to make a significant structural change to the benefit of the taxpayers. The number one driver of costs is labor (salaries and benefits), and the determinant of that is union contracts. A property tax cap would give the city negotiating position with the unions to say “hey, we can’t give you everything you want, because we have to comply with this law”.

Lower property taxes will attract businesses. Since we will be eliminating the department of economic affairs, we have to figure out a way to develop the economy! Lower property taxes will do this. Lower property taxes will mean lower rents, lower fixed costs for businesses, and an easier pill to swallow for entrepreneurs making risk/reward decisions. With competition coming from the neighboring county, this would be a welcome change to the business environment in the city.

City economic situation will reflect overall economic situation. As noted, reliance on transfers and grants from other jurisdictions would gain more importance. It has been shown that in tough economic times, these transfers are reduced. The city, therefore, would be forced to cut back in tough economic times, which is also a welcome change. As it is, politicians seem to be oblivious to current economic circumstances, willing to incorporate tax and fee increases without remorse.

Maintenance projects can be funded by bonds, and debt payments could be excepted under the cap. A maintenance backlog has been cited as an example of why the county’s property tax cap isn’t working. An astute observer (meaning someone who read the top part of this post) would note that the city also has a backlog, and does not have a tax cap. Bond funding for maintenance projects would still be available! As the city will tell you, they receive a very favorable interest rate on bonds, minimizing the cost of borrowing that money. Furthermore, debt service can be exempted when computing the spending allowed by the tax cap. Along with a requirement that bond funding be used only for infrastructure projects, this would allow the cap to work while permitting investments in infrastructure.

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