Budget breakdown: city and county property taxes
By Kelly Livingston
The City of College Park and Prince George’s County have been working to set their budgets for the upcoming fiscal year. As part of this process, they have been evaluating potential adjustments to real property tax rates.
College Park’s rate for fiscal year 2021 was set at 32.5 cents per $100 of assessed valuation. Approaching the new fiscal year, valuations across the county went up following a new assessment from the Maryland Department of Assessments and Taxation.
“All properties are reassessed once every three years. And then what happens is the new assessment will go into effect, either up or down, over a three-year period,” Prince George’s County Legislative Analyst David Juppe said. “And the reason the state does that, is [that] it sort of mitigates the effects on a homeowner. If there’s large increases in assessments, then sort of spreading [it] out over three years helps to limit the amount of the impact.”
Given the higher valuations, College Park would have seen an increase in tax revenue if the rate were to remain the same. The city had the choice to maintain the rate from the prior year or adopt the Constant Yield Tax Rate set forth by the state.
“What the constant yield calculation tells you is what the rate would need to be to raise the same amount of revenue next year that’s being raised under the current rate,” Juppe said. “So what the municipality has to decide is whether or not they want to adopt the constant yield rate, or whether they need to adopt a different rate, based on the municipality’s budgetary needs.”
The city initially planned to keep the 2021 rate, rather than lower it to the constant yield. A public hearing on the matter is required, which led the city to take out an advertisement in The Washington Post in late April to notify residents of the May 11 meeting.
After councilmembers heard residents’ comments at the hearing, city staff took another look at budget options. During a work session the following week, Interim City Manager Bill Gardiner and Financial Director Gary Fields walked councilmembers through some options to reduce the property tax rate to the constant yield rate without detriment to the planned budget.
“We put forward a budget that was tight, funded a lot of [the council’s] capital requests, reduced a lot of expenditures, but maintained the 32.5 cent real property tax rate and did not propose to go down to the constant yield,” Gardiner said at the work session.
Gardiner noted that reducing the tax rate would lead to a loss of $380,000 in tax revenue for the upcoming year. However, federal funds from the American Rescue Plan Act of 2021 would allow the city to lower property taxes to the constant yield rate, “without immediate pain on programs that we’ve planned for many years.”
“Given that this is a maybe one-time opportunity to have a trade-off free tax cut, I think we’d be silly not to take it,” Councilmember John Rigg (District 3) said at the work session.
At the May 25 city council meeting, members voted unanimously to adopt the Constant Yield Rate (31.31 cents per $100 of assessed value), meaning that College Park residents will see no increase in their property taxes at the city level.
“I think it will be appreciated by many of our residents. Many of them spoke in favor of reducing property tax rates, and it’s something we don’t do every year, but this is an unusual time. Because of the pandemic, many of our residents are in hardship. … The amount is not that much, but every bit of help, helps,” Councilmember Fazlul Kabir (District 1) said at the meeting.
Meanwhile, Prince George’s County has been going through a similar process.
“The county has its rate that it can set, and then the municipalities can set a property tax rate as well. So someone living in College Park would pay property taxes to both the county and to College Park,” Juppe said. “The county goes through an annual exercise each fall called tax differential where it looks at the services that the county is providing and looks at the services that the municipality is providing, and if there’s some overlap … the county gives the municipality credit for those services so that someone living in that municipality isn’t paying double taxation. They’re not paying for police services to the county and to the municipality, for example.”
Prince George’s County has already advertised its intention to keep the tax rate for College Park at 96.5 cents per $100 of assessed value, which is above the constant yield. Given that the assessed values are higher, some residents could see an increase in their property taxes at the county level.
“If the constant yield had been adopted, and the rates were slightly lower – say it was, just hypothetically, $1.25 combined [per $100 of assessed valuation] — then they might pay $125 to 150 less.” Juppe said. “So it’s not a large amount, but … there is a slight increase in the amount that someone with the median home price would pay.”
Juppe said this also depends on the assessed value of a resident’s home in the prior year, along with the tax rate that was in effect then.
“Some assessed values go down… If the assessed value was $340,000 and then it goes up to $350,000 and the constant yield is not adopted, then yes, they’re paying slightly more,” he noted.
According to Juppe, the proposed county budget for fiscal year 2022 is “pretty well flat,” relative to the fiscal 2021 budget. He said that while property tax revenues will increase, economic impacts from the COVID-19 pandemic have caused estimated drops in other revenue sources.
The Prince George’s County FY2022 budget, which will set the tax rates, will be considered and adopted on June 22.