GO Item 1
October 24,2011
Worksession
MEMORANDUM
TO:
Government Operations and Fiscal Policy Committee
FROM:
~
Michael Faden, Senior Legislative Attorney
fI
Glenn Orlin, Deputy Council Staff Director
SUBJECT:
Worksession:
Bi1l26-11, Taxation - Development Impact Taxes - Payment
Bill 26-11, Taxation
Development Impact Taxes - Payment, sponsored by
Councilmember Riemer, Council President Ervin, and Councilmembers Berliner, Floreen,
Leventhal, Navarro, and Rice, was introduced on September 13, 2011. A public hearing was
held on October 4.
Bill 26-11 would require the transportation and school development impact taxes, and the
associated transportation mitigation and school facilities payments, to be paid before a use and
occupancy permit is issued, rather than before a building permit is issued as current law
provides.
Hearing testimony
The County Chamber of Commerce and various representatives of
the building industry supported the Bill, arguing that deferring the impact tax payments will
reduce builders' carrying costs and ease their ability to secure financing (see selected testimony,
©3l-34). They asserted that this will increase the likeliness that approved subdivisions will
proceed more quickly to realization, generating greater employment in the building and building­
support sectors and thus the County's overall economy. The only testimony opposing the Bill
was by Robert Dyer, who termed the Bill "corporate welfare" which lets developers profit at
taxpayers' expense. He argued that funds allocated to transportation and schools would be paid
more slowly, requiring needed projects to be deferred.
Experience elsewhere
Since the County first implemented impact taxes in 1986, they
have been collected just before the building permit is issued. All major Maryland jurisdictions
charge impact fees or taxes at building permit; 4 small counties charge it later, the latest being
Charles County, where they are paid in lO-year installments after occupancy permit (see list on
©27).1
IThanks to Scott Kennedy of the Office of Policy Analysis, Maryland Department of Legislative Services, for
compiling this information.
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According to Duncan Associates, a Florida firm that routinely surveys states and local
governments about their impact fee/tax programs, of the 28 states that have authorized local
governments to charge impact taxes, 14 require the charge at building permit, while 5 others
require it at certificate of occupancy: Arkansas, California, Illinois, New Hampshire, and Rhode
Island. In the Virginia jurisdictions that do not have impact taxes but rely on proffer zoning
instead, the proffer payments are made after final inspection and before certificate of occupancy.
The other 9 states allow their local governments to charge the tax or fee anytime during the
deVelopment process, from as early as subdivision approval to as late as certificate of occupancy.
Executive recommendations
On October 17 the County Executive transmitted detailed
comments on this Bill (see Executive memo, ©13-I5). He recommended enactment of this Bill
with the following amendments:
• for single-family residential development, defer payment of impact taxes (and similar
Payments) to the earlier of final inspection or 6 months after the building permit is
issued;
• for multi-family residential and non-residential development, defer payment of impact
taxes (and similar Payments) to the earlier of final inspection or 12 months after the
building permit is issued;
• sunset the later payment dates in 2 years. This would require the Council to enact
another bill in late 2013 to extend the deferrals or make them permanent;2 and
• make the Bill an Expedited Bill, taking effect on December
1
(the Executive's memo
did not specify that date, but Executive staff told us that they will need that much time to
get ready to implement
it).
Revenue analysis
Council staff asked the Department of Permitting Services (DPS) to
estimate the average time between the issuance of building and occupancy permits for various
types of construction. The results ofDPS' analysis are reported in the OMB fiscal and economic
impact statement starting on ©16:
Single-family residential
158 days (about 5 months)
Multi-family residential
224 days (about 7Y2 months)
Office
366 days (about 12 months)
Retail
200 days (about 6Y2 months)
Finance Department staff's revenue loss/transfer projections for this Bill are based on
these time differentials, assuming that the Bill would take effect on February 1, 2012, 91 days
after its potential enactment in early November.
After reviewing the initial fiscal impact statement, Council staff, working collaboratively
with OMB and Finance staff, identified some needed corrections and revisions, one of which was
to extend the analysis through FY18, the end of the next Capital Improvements Program.
3
The
2This temporary 2-year deferral would also be consistent with other 2-year suspensions or extensions of other
building-related requirements, such as SRA 11-01, which extended for another 2 years the validity period of certain
adequate public facilities determinations and preliminary subdivision plans, effective April 1,2011.
3
0ne significant revised assumption is that the payment at occupancy permit would be governed by the impact tax
rate in effect at that time, rather than the rate in effect when the building permit was issued, if the rate was revised in
the meantime. As you know, under County Code §§52-57(g) and 52-90(t) the impact tax rates are revised every
2
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revenue projections in this packet, therefore, supersede those in the attached fiscal impact
statement.
This staff group ultimately asked Finance staff to produce several scenarios reflecting
possible modifications to this Bill, and the data for each scenario were vetted by the staff group.
Each scenario was compared to a Baseline representing no change in the current law. In total, 5
scenarios generated by Finance staff are:
Scenario 1: Bill 26-11 as introduced, assumed to take effect February 1,2012, 91 days
after enactment in early November (©28).
Scenario 2: Scenario 1 with a 2-year sunset (©28).
Scenario 3: Scenario 1 as an expedited bill, effective November 1 (©29).
Scenario 4: Scenario 1 with a 6-month payment deferral for single-family residential
buildings and a 12-month deferral for multi-family residential and non-residential
buildings (©29).
Scenario 5: Scenario 1 with a 2-year sunset, an expedited bill effective December 1, and
with a 6-month payment deferral for single-family residential buildings and a 12­
month deferral for multi-family residential and non-residential buildings (©30).
This
scenario incorporates the Executive's recommendations.
The revenue forecasts were based on what could be referred to as "pure" revenue
projections: those based purely on the current forecasts of growth in each major land use sector,
the current impact tax rates with biennial inflation adjustments, and a factoring-down of
transportation impact tax revenue because of credits. The forecasts do not reflect the timing of
School Facilities Payments, which would also be affected by this Bill; to date only about $6,000
of these Payments has been collected.
The forecasts also do not assume any additional growth in residential or non-residential
construction because of the delayed payments, although that is one of the sponsors' objectives.
All would agree that this is nearly impossible to estimate. OMB's October 4 transmittal noted
that, at least as of that time, the Executive Branch had not heard from any developer that
deferring the impact tax payment would make a difference as to whether a development project
would move forward, and they did not know of any statistical or empirical data, locally or
nationally, demonstrating that delaying tax payments would have a measurable effect.
Council staff is comfortable not including a "plug amount" of revenue for development
that might be generated or accelerated because of this measure, as long as everyone recognizes
that the revenue forecasts below are, in this way, slightly-to-moderately conservative. Logic
dictates that a version of this Bill would have to be enough of an incentive for at least a handful
of developments to proceed to construction, even if their carrying costs are only reduced by a
few months.
The key results of this joint staff analysis are:
• This Bill as introduced would reduce projected impact tax revenue in the current fiscal
year (FYI2) by $12.3 million ($9.9 million for schools, $2.4 million for transportation),
odd-numbered year to reflect construction cost inflation or deflation. The Council can also increase or decrease the
rates by resolution at any time. This Bill does not affect the actual rates that
will
be charged.
3
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and over the FY13-18 period by another $7.7 million ($6.1 million for schools, $1.1
million for transportation).
• One amendment -- adding a 2-year sunset date -- would render the bill virtually revenue
neutral by the end of FYI5. There is a slight net increase in revenue, because some
deferred payments would be made after a biennial inflation adjustment.
4
• A November 1 effective date would reduce the negative impact on revenue in FY12 by
about $4.8 million, since some permits issued this winter would reach the occupancy
(payment) stage before the end of the fiscal year, rather than in FYI3. This means, of
course, that the negative revenue impact in FY13 would be increased by about $4.8
million. Revenue in FY s 14-18 would not be affected by a different effective date.
• Setting the deferral period to no later than a time certain - 6 months after the building
permit is issued for single-family residential buildings, 12 months for everything else ­
would have nearly the same revenue impact as collecting the tax at occupancy permit.
• The Executive's recommendation, which includes all the individual changes mentioned
above (except that the Expedited Bill would take effect on December 1), would reduce
projected impact tax revenue in FY12 by $8.9 million ($7.1 million for schools, $1.8
million for transportation) and in FY13 by $3.6 million ($3.2 million for schools, $0.4
million for transportation), but these losses would be recouped in FYsI4-15.
These "pure" forecasts are a good way to estimate the Bill's fiscal impact on the County.
However, because of the year-to-year volatility of building activity and the unpredictability of
when transportation impact tax credits will be exercised, the actual impact tax revenue that
materializes is often very different than forecast. In several recent years, revenue from impact
taxes was overestimated, leading to the need to supplant impact
tax
revenue with General Fund
advances, which ultimately are reimbursed with funds that otherwise could be used for other
proj ects in the CIP. Starting with the Approved FY11-16 CIP, therefore, the Council initiated
the practice of conservatively estimating impact tax revenue. At CIP Reconciliation, if actual
revenue proves to be somewhat higher, the Council is able to program the additional amount.
The differences between the "pure" forecast for the baseline, Bill 26-11 as introduced, the
Bill with amendments proposed by the Executive, and the amounts actually programmed, are
shown below (in thousands of dollars):
~---.
School impact tax
Baseline
Bill
26-11
Executive rec.
Now
programmed
FY12
14,291
4,369
7,145
14,480
FY13
14,960
15,826
11,711
10,890
FY14
16,824
14,985
18,031
11,520
FY15
17,794
17,500
26,983
12,100
FY16
19,241
17,722
19,241
13,350
....
FY17
19,838
18,248
19,838
FY18
21,606
19,879
21,606
FY12-18
I
124,553
I
108,531
I
124,555 •
-
-
-I
4Finance Department staff was not asked for other sunset scenarios. However, a 3-year sunset would reach virtual
revenue neutrality at the end ofFY16,
a
4-year sunset at the end of FYI7, and a 5-year sunset at the end ofFY18. In
each case there would be lower revenue in earlier years and commensurately larger revenue
in
the later years.
4
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Transp. impact tax
Baseline
Bill
26-11
Executive rec.
Now
programmed
12
3,156
789
1,410
6,743
FY12
17,446
5,158
8,555
21,223
FY13
3,194
3,441
2,839
4,373
FY13
18,154
19,267
14,550
15,263
FY14
3,444
3,066
3,811
4,080
FY14
20,268
18,050
21,842
15,600
FY15
3,495
3,131
5,231
4,120
FY15
21,289
32,21
16,220
FY16
3,697
3,344
3,697
4,410
FY16
22,938
21,066
22,938
17,760
FY17
3,727
3,361
3,727
-
FYll-18
FY18
3,969
I
24,681
20,705
3,573
24,683
3,968
-
FY18
25,573
23,453
25,574
-
I
I
Total impact tax
Baseline
Bill
26-11
Executive rec.
Now
programmed
20,6~t
FY17
23,565
21,609
23,565
FY12-18
149,234
129,236
149,237
-
-
-
From these projections, we find that even the conservative assumption for FY12 is too
high: the Council programmed $21,223,000 in impact taxes this year, and only $17,446,000 is
anticipated with no change in the law. If Bill 26-11 as introduced is adopted, the result will be a
projected programming shortfall this fiscal year of $16,065,000. The Executive's proposal
results in a shortfall of $12,668,000. The shortfall could be made up with a combination of
sources:
• The FY12 G.O. Bond reserve stands at $12,979,000. Whatever is taken from this amount
will not be available for supplemental appropriations for the balance of the fiscal year.
• The final FYll School Impact Tax revenues collected were about $14,398,000, this is
$2,438,000 higher than had been anticipated at CIP Reconciliation. The final FYll
Transportation Impact Tax revenues collected were about $4,637,000, this is $1,313,000
less
than had been anticipated at CIP Reconciliation. Thus there is a net additional
$1,125,000 available for programming in FYI2.
• Any balance left after using these two resources would have to be covered by either
deleting or deferring spending from FY12 or by infilling with cash advances from the
General Fund reserve.
For FYs13-16, however, the aggregate impact tax revenue assumptions used in the CIP
are less in each year than the revenue projected under the baseline, Bill 26-11 as introduced, or
the Executive's proposal. Therefore, no projects would need to be deferred in these years.
5
Council staff recommendation:
Enact the bill with the Executive's proposed
amendments. Doing so accomplishes the same objectives as this Bill as introduced while giving
the Council the option of revisiting this issue in 2 years when, hopefully, the building industry
will have sufficiently recovered. Placing a time-certain on the payments assures that impact
tax
revenue for school and transportation infrastructure is not unduly delayed. Expediting the
effective date to December 1 will move the potential positive effects of this bill 2 months sooner
5However, some minor adjustments in the mix of G.O. bonds and impact taxes in particular projects will be needed.
Note that the programmed amounts for the transportation impact tax are slightly
higher
than Bill 26-11 or the
Executive's recommendation in most years, while the programmed amounts for the school impact tax are well lower
than either option. The CIP will need to be amended to shift some G.O. bond offsets from school projects to
transportation projects. These shifts would not affect the total funding available for each project, but only the
mixture of those funds.
5
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while still giving DPS time to adjust its procedures.
If
the Committee approves these changes in
principle, Council staffwill work with the County Attorney to draft the necessary amendments.
6
Finally, the Executive's amendments result in a smaller revenue shortfall in FYI2. This
could be covered by a small unprogrammed surplus of FYIl impact tax collections and a large
portion of the FYI2 G.O. Bond reserve, and thus avoid having to dip into the General Fund
reserve. This will leave a small balance in the G.O. Bond reserve for the most critical'
supplemental appropriation requests.
This packet contains:
Bill 26-11
Legislative Request Report
Memo from County Executive
Fiscal Impact Statement
Economic impact a analysis
CIP funding details
Timing of payments in other Maryland jurisdictions
Revised fiscal impact scenarios
Selected testimony and correspondence
Circle
#
1
12
13
16
20
25
27
28
31
F:\LAw\BILLS\1126 Development Impact Taxes-Payment\GO Memo lO·24-1I.Doc
6
These
amendments will also give staff an opportunity to address several technical payment issues raised by the
County Attorney, most of which would be resolved by the revised payment deadlines in the Executive's
amendments. The critical fact assuring ultimate payment of the tax is that, under County Code §S2-S0G), the
County has a lien on any property for which the impact tax was not paid when due, identical to the lien for
nonpayment of property taxes.
6
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Bill No.
26-11
Concerning: Taxation -
Development
Impact Tax - Payment
Revised: 8-17-2011
Draft No. 3
Introduced:
September 13, 2011
Expires:
March 13, 2013
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ _ __
Sunset Date: _ _ _ _ _ _ _ __
Ch. _ _, Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Councilmember Riemer, Council President Ervin, and Councilmembers Berliner, Floreen,
Leventhal, Navarro and Rice
AN
ACT to:
(1)
(2)
(3)
require any development impact tax to be paid before a use and occupancy permit is
issued;
require any transportation mitigation payment or school facilities payment to be paid
before a use and occupancy permit is issued; and
generally amend the law governing development impact taxes.
By amending
Montgomery County Code
Chapter 52, Taxation
Sections 52-47,52-49,52-50,52-51,52-54,52-55,52-56, 52-59, 52-89, 52-93, 52-94
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedjrom existing law by original bill.
Added by amendment.
Deletedjrom existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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BILL
No. 26-11
1
Section
1.
Sections 52-47, 52-49, 52-50, 52-51, 52-54,52-55,52-56,52-59,
52-89, 52-93, and 52-94 are amended as follows:
52-47. Definitions.
In this Article the following terms have the following meanings:
2
3
4
5
*
*
*
6
7
Applicant
means the property owner, or duly designated agent of the property
owner, of land on which a [building] use and occupancy permit has been
requested for development.
8
9
*
*
*
10
Development
means the carrying out of any building activity or the making of
any material change in the use of any structure or land which requires issuance
of a [building1 use and occupancy permit and:
(1)
(2)
Increases the number of dwelling units; or
Increases the gross floor area ofnonresidential development.
11
12
13
14
15
Development impact tax
means a pro rata per unit or per square foot of gross
floor area tax imposed before a [building] use and occupancy permit is issued
for development which is intended to defray a portion of the costs associated
with impact transportation improvements that are necessary to accommodate
the traffic generated by the development.
16
17
18
19
20
21
22
*
*
*
Property owner
means any person, group of persons, firm, corporation, or
other entity with a proprietary interest in the land on which a [building] use
and occupancy permit has been requested.
23
24
*
Use and occupancy permit
means
~
*
*
and occupancy permit issued
.Qy
the
25
26
Department of Permitting Services under Chapter 8.
(})-
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BILL NO. 26-11
27
52-49. Imposition and applicability of development impact taxes.
28
29
30
(a)
A development impact tax must be imposed before a [building] use and
occupancy permit is issued for development in the County.
(b)
An
applicant for a [building] use and occupancy permit must pay a
31
32
33
development impact tax in the amount and manner provided in this
Article, unless a credit in the full amount of the applicable tax applies
under Section 52-55 or an appeal bond is posted under Section 52-56.
34
*
*
*
35
36
52-50. Collection of development impact taxes.
*
(b)
*
*
~
37
38
[Applicants] Each applicant for [building permits]
use and occupancy
permit for development that is not exempt from the development impact
tax must supply to the Department of Permitting Services for each
requested [building] use and occupancy permit:
( 1)
The number and type of dwelling units for residential
development; and
(2)
The gross floor area and type of development for nonresidential
development.
The
applicant
must
submit
for
inspection
relevant
support
39
40
41
42
43
44
45
46
47
documentation as the Department requires.
(c)
The Department of Permitting Services must not issue a [building] use
and occupancy permit for development that is not exempt from the
development impact tax unless:
(1)
(2)
the applicant has paid the applicable development impact tax;
the applicant is entitled to a credit under Section 52-55 in the
amount ofthe applicable development impact tax; or
48
49
50
51
52
<2)­
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BILL
No.
26-11
53
54
55
56
(3)
an appeal has been taken and a bond or other surety posted under
Section 52-56.
(d)
When a person applies to a municipality in the County for a [building]
use and occupancy permit for a building or dwelling unit, the applicant
must show that all payments due under this Section with respect to the
building or unit have been paid. The Director of Finance must promptly
refund any payment made for any building or part of a building for
which a [building] use and occupancy permit is not issued by the
municipality.
57
58
59
60
61
62
63
64
*
(k)
*
*
If, within 10 years after a [building] use and occupancy permit is issued,
any person changes the use of all or part of a building to a use for which
a higher tax would have been due under this Article when the [building]
use and occupancy permit was issued (including a change from a status,
use, or ownership that is exempt from payment to a status, use, or
ownership that is not so exempt), the owner of the building must within
10 days after the change in status, use, or ownership pay all additional
taxes that would have been due if the building or part of the building
had originally been used as it is later used. If the building owner does
not pay any additional tax when due, each later owner is liable for the
tax, and any interest or penalty due, until all taxes, interest, and penalties
are paid.
65
66
67
68
69
70
71
72
73
74
75
76
77
78
52-51. Calculation of development impact tax.
(a)
The Department of Permitting Services must calculate the amount of the
applicable development impact tax due for each [building] use and
occupancy permit by:
Q
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BILL
No. 26-11
79
(1)
determining the applicable impact tax district and whether the
permit is for development that is exempt from the tax under
Section 52-49(f);
80
81
82
(2)
verifying the number and type of dwelling units and the gross
floor area and type of nonresidential development for which each
[building] use and occupancy permit is sought;
83
84
85
86
87
(3)
(4)
determining the applicable tax under Section 52-57; and
multiplying the applicable tax by:
(A)
(B)
the appropriate number of dwelling units; and
the gross floor area of nonresidential development.
88
89
(b)
If the development for which a [building] use and occupancy permit is
sought contains a mix of uses, the Department must separately calculate
the development impact tax due for each type of development.
90
91
92
(c)
If the type of proposed development cannot be categorized under the
definitions of nonresidential and residential in Section 52-47, the
Department must use the rate assigned to the type of development
which generates the most similar traffic impact characteristics.
93
94
95
96
97
(d)
The Department must calculate the amount of the development impact
tax due under this Article in effect when the [building] use and
occupancy permit application is submitted to the Department, or before
a [building] use and occupancy permit is issued by a municipality.
98
99
100
101
102
(e)
A [building] use and occupancy permit application, or if the property is
located in a municipality with authority to issue [building] use and
occupancy permits, a request to determine the amount of the impact tax,
must be resubmitted to the Department if the applicant changes the
project by:
(1)
increasing the number of dwelling units;
103
104
105
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BILL
No. 26-11
106
107
108
109
110
111
112
113
114
115
116
117
118
119
(2)
(3)
increasing the gross floor area of nonresidential development; or
changing the type of development so that the development impact
tax would be increased.
The Department must recalculate the development impact tax based on
the plans contained in the resubmitted [building] use and occupancy
permit application.
52-54. Refunds.
(a)
Any person who has paid a development impact tax may apply for a
refund of the impact tax if:
(1)
the County has not appropriated the funds
for impact
transportation improvements of the types listed in Section 52-58,
or otherwise formally designated a specific improvement of a
type listed in Section 52-58 to receive funds, by the end of the
sixth fiscal year after the tax is collected;
(2)
the [building] use and occupancy permit has been revoked or has
lapsed because construction did not start; or
(3)
the project has been physically altered, resulting in a decrease in
the amount of impact tax due.
120
121
122
123
124
125
126
127
128
129
130
131
*
52-55. Credits.
*
*
(a)
(1)
A property owner is entitled to a credit if the owner, before July
1, 2002, entered into a participation agreement, or a similar
agreement with the state or a municipality, the purpose of which
was to provide additional transportation capacity.
A property
owner is also entitled to a credit if the owner receives approval
before July 1, 2002, of a subdivision plan, development plan, or
similar development approval by the County or a municipality
132
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BILL
No. 26-11
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
that requires the
o\\tl1er
to build or contribute to a transportation
improvement that provides additional transportation capacity.
The Department of Transportation must calculate the credit. The
credit must equal the amount of any charge paid under the
participation agreement. The Department may give credit only
for [building] use and occupancy permit applications for
development on the site covered by the participation agreement.
*
(b)
*
*
A property owner must receive a credit for constructing or contributing
to an improvement of the type listed in Section 52-58 if the
improvement
reduces
traffic
demand
or
provides
additional
transportation capacity. However, the Department must not certify a
credit for any improvement in the right-of-way of a State road, except a
transit or trip reduction program that operates on or relieves traffic on a
State road or an improvement to a State road that is included in a
memorandum of understanding between the County and either
Rockville or Gaithersburg.
(1)
If the property owner elects to make the improvement, the owner
must enter into an agreement with a municipality or the County,
or receive a development approval based on making the
improvement, before any [building] use and occupancy permit is
issued. The agreement or development approval must contain:
(A)
(B)
the estimated cost of the improvement, ifknown then;
the dates or triggering actions to start and, if known then,
finish the improvement;
6)
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BILL No. 26-11
158
159
160
161
162
163
164
(C)
a requirement that the property owner complete the
improvement according to applicable municipal or County
standards; and
(D)
any other term or condition that the municipality or County
finds necessary.
(2)
The Department of Transportation must:
(A)
(B)
(C)
review the improvement plan;
verify costs and time schedules;
determine whether the improvement IS an impact
transportation improvement;
(D)
determine the amount of the credit for the improvement
that will apply to the development impact tax; and
(E)
certifY the amount of the credit to the Department of
Permitting
Services
before that Department or a
165
166
167
168
169
170
171
172
173
174
municipality Issues any [building] use and occupancy
permit.
*
52-56. Appeals.
*
*
175
176
177
After determination of the amount of the development impact tax or credit due,
an applicant for a [building] use and occupancy permit or a property owner may
appeal to the Maryland Tax Court to the extent permitted by state law or, if the
Maryland Tax Court does not have jurisdiction, to the Circuit Court under the
Maryland Rules of Procedure that regulate administrative appeals. If the appealing
party posts a bond or other sufficient surety satisfactory to the County Attorney in an
amount equal to the applicable development impact tax as calculated by the
Department of Permitting Services, the Department or municipality must issue the
[building] use and occupancy permit if all other applicable conditions have been
178
179
180
181
182
183
184
m
f:\law\bills\1126 development impact taxes-payment\bill3.doc
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BILL No. 26-11
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
satisfied. The filing of an appeal does not stay the collection of the development
impact tax until a bond or other surety satisfactory to the County Attorney has been
filed with the Department of Permitting Services.
52-59. Transportation Mitigation Payment.
(a)
In addition to the
tax
due under this Article, an applicant for a [building]
and occupancy permit for any building on which an impact tax is
imposed under this Article must pay to the Department of Finance a
Transportation Mitigation Payment if that building was included in a
preliminary plan of subdivision that was approved under the
Transportation
Mitigation
Payment
provisions
in
the
County
Subdivision Staging Policy.
*
52-89. Imposition and applicability of tax.
*
*
(a)'
An applicant for a [building] use and occupancy permit for a residential
development must pay a development impact tax for public school
improvements in the amount and manner provided in this Article before
a [building] use and occupancy permit is issued for any residential
development in the County unless:
(1)
(2)
a credit for the entire tax owed is allowed under Section 52-93; or
an appeal bond is posted under Section 52-56.
201
202
203
204
205
*
52-93. Credits.
*
*
*
206
207
*
(b)
*
208
209
210
If the property owner elects to make a qualified improvement, the owner
must enter into an agreement with the Director of Permitting Services,
or receive a development approval based on making the improvement,
(2)
f:\law\bills\1126 development impact taxes-paymenl\bill 3.doc
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BILL
No. 26-11
211
212
213
214
215
216
217
218
219
220
221
222
223
224
225
226
227
228
229
230
231
232
233
234
235
236
before any [building] use and occupancy permit
agreement or development approval must contain:
(1)
(2)
IS
issued.
The
the estimated cost of the improvement, if known then,
the dates or triggering actions to start and, if known then, finish
the improvement.
(3)
a requirement that the property owner complete the improvement
according to Montgomery County Public Schools standards, and
(4)
(c)
such other terms and conditions as MCPS fmds necessary.
MCPS must:
(1)
(2)
(3)
review the improvement plan,
verify costs and time schedules,
determine whether the improvement
IS
a public
school
improvement ofthe type listed in Section 52-91(d),
(4)
(5)
determine the amount of the credit for the improvement, and
certify the amount of the credit to the Department of Permitting
Services before that Department or a municipality Issues any
[building] use and occupancy permit.
*
52-94. School Facilities Payment.
(a)
*
*
In addition to the tax due under this Article, an applicant for a [building]
use and occupancy permit for any building on which a tax is imposed
under this Article must pay to the Department of Finance a School
Facilities Payment if that building was included in a preliminary plan of
subdivision that was approved under the School Facilities Payment
provisions
in
the County Subdivision Staging Policy.
*
*
*
®
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BILL No. 26-11
237
238
239
240
241
242
Section. 2. Effective date.
This Act takes effect 91 days after
it
becomes law. The development impact
tax imposed under Article VII and XII of Chapter 52, as amended by Section 1 of
this Act, applies to any building for which an application for a use and occupancy
permit is filed on or after that date. However, an applicant need not pay the tax
before receiving a use and occupancy permit for development if the applicant paid
the tax before receiving a building permit for the same development.
Approved:
243
244
245
Valerie Ervin, President, County Council
Date
246
247
Approved:
Isiah Leggett, County Executive
Date
248
249
This is a correct copy o/Council action.
Linda M. Lauer, Clerk of the Council
Date
@
f:\Iaw\bills\1126 development impact taxes-payment\bill3.dOc
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LEGISLATIVE REQUEST REPORT
Bill 26-11
Taxation
-
Development Impact Taxes
-
Payment
DESCRIPTION:
Requires any development impact tax, and the associated
transportation mitigation and school facilities payments, to be paid
before a use and occupancy permit is issued, rather than before a
building permit is issued.
Requiring impact taxes to be paid before a building permit is issued
can cause cash flow difficulties for builders since the payment comes
well before the building is sold or leased.
To mitigate cash flow hardships that builders encounter without
reducing impact tax payments to the County.
Department of Permitting Services, Department of Finance
To be requested.
To be requested.
To be requested.
To be researched.
Michael Faden, Senior Legislative Attorney, 240-777-7905; Glenn
Orlin, Deputy Council Staff Director, 240-777-7936
Taxes and payments apply County-wide.
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNICIPALITIES:
PENALTIES:
Not applicable.
@
f:\law\bills\1126 development impact taxes-payment\legislative
request
rei
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OFFICE OF THE COUNTY EXECUTIVE
ROCKVILLE, MARYLAND 20850
Isiah Leggett
County Executive
MEMORANUM
October 17, 2011
TO:
FROM:
SUBJECT:
Valerie Ervin, County Council President
i
~
Isiah Leggett, County Executive
~
~
Bill 26-11, Development Impact Taxes - Payment
As Council considers Bill 26-11, Development Impact Taxes - Payment, I would
like to ensure that you are fully informed regarding the potential consequences of the bill as
it
is
currently drafted. You have already received the Fiscal and Economic Impact Statement (FEIS)
prepared by my staff. I have attached a copy of that analysis to this memorandum.
In 2009, I requested introduction of Bill 4-09, Development Impact Taxes ­
Payment, which would have provided a temporary, modest impact tax payment deferral as part
of my economic relief package. The County Council at that time chose not to proceed with Bill
4-09. Bill 26-11 has some significant differences from the bill that I proposed two years ago.
These differences are critical and I believe should be made clear for your consideration.
Most importantly, I want to stress that the current fiscal situation is materially
different from where we were two years ago. We had all hoped that the economic recovery
would have begun by now and that the County's fiscal picture would be brighter. We also were
not confronted with potential downgrading of our bond ratings and therefore, were not focused
on reducing our general obligation debt service. And, we had not made the significant
reductions in the operating budget that we have had to make for the last three years, reducing
many programs, eliminating 10% of our workforce and requiring our employees to go without
pay increases. As the County Council considers Bill 26-11, I want to be sure that you are fully
aware of the immediate impact upon the County's cash flow and the significant differences in
circumstances from when you considered my proposal two years ago.
The attached FEIS indicates that there are potentially significant fiscal
implications to the current bill that will make the development of an already difficult FY13-18
CIP even more difficult. \Vhile there may be some relatively minor adjustments to this analysis,
based on different assumptions, the FEIS suggests that in the first year and a half of the bill's
(
·:"I~.
.;.~. ;'c:· · ;
1.,· ·.·
montgomervcountvmd.gov/311
.:.-'
"
"',
.
V
. 240-773-3556 TTY
@
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Valerie Ervin, President
October 17, 2011
Page 2 of3
implementation (FY12 and FY13), the County could lose as much as $17 million in impact tax
revenues for school and road construction. We are likely to be dealing with a very difficult fiscal
picture for the foreseeable future, and we must pare back the amount of General Obligation
bonds that we issue in order to comply with recently revised and approved fiscal policies .. We
have represented to the public and the rating agencies that we would adhere to these policies.
Therefore, it is important that Council understand that we will not be able to fimd all of the many
worthy projects that are going to be requested, either by County Government departments or by
independent agencies such as Montgomery County Public Schools, Montgomery College and
Maryland-National Capital Park and Planning Commission.
A list of the road and school projects that are currently fimded by the impact tax
revenue is shown in Attachments 3 and 4 of the FEIS. The Council will have to reprogram funds
in FY12, FY13 or FY14 from other projects or programs in order to make up the revenue loss to
these projects. Alternatively, the Council may choose to delay these projects.
There are also several key differences between Bill 26-11 and Bill 4-09 that are
important to the Council's consideration. As originally proposed, Bi114-09 required that a
deferral agreement be signed by the applicant at the time the building permit is issued. This type
of agreement would have required the placement of a lien on the property to protect the County
from non-payment of deferred taxes or the transfer of the property to another owner prior to
payment of the impact tax. There is no such protection for the County in the current legislation
other than the ability to deny the issuance ofthe use and occupancy permit if impact taxes are not
paid at that stage. This may trigger concerns as property sales approach settlement.
Fmthennore, as outlined in the FEIS, there are enough loopholes and unpredictability
in
this
mechanism to cause concern about the collection of impact taxes. For these reasons, I urge the
Council
to
include some of the protections that were included in Bi114-09 .
. Bil14-09 required payment at a time certain after the issuance of the building
permit. This provided for a definite time period within which the County would be assured of
payment. The open ended and unpredictable nature of the use and occupancy permit brings a
level of uncertainty to a significant revenue
stream
that will make it more difficult to plan and
implement construction projects tied to the impact tax. For residential single family detached
and attached homes, I recommend that you amend Bill 26-11 to require that the impact tax be
paid either six months after issuance of the building permit or at the time of final inspection
(which with residential properties usually occurs shortly before the use and occupancy permit is
issued), whichever occurs first. For commercial properties and multi-family high-rise properties,
I recommend that you amend Bill 26-11 to require that the impact tax be paid either twelve
months after issuance of the building permit or at the time of final inspection, whichever occurs
first. Payment as a condition of final inspection protects the County's ability to collect since the
County still has a clear leverage point with the builder.
Bill 4-09 would have sunset after 10 months, which Executive stafflater agreed to
extend to two years. If that agreement had been implemented, Bi114-09 would have allowed for
the deferral of impact tax payments for 12 months for any building with a permit issued within a
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Valerie Ervin, President
October 17, 2011
Page 3 of3
two year period. As a result, within three years after adoption of the bill, the County would have
recouped all revenues and the revenue stream would have gone back to normal. I recommend
that Bill 26-11 be amended so that it sunsets two years after enactment.
In
two years, if
warranted by the economic situation, the Council may repeal the sunset.
Finally, in order to mitigate the potential impact ofbuilders holding off on
seeking building permits until the effective date of this legislation, I urge the Council to make
Bi1126-11 expedited legislation. The Department of Permitting Services has seen that builders'
decisions are very much influenced by the commencement date oflegislation that is either
favorable or unfavorable to their cost of doing business. By making this expedited legislation,
the time period between enactment and implementation is minimized and, therefore, the
potentially negative effect on building permit activity is minimized.
I appreciate your effort to assist me in the revitalization of the County's economy.
I look forward to working with you to develop legislation that achieves your goals while also
preserving a critically important revenue stream.
Attachment
c:
Joseph Beach, Finance Director
Kathleen Boucher, ACAO
Jennifer Hughes, OMB Director
Arthur Holmes, DOT Director
Diane Jones, DPS Director
Steve Silverman, DED Director
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OFFICE OF MANAGEMENT AND BUDGET
Isiah Leggett
County Executive
Jennifer
A.
Hughes
Director
MEMORANDUM
October 4, 2011
TO:
. Valerie
Erv~ ~t,
County Council
Jennifer A
~~.
Director
FROM:
SUBJECT:
Council Bill 26-11, Taxation- Development Impact
Taxes- Payment
The purpose ofthis memorandum is to transmit a fiscal and economic impact statement
to the Council on the subject legislation.
.
LEGISLATION SUMMARY
BiI126-11 requires
that
any development impact
tax.
and
the
associated transportat.ion
mitigation and school facilities payments, be paid before a use and occupancy penn it is issued, rather than
before a building permit is issued.
FISCAL AND ECONOMIC SUMMARY
The Department ofFinance estimates
that
revenues collected
in
FY12 will
be
reduced by
$13.4 million from the baseline foreoast of $16.8 million for both transportation and sohool development
impact taxes. (Note: The revenue impacts fOf tbe transportation development impact
tax
exclude
Rockville and Gaithersburg and include residential and only office and retail categories for 1he non­
residential sector because these were the only data available from the Department ofPennitting Services
regarding
m~bet
ofdays from issuance of permit to issuance ofuse and occupancy permit.)
The Department of Finance estimates that revenues collected for FY13
will
be reduced
by $3.S milJion from a baseline forecast of $17.5 million. For FY12 and FY13, the total reduction in
revenues attributed to the enac1ment of Bill 26-11 is approximately $17.2 million. Most
of
that reduction .
occurs in FY12 and
is
based on the assumption that no permits
will
be issued between October 1,2011
and February 1,2012 because those applying for the permits will wait until the new legislation takes
effect. This delay
is
likely to occur because the new legislation is more financially beneficial and the time
between the issuance ofa building pennit and the issuance ofthe occupancy and use permit span two
fiscal
years.
See
Attachment 1 for the Deparlment ofFinance's revenue impact summary.
Office of the Director
101 Monroe Street, 14th Floor· Rockville, Maryland 20850 • 240-777-2800
www.montgomerycotlotymd.gov
montgomerycountymd.gov/311
240-773-3556 TTY
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Valerie Ervin, President, County Council
October 4,2011
Page 2
These
estimates were
based
on the following assumptions:
1.
Information provided by
County
Council
staff
asswnes that the
bill
wiU
be enacted on Februa:ry
1,
2012.
Based
on this
date,
the Department of Finance assumes that there will be no.permits issued
between October 1, 2011 and February 1,2012. As a result ofthe time lag between October and
February. there could be no revenues collected over that five--montb period.
2. The Department ofPer.mitting Services provided the length ofdays between the issuance ofa
building permit and the issuance ofthe use and occupancy pennit as follows:
Residential (excluding
muIti~family
units) .......
158 days
Multifamily housing..........................................224 days
Office ............................................."'................ 366 days
Retail .................................................................200 days
The
revenue loss would significantly affect impact
tax
funded school811d transportation
projects
in
the Capitallmprovements Program
(CJP). In FY12,
the-estimated reduction in schools and
transportation impact taxes represents 77 and 34 percent, respectively, of the
FY12
programmed impact
tax revenues. [Funding Detail
by
Revenue Source (CIP260P2) attachments 3 and 4] The Council wou1d
have
three
options:
• In
order to keep the current
impact tax
funded projects on schedule, General Fund resources
would have
to
be advanced, which would negatively affect the County's cash flow.
In
order to protect the General Fund, the impact
tax
funded projects could be modified, either
by
delaying or reducing
the
scope ofprojects.
• Or
the
impact
tax
funded
projects
could
be
modified
by
replacing the impact
tax
revenues with
another funding source such as General Obligation Bonds. This option would also have negative
effects on other parts ofthe CIP as funds are shifted to
fill
the gap created
by
the deferred
revenue. At
tbis
point, we
do
not anticipate having this amount ofexcess
bonds
in other projects
to transfer to schools and transportation projects. and our FY12 set aside is only $12.97 million. If
impact taxes are replaced with current revenue, there would
be
a negative impact on cash flow
and fund
balance.
There are logisticaL issues with the proposed bilt as well that could potential1y increase
the
fiscal
impact of the proposed
bill.
Under Chapter 59 ofthe County's Zoning Code, there are several
situations where a use and occupancy
permit
is
not required. These exceptions from the use and
occupancy
permit or
certificate
requirement do not correspond
to
exemptions
ftotU
the impact
tax
and
could possibly create unintended additional or new exemptions from the
tax.
Additionally, since this bill also applies to residential properties, the possibility exists
that
this change could create a col1ection issue.
It
is possible that families would be alLowed to move into a
home before the use and occupancy permit was
actually
issued and the impact tax
was
paid. At
that
point
it
becomes more diffrewt to co1.(ect the impact
tax
as the leverage over the builder, who
is
responsible for
the payment ofthe impact
tax,
would be eliminated.
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Valene
Ervin,
President, County Council
October 4, 2011
Page 3
The economic impact ofthis bill
is
velY
difficult to quantify since it would
rely
on a
variety
of
assumptions regarding the investment behavior ofbuilders and developers out ofcontext of
the
realities ofthe current economic landscape. Anecdotally. the Executive Branch has not heard from the
building community, particularly commercial developers. that deferral ofthe col1ection of impact fees
to
the time of use and occupancy permit wo\Jld have an effect on a particular project' s
abHit;>'
to move
forward.
or otherwise effect the timing associated with launching a project.
As
you know, our
Department of Economic Development routinely works with builders and developers to ensure
that
obstacles to
their
projects are minimized. Additionally, the members of the building commWlity that are
advocating for the deferral ofthese payments have not made Executive staff aware ofany
statistical
or
empirical data, from either a local or national perspective, which suggests that a delay
in
the payment of
required impact taxes will pave the way for developments
to
be
constructed.
The attached
information (attachment 2) from the Department ofFinance'provides a
broad economic analysis ofthe current and projected Montgomery County real estate market.
The fonowing contributed
to
and concurred with this analysis: Steve Silverman,
Department ofEconomic Development, Adam Damin, Office ofManagement and Budget,
Reginald T. Jetter. Department
of
Permitting Services, David Platt, Department
of
Finance, and
Michael Coveyou, Department ofFinance.
JAH:ad
Attachments
c: Kath1een'Boucher, Assistant Chief Administrative Officer
Lisa Austin, Offices ofthe County Executive
Arthur Holmes,
Jr.,
Director, Department ofTransportation
Joseph F. Beach, Director, Department ofFinance
Diane Schwartz Jones, Director, Department of
Permitting
Services
Steve Silverman, Director, Department ofEconomio Development
Amy
Wilson. Office ofManagement and Budget
,
®'
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NOTE: (1) Non-Residential Transportion Impact Tax Include Office and Retail
Only
®
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ECONOMIC IMP
ACT ANALYSIS
BILL 26-11 TAXATION - DEVELOPMENT IMPACT TAXES -PAYMEN:r
The PUIpose ofBill 26-11, Taxation - Development Impact Taxes - Payment. is
to reduce a builder's carrying costs and thus encourage new construction. The challenge
is to detennine the economic impact ofthe
legislation~
i.e., how much new construction
activity would occur as a result of enacting Bill 26-11
(Bill).
Council staff recognizes the
difficulty in estimating the net economic impact to the County. As a
backdrop~
this
economic impact analysis presents the <?Uttent
status
ofthe real estate market in
Montgomery County that
will
assist in determining the net economic impact.
This
analysis includes description ofsales of existing homes, average sales price of an existing
home,
residential construction both single family homes and multifamily residencea,
and
an
analysis ofconstruction costs.
new
Residential
Real
Estate Market
Based
on sales of existing homes in Montgomery County through
August, the
Department ofFinance (Finance) estimates that salea
will
decrease 13.6 percent
in
calendar
year 2011. That decline follows
an
increase of21.8 percent in
2009,
largely
attnouted
to
the
federal first-time home-buyers credit, and a modest 0.2 percent increase
in
2010.
Total Home Sales
MODlgomery
County
18,000
16,000
14,000
!!
<!II
';
CIl
12,000
IO,OOQ
8,000
~
6,O()0
4,O()0
2,000
0
2005
2006
2007
2008
2009
.
2010
2011 est.
Calendar Year
SOURCES: Metropolitan Regional
Information
System, Inc.
.
Montgomery County Department ofFmance
However, average sales prices for existing homes are expected to increase
5.4
percent
in
2011, based on data through August. That increase follows an increase of 1.7
percent
in
2010 and
decreases
of 8.4
percent
and 13.8 percent
in
2008
and
2009,
respectively.
@
j
1
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1
Average Home Sales Price
Montgomery County
'j
:;
!
i
$600,000
~l
,..-------------------------""1
$500,000
~
$400,000
j:I.c
'i
,!
!
~
~
$200,000
$100,000
$0
l!
$300,000
Calendar Year
SOURCE:: Metropolitan Regionallnfurmation System, Inc.
, Montgomery County Department ofFinanoo
,
q
Based on both sales and price
data.
'the housing market
in
Montgomery County
continues to
remain
weak
in
2011 and
the
outlook for 2012 and beyond suggests
continued stress in the number ofexisting home sales
with
slight improvement
in
sales
prices.
Finally, the amount ofinventory ofeXisting homes for sale has remained fairly
constant between 2009 and 2011 - a four-month supply ofhomes for sale. That
inventory-to-sales
ratio
is
below
the
peak of
a
7.5 month supply
in
2008 but
above
the
ratio
of a
one~month
supply
during the
housing boom between
2001 and 2005.
Construction Activity
.
"
,
, The number ofnew residential construction starts (units) increased
in
fiscal year
'(FY)
2011
from
1,386 units to 2,275
units -
an increase of 64.1 percent. However, that
figure includes both single-family residential units and multi-family residential units.
The number of single-family units started FY2011 was nearly 700 compared to nearly
780 the year before. Over the past
five fiscal
years, the number ofnew single-family
units started average 833 per year.
That
number is down significantly from an average of
3,000 units per year during the housing boom period between 2001 and 2006.
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Number
of
New Residential Starts,
for
Single..family Units
i
5,000.,---------------------------,
4,500
+ - - - - - : - - - - - - - - - - - - - - - - - - - - - . . .
- - - - - j
4,000
3,500
.fl
3,000
C
2.500
:::::J
2,000
1.500
1,000
500
o
2002
2003
2004
2005
2006
Fiscal
2007
Y~ar
2008
2009
2010
2011
The number ofnew multi-family units started exhibited much volatility over the
past ten years. From a peak of
3,565
units in fiscal year
2005
to a low of
440
units
in
fiscal year
2009,
there exists no clear pattern, or construction cycle, ofconstruction starts
for multi-family housing
in
Montgomery County.
Number
of
New Residential Starts·
fot
Multi-Family Units
4,000
3,500.j----------'
!
-r---------------------------,
3,000 . j - - - - - - - -
:s
I/)
2,500-1-------­
2,000
1,000
500
;:) 1,500
o
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Fiscal Year
SOURCe MlGraw -Hil
Construction
The
number ofnew non-residential construction starts (projects) increased
slightly from 80 projects in FY2010 to 97 projects in FY201!. Over the past ten fiscal
years, non-residential construction can be divided into three distinct cycles: FY2002­
@
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FY2004, when an annual average rate of343 projects was started; FY2005-FY2009,
when
an
annual average rate of 145 projects was started, and FY2010-FY2011 when less
than
100 projects per
year were
started. Over
the past three
fiscal
years,
construction
new
single-family units and new non-residential projects were at their lowest during the
past
ten fiscal years. This dramatic slowdown
in
new construction reflected a weak demand
for new residential and non-residential property.
Number of New Non-Residential·
Construction Starts
450T---------------------------------------------------~
400
350
300
!
250
6J
200
150
100
50
o
2002
:;
2003
2004
2005
2006
2007
2008
2009
2010
2011
·Flscal
Year
SOURCE:
McGraw-Hili
Construction
Construction Costs
Finally,
the Department ofFinance estimated the future construction costs using
the construction cost index developed
by
Engineering News Record
for the Baltimore
region - there
is
no index for the Washington region. Based on that estimation,
construction costs are expected to increase slightly above 3.00 percent
in
calendar 2011
.and 2012. Those percentages.axe down from the 4.35 percent in 2009 and 5.19
in
2010.
.
i
!
~
I
i
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Percent Change in Construction Cost Index
(Baltimore MSA)
6.00%
5.00%
6
&
4.00".4
c
3.00%
2.00%
1.00%
0.00%
j
0.00%
2006
2007
2008
2009
2010
2011
est.
2012
est.
Calendar Year
SOURCES:
Engineering
News
Record (2006-2010)
Montgormry County Department of FInance
(2011
est. -
2012
est.)
Given this backdrop in residential and non-residential construction, especially
during the past three fiscal years, the economic impact ofBil1 26-11 is difficult to
determine with any specificity. Ifthe demand for housing and non-residential property in
Montgomery County
improves~
that improvement may not occur
in
the very near tenn.
:.j
:'j
,I
,
(fj)
i
!
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Funding Detail
by
Revenue Source,
Department/Agency and
Project ($OOOs)
Impact Tax
Thru
Project
Total
FY10
Rem.
FY10
6 Year
Beyond
Total
0
FY11·
FY12
FY13
FY14
FY15
FY16
6Years
General SetVtces
500434
Ra.cIwIIle Town
Cellier
SIlVer Splfng Tmnslt
Cen1er
5,782
1.802
6.782
0
1.802
1,802
509974-
Sub·Total
500100
500119
0
7,.584
Greencastle Road
Bethesda Bikeway and
PeCle$Ilian
FaCUlties
988
5,7112
988
0
0
0
0
762
0
1.195
0
0
0
0
I)
Q
0
0
0
0
0
0
0
0
0
0
0
0
I,)
0
0
0
0
0
0
0
Q
0
0
0
0
0
0
Transportation
500151
500311
WoodIIeld RoBd emmded
Montrose
ParkwayWesf
NBbBISUeet~nded
0
V46
17,588
0
484
16,917
0
0
0
762
sao
651
-112
0
0
0
0
0
5,"006
0
0
0
0
0
0
0
0
0
0
0
0
0
()
500401
500403
1.195
5,199
3,192
12,894
5,386
112
5.199 .
2,985
717
en
-"
I
500516
500717
m
(:)
500719
500722
500724
500905
501110
501202
507017
508000
509274-
509321
509337
Stnngtown Road t:xIended
Father Hurley BlVd. Extended
Monlrose
Parkway
East
Chapman Avenue
EXtende.d
Slate Transportation Pll1tlclpatiOtJ
Watklns
Mil!
Road
Extended
faDs
Road
East
SIde
HIker!
Biker Path
Mefropgllfan Branch TraIl
White FlInt
Traffic
Analysis and MItigation
Intersection and Spot Improvements
Subdlvilloo
Roads
PartIcipation
RabayRoad
Norbeck ROad
extended
1,195
0
0
0
823
100
0
0
0
207.
0
207
12,177
5,386
0
2,783
0
0
0
1.968
0
0
0
0
2.823
4,5aa
1,215
0
0
0
0
0
0
0
0
0
C
0
0
0.
100
. 5.000
5,271
2,330
0
0
0
.0
100
0
3,143
2.330
0
0
0
0
117
0
Q
a
0
685
0
0
258
4,6'02.
1,895
509922
500942
509944
509954
Facility Planning-Transportation
Norih
Bethesda
Trall
Brigg$
CIIaMy
Road East of liS 29
Valley
Park
Drive
Germantown Road Extended
0
0
258
4,GIn
570
685
0
0
0
0
0
0
1,423
0
0
0
0
1.925
0
0
0
0
157
0
0
0
a
0
0
0
0
0
0
2,134
0
I)
1.130
0
2,013
2,330
G7
167
0
Q
167
0
0
0
(I
337
917
211
651
10,,437
78.021
0
743
174
651
34,400
44
337
174
37
0
0
1,<81
0
0
()
0
0
0
660
0
0
0
0
3.540
3.640
0
0
0
0
621
0
()
0
0
6,743
6.743
0
0
0
0
0
0
0
4,373
a
0
0
0
(I
0
0
0
0
0
0
0
0
Q
0
0
0
0
4,410
4,410
0
()
0
0
0
0
0
0
0
0
0.
0
0
4,120
4.120
Sub-Total
ROVIlIUIG Soun::e Total
0
6,637
8.43&
0
27,266
0
4,080
4,080
2,134
2.134
40,18.2
27,2116
4.373
ClPlfiDPl- County CGUDdI
Page
51
ort06
®
.~ --~-"---'---"-----'
---'~'-'--"--'-"'-"'------'
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Funding'Detail
by
Revenue Source, Department/Agency and
Proje~t
($OOOs)
Schools Impact Tax
Thru
Project
Public Schools
016505
Thomas W.
Pyle.
MS AddlUon
016506
Westtand MS Addlllon
Rem.
FY10
6Yftr
Tollli
FY11
Total
FY10
FY12
FY13
FY14
FV15
FY16
Beyond
SYears
o
fJ
o
o
016519
016545
026503
026504
036503
056502
056503
Redland MS • ImproVements
o
2,000
2,300
o
2,000
o
o
o
o
o
o
o
o
2,300
0
0
0
(I
0
0
000
NOI1bwood HIgh School
Swen
locks
es
AddlllonJModemizalion
Tra-Wlah
eS
AddlUon
Roscoe
NIl<.
es
(NorIhea&t
ConsortiumES #f8)
BelheSda.-Chevy Chase HS AddItion
.
o
7,644
o
o
7,644
o
0
0
o
3,344­
212
o
1,594
212
o
o
·0
1.750
\)
0
0
000
2~OO
0
0
0
0
000
o
0
0
o
o
i)
0
0
0
0
0
0
o
o
o
o
0'
o
0
0
0
o
0
(I
o
056504
056516
William B. Gibbs, Jr. ES (Clarksburg
#8)
Fields
Road ES
Addfllon
MCPS AII'o1dabl!11y
Reconc!li<ltIon
SChools Impact Tax Substitution
Addltloo '
FalIl1mead
I
.....
en
OB6513
016501
es
.....
"'"
076510
086500
066501
086502
0965()O
096501
096502
096603
096504
MCPS FUnding Reconclilallon
East Sliver Spnng ES
Addition
Takoma Park
es
Addition
Poolesville HS
Laboratory
Upgrades and Addillon
Brookhaven ES Addllion
Fairland ES
Addition
Fox Chapel ES Addition
o
6,105
o
o
o
o
o
1)
o
4,300
o
o
o
o
o
890
o
0
0
0
0
000
o
0
I)
o
0
a
0
0
0
0
000
000
000
(100
o
000
o
()
o
o.
Q
0
0
o
o
915
0
0
915
0
000
o
o
000
0
0
0
0
o
1,175
o
o
2,404
2,MiT
o
o
o
o
o
1,175
o
D
o
o
o
0
0
0
0
000
,0
0
000
000
o
2,404
2,381
o
o
o
o
o
000
000
o
Q
2,481
1,928
650
2,000
096505
096506
000508
116503
116504
116505
Hannony HUls
ES
AddItion
Jackson Road ES
AddIIfon
Montgomery Knolls ES Addleo"
Rock
VIew
ES
AddlUon
Whefstune ES
Addltlon
'Bradley
Hilla 1:8 Addition
Clarksburg Clusler ES (Clarksburg lJllIage
Site
#1)
o
o
o
o
o
o
o
0
0
2,467
1,928
650
2,000
0
0
000
000
o
O'
0
0
0
o
0
0
000
2.000
0
0
2.000
0
0
o
2,000
0
000
000
000
000
0(10
4,309
650
o
o
0
0
2.000
2.000
2,000
2,000
2,000
27.4.00
000
000
000
000
2,000
2,000
27,480
.0
116507
8865'36
ClsrksburglOamasws
MS
(New)
Damesfown
ES
AddlUon
o
o
o
o
o
0
0
Future ReplacementsIMQdernlZaUans
Rehab/Renll.Of Closed SMools- RROCS
Current RepJacementslModemlzatloll8
918567
926575
Stlb-Total
2.000
690
698
27,615
81J,ll63
698
1,315
o
o
a
o
2,400
o
2,000
2,000
600
0
0
o
23.900
70,300
o
o
0
0
0
2.000
0
690
0
0
7,960
0
It,890
10,890
0
8,530
11,520
12.100
13,300
0
000
. 0
0
0
o
(I
0
6,1130
1,4,4110
o
17,763
11,000
12,100.
0
13.350
'0
0
CIPl60Pl· CO'lUlty Council
l'age
116
ortOIS
(V.. .
"'-'~'''--'''''--------'----------'~---------------------
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Timing of Impact Fee/Tax Payments in Other Maryland Jurisdictions
Anne Arundel - "before the issuance of a building permit for the improvement, a mobile home park
construction permit, or a zoning certificate of use for a change of use" (Anne Arundel County Code,
§17-11-206)
Calvert - at the time the building permit is issued, or for new residential construction or a change of use
to residential use, the excise tax can
be
paid in three installments, with the first installment paid at the
time the building permit is issued (Calvert County Code §136-14)
Caroline - at the time the lot is initially sold or transferred (Caroline County Code §§ 166-36, 166-43)
Carroll- before a building permit may be issued (Carroll County Code § 102-6)
Charles co llected annually over a period of 10 years at level amortized payments of principal and
interest in the same manner as general ad valorem taxes unless otherwise provided by ordinance [first
assessed on the first property tax bill after the use and occupancy permit is issued] (MD Code, Art 66B
§ 14.05(f); see also Charles County Code §249-5 )
Dorchester - at the same time a building permit is paid for (Dorchester County Code §144-33)
Frederick - development impact fees - paid prior to the issuance of a building permit/zoning certificate
(Frederick County Code § 1-22-4); building excise tax before the issuance of a building permit
(Frederick County Code §1-8-74)
Harford - at the time of application for a building permit (Harford County Code § 123-59)
Howard school facilities surcharge - at the time a building permit is issued (Howard County Code
§20.142); building excise tax at the same time a building permit is paid for (Howard County Code
§20.505)
Prince George's - school facilities surcharge - at the time a building permit is issued (PG County Code
§10-192.01); public safety surcharge - at the time a building permit is issued (PG County Code § 10­
192.11)
Queen Anne's either paid before issuance of building permit or zoning certificate or promissory note
executed obligating payment upon the earlier of (1) within 18 months of the issuance of the building
permit or zoning certificate or (2) the issuance of the certificate of occupancy (Queen Anne's County
Code §18:3-7)
St. Mary's - condition of issuance of building permits (St. Mary's County Code §223-4.5)
Talbot
before issuance of a building permit or zoning certificate (Talbot County Code §64-14)
before issuance of building permit (Washington County Building Excise Tax Ordinance
Washington
§5.0l)
Wicomico - before issuance of a building permit or zoning certificate (Wicomico County Code §130-9)
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Scenario 1: Bill 26-11 as Introduced
FY12
School Impact Taxes
Baseline
Estimated Revenues
Difference
Transportation Impact Taxes
Baseline
Estimated Revenues
Difference
TOTAL
Baseline
Estimated Revenues
Difference
FYI2-FY13
$14,290,616
$4,369,305
($9,921,310)
FYI 3
FY14
$16,824,031
$14,984,806
($1,839,226 )
FYIS
$17,794,337
$17,500,054
($294,283)
FY16
$19,241,175
$17,722,393
($1,518,782)
FY17
$19,837,543
$18,248,351
($1,589,192)
FY18
$21,605,645
$19,879,441
($1,726,204)
FY12 - 18
$124,552,915
$108,530,581
($16,022,334)
FY13 -18
$110,262,299
$104,161,276
($6,10 1,023)
$14,959,568
$15,826,231
$866,663
$3,155,720
$788,930
($2,366,790)
$3,194,468
$3,441,109
$246,641
$3,443,852
$3,065,610
($378,243)
$3,495,037
$3,131,057
($363,980)
$3,696,892
$3,344,027
($352,865)
$3,727,076
$3,361,038
($366,039)
$3,%7,962
$3,573,421
($394,541 )
$24,681,007
$20,705,190
($3,975,817)
$21,525,287
$19,916,260
($1,609,027)
$17,446,336
$5,158,236
($12,288,101)
$18,154,036
$19,267,340
$1,113,304
($11,174,797)
$20,267,884
$18,050,415
($2,217,469)
$21,289,374
$20,631, III
($658,263)
$22,938,067
$21,066,420
($1,871,647)
$23,564,619
$21,609,388
($1,955,230)
$25,573,607
$23,452,862
($2,120,745)
$149,233,923
$129,235,772
($19,998,151)
$13l,787,586
$124,077,536
($7,710,050)
Scenario 2: Bill 26-11 with a 2-Year Sunset
FY12
School Impact Taxes
Baseline
E~timated
Revenues
Difference
Total Transportation Impact Taxes
Baseline
Estimated Revenues
Difference
TOTAL
Baseline
Estimated Revenues
Difference
FYI2-FY13
$14,290,616
$4,369,305
($9,921,310)
FY13
$14,959,568
$15,826,231
$866,663
FY14
$16,824,031
$17,494,737
$670,705
FYIS
$17,794,337
$26,180,444
$8,386,107
FYI6
$19,241,175
$19,241,175
$0
FY17
$19,837,543
$19,837,543
$0
FY18
$21,605,645
$21,605,645
$0
FY12 -18
$124,552,915
$124,555,080
$2,165
FY 13 -18
$110,262,299
$120,185,774
$9,923,475
$3,155,720
$788,930
($2,366,790)
$3,194,468
$3,441,109
$246,641
$3,443,852
$3,610,253
$166,401
$3,495,037
$5,450,581
$1,955,544
$3,696,892
$3,696,892
$0
$3,727,076
$3,727,076
$0
$3,967,962
$3,967,962
$0
$24,681,007
$24,682,802
$1,795
$21,525,287
$23,893,872
$2,368,585
$17,446,336
$5,158,236
($12,288,101)
$18,154,036
$19,267,340
$1,113,304
($11,174,797)
$20,267,884
$21,104,990
$837,106
$21,289,374
$31,631,024
$\0,341,650
$22,938,067
$22,938,067
$0
$23,564,619
$23,564,619
$0
$25,573,607
$25,573,607
$0
$149,233,923
$149,237,882
$3,959
$131,787,586
$144,079,646
$12,292,060
®
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Scenario 3: Bill 26-11 with a November 1, 2011 Effective Date
FY12
School Impact Taxes
Baseline
Estimated Revenues
Difference
Transportation Impact Taxes
Baseline
Estimated Revenues
Difference
TOTAL
Baseline
Estimated Revenues
Difference
FYI2-FY\3
$14,290,616
$8,336,193
($5,954,423)
FY13
$14,959,568
$11,898,477
($3,061,091)
FYI4
$16,824,031
$14,984,806
($1,839,226)
FYIS
$17,794,337
$17,500,054
($294,283)
FYI6
$19,241,175
$17,722,393
($1,518,782)
FYI7
$19,837,543
$18,248,351
($1,589,192)
FYI8
$21,605,645
$19,879,441
($1,726,204)
FY12 -18
$124,552,915
$ 108,569,714
($15,983,201)
FY 13 -18
$110,262,299
$ 100,233,522
($10,028,777)
$3,155,720
$1,617,067
($1,538,653 )
$3,194,468
$2,612,972
($581,496)
$3,443,852
$3,065,610
($378,243)
$3,495,037
$3,131,057
($363,980)
$3,696,892
$3,344,027
($352,865)
$3,727,076
$3,361,038
($366,039)
$3,967,962
$3,573,421
($394,541)
$24,681,007
$20,705,190
($3,975,817)
$21,525,287
$19,088,123
($2,437,164)
$17,446,336
$9,953,260
($7,493,077)
$18,154,036
$14,511,449
($3,642,587)
($11,135,664)
$20,267,884
$18,050,415
($2,217,469)
$21,289,374
$20,631,1\1
($658,263)
$22,938,067
$21,066,420
($1,871,647)
$23,564,619
$21,609,388
($1,955,230)
$25,573,607
$23,452,862
($2,120,745)
$149,233,923
$129,274,905
($19,959,018)
$131,787,586
$119,321,645
($12,465,941)
Scenario 4: Bill 26-11 with a 6-Year Deferral for Single-Family Residential and a 12-Month Deferral
for Multi-Family Residential and Non-Residential
FY12
School Impact Taxes
Baseline
Estimated Revenues
Difference
Transportation Impact Taxes
Baseline
Estimated Revenues
Difference
TOTAL
Baseline
Estimated Revenues
Difference
FYI2-FYI3
$14,290,616
$3,990,546
($10,300,070)
FY13
$14,959,568
$15,070,600
$111,032
FYI4
$16,824,031
$14,632,642
($2,191,390)
FYIS
$17,794,337
$16,769,601
($1,024,736)
FYI6
$19,241,175
$17,281,156
($1,960,020)
FYI7
$19,837,543
$17,804,812
($2,032,731 )
FYI8
$21,605,645
$19,409,401
($2,196,244)
FY12 -18
$124,552,915
$ 104,958,758
($19,594,157)
FY 13 -18
$110,262,299
$100,968,212
($9,294,088)
$3,155,720
$788,930
($2,366,790)
$3,194,468
$3,176,955
($17,513)
$3,443,852
$3,378,081
($65,771)
$3,495,037
$3,455,750
($39,287)
$3,696,892
$3,692,622
($4,270)
$3,727,076
$3,707,063
($20,013)
$3,967,962
$3,938,102
($29,860)
$24,681,007
$22,137,505
($2,543,503)
$21,525,287
$21,348,575
($176,712)
$17,446,336
$4,779,476
($12,666,860)
$18,154,036
$18,247,555
$93,519
($12,573,341 )
$20,267,884
$18,010,723
($2,257,161)
$21,289,374
$20,225,351
($1,064,023)
$22,938,067
$20,973,778
($1,964,289)
$23,564,619
$21,511,875
($2,052,743)
$25,573,607
$23,347,504
($2,226,103 )
$149,233,923
$127,096,263
($22,137,660)
$131,787,586
$122,316,786
($9,470,800)
@
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Scenario 5:
Bill 26-11
with a 2-Year Sunset, a December 1,2011 Effective Date, and 6-Year Deferral for Single-Family Residential
and a 12-Month Deferral for Multi-Family Residential and Non-Residential (Executive Recommendation)
FY12
School Impact Taxes
Baseline
Estimated Revenues
Diflerence
Transportation Impact Taxes
Baseline
Estimated Revenues
Difference
TOTAL
Baseline
Estimated Revenues
Difference
FY12-FY13
$14,290,616
$7,145,308
($7,145,308)
FY13
$14,959,568
$11,710,932
($3,248,636)
FY14
$16,824,031
$18,031,169
$1,207,138
FY15
$17,794,337
$26,983,201
$9,188,864
FY16
$19,241,175
$19,241,175
$0
FY17
$19,837,543
$19,837,543
$0
FY18
$21,605,645
$21,605,645
$0
I<'YI2 - 18
$124,552,915
$124,554,973
$2,058
FY13 -18
$110,262,299
$117,409,665
$7,147,366
$3,155,720
$1,410,033
($1,745,688)
$3,194,468
$2,838,901
($355,567)
$3,443,852
$3,810,980
$367,127
$3,495,037
$5,230,885
$1,735,848
$3,696,892
$3,696,892
$0
$3,727,076
$3,727,076
$0
$3,967,962
$3,967,962
$0
$24,681,007
$24,682,729
$1,722
$21,525,287
$23,272,696
$1,747,409
$17,446,336
$8,555,341
($8,890,996)
$18,154,036
$14,549,834
($3,604,203 )
($12,495,198)
$20,267,884
$21,842,149
$1,574,265
$21,289,374
$32,214,087
$10,924,713
$22,938,067
$22,938,067
$0
$23,564,619
$23,564,619
$0
$25,573,607
$25,573,607
$0
$149,233,923
$149,237,702
$3,780
$131,787,586
$140,682,362
$8,894,775
(0
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SUITE 460
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3 BETHESDA METRO CENTER
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BETHESDA, MD 20814-5367
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TEL 301.986.1300
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WWW.LERCHEARLY.COM
}
ATTORNEYS
Testimony of William Kominers
Bill 26-11
(October 4, 2011)
Good afternoon President Ervin and members of the Council, my name is Bill
Kominers. I am attorney with the law firm of Lerch, Early
&
Brewer in Bethesda and I
am here to speak strongly in support of Bill 26-11. This Bill makes good economic
sense. The sponsor and co-sponsors are to be commended for being proactive in
enhancing the opportunity for construction with its jobs, and occupancy with its
benefits to homeowners and businesses.
I have some brief comments about the benefits of this Bill.
1.
The Bill better fulfills the intent of the Impact Tax by having that tax
collected at the time that the impacts are likely to occur. At the time a building permit
is issued, no impact is created. Only when a building, home, or apartment is occupied
does actual, physical impact occur to the road network or school system. Correlating
the payment of the Impact Tax with the real time implementation of the impact is more
appropriate and better fulfills the underlying justification for the Impact Tax.
2.
Delay in the payment of the Impact Tax will likely allow more approved
building projects to proceed. This is because the shift in time of payment of the Impact
Tax reduces the upfront cost and thereby allows greater borrowing to be used for the
actual implementation of a project. This significantly increases a builder's ability to
secure construction financing and proceed with a project.
3.
This greater ability to finance projects will increase the likelihood of
payments of the Impact Tax later on (at the time of occupancy), because the project
will actually be able to go forward. Without this shift in time of payment, many more
projects will not be able to proceed at alL No project at all means no Impact Tax at all.
Bill 26-11 will increase the opportunity for the County to collect a greater amount of
Impact Tax revenue.
4.
This time shift in payment of Impact Tax has a very positive and
desirable affect on non-residential and multi-family construction. Because of the
lengthy construction time for these projects, the benefit in the eventual cost of the
product to the ultimate consumer is even greater than with shorter term construction. A
construction period range of 18+ months means that the cost of the up front Impact Tax
11l3740.4
08908.001
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ATTORNEYS
must be financed for that much longer. This results in a higher cost of borrowing and a
higher cost of the ultimate product in the form of higher rents, and sales prices.
Delaying the Impact Tax until the time of occupancy ameliorates this difficulty by
incurring the cost at the time that there is revenue with which it may be paid.
5.
Payment of the Impact Tax is assured with this Bill. Non-residential and
multi-family buildings have always required a certificate of occupancy. This was an
easy step by which to track the payment of the Impact Tax and to ensure that payment
is made prior to the utilization of the structure. In recent years, the County has created
a requirement for an occupancy certificate for one family residential. This can now
provide a similar tracking mechanism for payment of tax. Therefore, there is now no
impediment to the ability to assure that the tax is paid before the building is used.
6.
The result of the Bill will be a simple one-time delay in the revenue
stream, with very little, if any, long-term adverse effect. In 2009, the County Executive
proposed Bill 4-09, providing for a similar twelve month deferral of Impact Taxes as a
part of his II-point stimulus package. That Bill did not move forward at that time. Bill
26-11 should move forward quickly.
Summary. This Bill sends a very positive message to the State and the Country
about Montgomery County and your efforts to address the current economic conditions.
With this Bill, Montgomery County proactively addresses a problem for a suffering
industry. The result will be to encourage and facilitate both the creation of jobs, and
the creation of homes and offices and businesses -- this will have a long term benefit to
the County. In addition, the Bill supports the underlying principle of the Impact Tax,
by connecting the payment of the tax to the creation of the actual impact. This supports
the philosophy of fairness in Montgomery County and better supports the reasoning
behind the Impact Tax as a whole.
I urge you to act quickly to enact this Bill.
It
does what it needs to do.
Thank you for your consideration. I am happy to answer any questions that you
might have.
1113740.4
08908.001
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Testimony on Bill 26-11- Impact Tax payment
Bob Spalding, Development Director
Miller and Smith
October 4, 2011
We want to thank the Councilmembers for introducing the bill. Bill 4-09 was
requested by the Executive, but struggled when there was no easy way to ensure
payment before occupancy permits. DPS' implementation of an occupancy permit
in April creates the easy way to ensure payment after building permit.
The concept of paying a tax at a fair time is not a foreign concept. The vast
majority of Montgomery County residents pay their County income tax through
payroll withholding. We pay the gas tax when we buy a gallon of gas and not years
of gas tax when we buy a car.
As the bill recognizes, the occupancy permit is the fair time for the impact tax to be
collected because it is at the time of the impact. The occupancy permit is the
closest point to when the impact occurs. Making the payment at a fair time should
be reason enough for the change. However, there are real benefits to the County
and the taxpayers.
The current payment at building permit is large direct cost for the taxpayer but is a
very small opportunity cost for the County. The impact taxes are typically paid
from a construction revolver in our loans. The revolver is replenished by sales
proceeds. By moving the impact tax payment to occupancy permit, it reduces the
amount of time that we are paying interest on the impact tax. More importantly, it
frees up the loan capacity to build houses at a faster pace.
In a townhome neighborhood, if we get seven building permits at a time, we pay a
total of$233,540 ($33,220 per home) in impact taxes.
If
we complete the homes
in four months, we pay another $3,448 at 4.5% in interest. This reduces our cash
available to build homes and pay workers for four months by $236,988. In a
struggling business climate where cash-on-hand is critical, the proposed change
helps. Virginia passed a similar bill for proffer payments in the entire
Commonwealth in March and it has been helping our recovery there.
The proposal also helps the County in a counterintuitive way by accelerating total
revenue payments after a brief lag. Moving the impact tax payment decreases
interest income a small amount but can generate a greater return. This bill
succeeds if only one more townhome in the whole County receives an occupancy
permit each year.
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The County earned 0.22% on its investments last year. If the County is projected to
receive $16 million impact tax and the average delay in payment is six months, this
equals $17,600 in interest.
If
just one new townhome pays its $33,220 in impact
taxes one year early, the County has more impact tax money than
it
does under the
current system.
Some say that this change will delay CIP projects. However, the County's FYI 0
Comprehensive Annual Financial Report
states that the County already has a
mechanism to avoid such delays. On page 82 it states that the General Fund loans
CIP projects funds to "cover construction payments, due primarily to the timing of
reimbursements from Federal, State and other agencies, and to lag time between
programming and collection of certain impact taxes." This internal loan is repaid
by the impact tax payments.
The impact tax already is a prepayment for County services. On a $300,000
townhome in Clarksburg, the $33,220 in impact taxes equals eleven and a half
years of County property tax ($2,877/year) that a homeowner pays to live in a
$300,000 existing or resale townhome. This is an opportunity to make the
prepayment of taxes fairer.
While we are focused on impact taxes, I noticed that the code-required annual
reporting of impact tax revenue isn't included in the Comprehensive Annual
Financial Report. The impact tax annual reports do not appear to be available on­
line.
It
seems odd that the impact taxes are not part of the comprehensive report. A
more comprehensive picture would be presented if the annual report includes a list
of credits for transportation improvements that are being provided by the private
sector to meet the goal of increased transportation capacity.
Thank you for proposing this bill and the opportunity to comment. We support it
and look forward to its passage.
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