Agenda Item 83
May 10,2016
Public Hearing
MEMORANDUM
May 6,2016
TO:
FROM:
County Council.
n
Allocations-
Robert
H.
Drummer, Senior Legislative Attorp..eyf/Jr:j
Glenn Orlin, Deputy Council Administrator
(JD
SUBJECT:
Public Hearing:
Expedited Bill 15-16, Recordation Tax - Rates
Amendments
Expedited Bill 15-16, Recordation Tax - Rates - Allocations - Amendments, sponsored by
Lead Sponsor Council President Floreen, was introduced on April 19, 2016. A Government
Operations and Fiscal Policy Committee worksession is tentatively scheduled for May 12, at 9:30
a.m.
Bill 15-16 would increase the rate ofthe recordation tax levied under state law and allocate
the revenue received from the recordation tax for different uses.
Background
Recordation taxes are paid when a house or building is sold, or ifthe mortgage on a house
or building is refinanced. There are three elements ofthe recordation tax:
• The "base" recordation rate is $2.20/$500 on the sale price or, if refinancing, on the
additional amount borrowed over the remaining principal. (If acquiring a home, the first
$50,000 of the sale cost is exempt.) Bill 15-16 would not change the "base" rate or how
its revenue is allocated.
• The "school increment" went into effect in 2004 and its rate is $1.25/$500.
It
is also based
on the sale price or, if refinancing, on the additional amount borrowed over the remaining
principal. This Bill would raise the rate to $2.00/$500, effective July 1, and would generate
$125 million over the next six years. Currently the proceeds can be used for any
Montgomery County Public Schools (MCPS) capital project and for any Montgomery
College information technology capital project. The Bill would dedicate all the proceeds
to MCPS projects; College information technology projects can still be funded with general
Current Revenue.
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• The "Recordation Tax Premium" went into effect in 2008 and its rate is $1.55/$500. Unlike
the other two elements, the Premium applies only to the cost ofa property or a reflnancing
that is in excess of $500,000. Half of the proceeds from the Premium are allocated to
County Government capital projects (i.e., capital projects of departments in the Executive
Branch); the other half is for rent assistance. This Bill would raise the rate to $2.30/$500,
effective July 1, and would generate $30 million more for County Government projects
and $30 million more for rental assistance over the next six years. On March 22, the
Council heard from Enterprise Community Partners about the need for more affordable
housing in Montgomery County and that part of the solution is more money. The
Recordation Tax Premium is an important revenue source for the Housing Initiative Fund.
It
has been used for traditional monthly rental assistance and very effectively at the
Bonifant to make many of these new units affordable to very low income seniors. The
Department of Housing and Community Affairs has projects in the pipeline that may need
$40 to $50 million. This funding will help make sure there is adequate funding to move
forward when projects and programs are ready.
Lead Sponsor, Council President Floreen, explained the need for this Bill in an April 12
memorandum at ©5-6.
Initial Reconciliation of the
FY17-22
Capital Improvements Program
The Council approved an initial reconciliation ofthe FYI7-22 CIP to bring its programmed
spending within the approved spending levels and yet maintain an adequate reserve. The initial
reconciliation
~ssumes
an additional $196 million in revenue for the CIP over FY17-22. One way
to increase revenue for the CIP would be to increase the recordation tax dedicated to school
construction by $11$500 instead of $.75/$500. The proposed rates for different values of
consideration on a conveyance is compared to the proposed rates under Bill 15-16 at ©7.
Clarification of the $50,000 Exemption for an Owner-occupied Home
Scott Foncannon, Acting Chief of the Division of Finance and Procurement in the County
Attorney's Offlce, recommended an amendment to
clarify
the application of the $50,000
exemption for an owner-occupied home. See the Bill Review Memo at ©8. Mr. Foncannon
recommends the following amendment:
Amend lines
21-26
as/ollows:
(b)
Exemption.
The flrst $50,000 ofthe consideration payable on the conveyance of any
owner-occupied residential property is exempt from the recordation
tax
if the buyer
ofthat property is an individual and intends to use the property
as
the buyer's principal
residence by actually occupying the residence for at least 7 months of the 12-month
period immediately after the property is conveyed.
2
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The County has interpreted this provision to apply to a transfer to an individual and not a trust,
and this amendment would codify this interpretation.
This packet contains:
Bi1115-16
Legislative Request Report
Council President Floreen April 12 Memorandum
Chart of Proposed Rates
County Attorney
Bill
Review Memorandum
1
4
5
7
8
F;\LAW\BILLS\161 S Recordation Tax - Rates - Amendments\PH Memo.Docx
3
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Expedited Bill No.
15-16
Concerning: Recordation Tax - Rates ­
Allocations - Amendments
Revised: April 14. 2016 Draft No.
L
Introduced:
April 19, 2016
Expires:
October 19. 2017
Enacted:
[date]
Executive:
[date signed]
Effective:
[date takes effect]
Sunset Date:
~No:l:::!n..:.:.e~
_ _ _ _ __
Ch.
j!L,
Laws of Mont. Co.
[Year]
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
Lead Sponsor: Council President Floreen
AN EXPEDITED ACT
to:
(1)
increase the rate of the recordation
tax
levied under state law for certain transactions;
(2)
allocate the revenue received from the recordation
tax
for certain uses; and
(3)
generally amend the law governing the recordation
tax
By amending
Montgomery County Code
Chapter 52, Taxation
Section 52-16B
Boldface
Underlining
[Single boldface brackets]
Double undedining
[(Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment.
Deletedfrom 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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ExPEDITED BILL
No.
15-16
1
2
Sec.
1.
Section 52-16B is amended as follows:
52-16B. Recordation Tax.
(a)
3
4
5
Rates.
The rates and the allocations of the recordation tax, levied under
[state law] Md. Tax-Property Code §§12-101 to 12-118, as amended, are:
(l)
[$3.45] for each $500 or fraction of $500 of consideration payable
or ofthe principal amount ofthe debt secured for an instrument of
writing, including the amount of any mortgage or deed of trust
assumed by a grantee;
6
7
8
9
10
11
®
@
$2.20, of which the net revenue must be reserved for and
allocated to the County general fund; and
$2.00, of which the net revenue must be reserved for and
allocated to the cost ofcapital improvements to schools; and
12
13
(2)
if the consideration payable or principal amount of debt secured
exceeds $500,000, an additional [$1.55] $2.30 for each $500 or
fraction of $500 of the amount over $500,000,1 of which the net
revenue must be reserved for and allocated equally to:
14
15
16
17
18
19
®
@
the cost of County government capital improvements; and
rent assistance for low and moderate income households,
which must not be used to supplant any otherwise available
funds.
20
21
22
(b)
Exemption.
The ftrst $50,000 of the consideration payable on the
conveyance of any owner-occupied residential property is exempt from
the recordation tax ifthe buyer ofthat property intends to use the property
as the buyer's principal residence by actually occupying the residence for
at least 7 months of the 12-month period immediately after the property
is conveyed.
23
24
25
26
27
Sec. 2. Prior allocations.
o
f:\Iaw\bills\1615 recordation tax - rates - amendments\bill4.docx
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EXPEDITED BILL
No.
15-16
1
The allocation of recordation
tax
revenue made in Section 1 replaces each
allocation of recordation tax revenue established in previously enacted uncodified
legislation.
2
3
4
5
6
Sec. 3. Expedited Effective Date.
The Council declares that this legislation is necessary for the immediate
protection ofthe public interest. This Act takes effect on the date on which it becomes
law, and applies to any transaction which occurs on or after July 1,2016.
Approved:
7
8
9
Nancy Floreen, President, COllilty Council
Date
10
11
Approved:
Isiah Leggett, COllilty Executive
Date
12
13
This is a correct copy ofCouncil action
Linda M. Lauer, Clerk ofthe Council
Date
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LEGISLATIVE REQUEST REPORT
Expedited Bill 15-16
Recordation Tax
DESCRIPTION:
Rates Allocations
-
Amendments
Expedited Bill 15-16 would increase the recordation tax rates and
allocate the revenue received from the recordation tax. The portion of
the base rate allocated to school capital projects would increase from
$1.25/$500 to $2.00/$500 of value, effective July 1,2016. The Bill
would also increase the premium rate charged against sales valued at
more than $500,000 from $1.55/$500 to $2.30/$500. The revenue
received frQm this premium rate would continue to be shared equally
between County capital projects and rent assistance.
The County needs to generate additional
tax
revenue to support MCPS
school construction and rent assistance for low and moderate income
households
in
the County.
Increased funding for MCPS school construction and rent assistance
for low and moderate income households in the County.
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
\
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNICIPALITIES:
PENAL TIES:
To be requested.
To be requested.
To be requested.
To be researched.
Robert H. Drummer, Senior Legislative Attorney
To be researched.
Not applicable.
F:\LAW\BILLS\1615 Recordation Tax - Rates - Amendments\LRR.Docx
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MONTGOMERY COUNTY COUNCIL
ROCKVIL.L.E, MARYL.AND
NANCY FLOREEN
COUNCIL. PRESIDENT
MEMORANDUM
April 12, 2016
TO:
FROM:
SUBJECT:
Nancy Fl
Proposed incr
As
I
talk: with residents across the county, it becomes increasingly clear to me that our
capital needs, particularly in the areas ofschool construction and affordable housing, far outweigh
our available resources. Times are tough to be sure, but we absolutely must keep up with our
obligations in these two important
areas.
That's why I will introduce a bill to increase the rate of
the recordation
tax
in a progressive way. The recordation tax is paid only when properties are sold
or refinanced. While nobody likes the idea of increasing taxes of any kind, our needs are great,
and this tax is less likely to affect those Montgomery County residents who are struggling most.
On the up side, it will generate millions of dollars to support our desperate need for new schools
and educational facility improvements. What's more, a portion of the recordation tax is earmarked
for affordable housing. I believe this proposal is the most progressive approach to meeting the
needs that our residents have clearly identified as their top priorities.
The attached expedited bill will raise both the School Increment of the Recordation Tax
and the Recordation Tax Premium by $0.75/$500 each. Over the six-year period these rates will
generate
an
estimated $155 million more in revenue for the CIP and $30 million more for rental
assistance for low and moderate income households.
There are three elements ofthe recordation tax:
• The "base" recordation rate is $2.20/$500 on the sale price or,
if
refinancing, on the
additional amount borrowed over the remaining principal. (If acquiring a home, the first
$50,000 of the sale cost is exempt.) This bill does not change the "base" rate or how its
revenue is allocated.
• The "school increment" went into effect in 2004 and its rate is $1.25/$500.
It
is also based
on the sale price or, ifrefinancing, on the additional amount borrowed over the remaining
principal. This bill
would raise the rate to
$2.00/$500,
effective July
1,
and would
generate
$125
million over the next
six
years.
Currently the proceeds can be used for any
Montgomery County Public Schools capital project and for any Montgomery College
100 MARYL.AND AVENUE, 6TH FLOOR •
ROCKVILLE, MARYL.AND 20850
240n77-7959
FAX
24Dn77·7989
COUNCILMEMBER,FLOREEN@MONTGOMERYCOUNTYMD.GOV
!~
PRINTED ON RECYCLED PAPER
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infonnation technology capital project. This bill would dedicate aU the proceeds to
MCPS projects; College infonnation technology projects can be funded with general
. Current Revenue.
• The "Recordation Tax Premium" went into effect in 2008 and its rate is $1.55/$500. Unlike
the other two elements, the Premium applies only to the cost of a property or a refinancing
that is in excess of $500,000. Half of the proceeds from the Premium are allocated to
County Government capital projects (Le., capital projects of departments
in
the Executive
Branch); the other half is for rent assistance. This bill would raise the rate to $2.30/$500,
effective July 1, and would generate $30 million more for County Government
projects and $30 million more for rental assistance over the next six years. On March
22 the Council heard from Enterprise Community Partners about the need for more
affordable housing in Montgomery County and that part of the solution is more money.
The Recordation Tax Premium is an important revenue source for the Housing Initiative
Fund.
It
has been used for traditional monthly rental assistance and very effectively at the
Bonifant to make many of these new units affordable to very low income seniors. The
Department of Housing and Community Mfairs has projects in the pipeline that may need
$40 to $50 million. This funding will help make sure there is adequate funding to move
forward when projects and programs are ready.
Raising the two rates maintains a degree of progressivity in the recordation tax. The chart
below shows what the burden of the total recordation
tax
(i.e., all three elements) would be for
homes at different sale prices:
Current Rates
$1,725
$2,415
$3,105
$4,105
$5,105
$6,105
$7,105
$8,105
$9,105
$10,105
$11,105
$12,105
$13,105
Proposed Rates
$2,100
$2,940
$3,780
$5,080
$6,380
$7,680
$8,980
$10,280
$11,580
$12,880
$14,180
$15,480
$16,780
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
$1,100,000
$1,200,000
$1,300,000
$1,400,000
$1,500,000
2
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Increase Recordation Tax
School Increment
b~ ~O.75l~500 (~1.50l~1000)
and Recordation Tax Premium
b~ ~O.75l~500 (~1.50l~1000)
(Generates $155M for CIP and $30M for rental assistance in 6 years)
Consideration
Current Rates
Pro~osed
Rates
Increase
$
$
$
$
$
$
$
$
$
$
$
$
$
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1,100,000
1,200,000
1,300,000
1,400,000
1,500,000
$
$
$
$
$
$
$
$
$
$
$
$
$
1,725
2,415
3,105
4,105
5,105
6,105
7,105
8,105
9,105
10,105
11,105
12,105
13,105
$
$
$
$
$
$
$
$
$
$
$
$
$
2,100
2,940
3,780
5,080
6,380
7,680
8,980
10,280
11,580
12,880
14,180
15,480
16,780
$
$
$
$
$
$
$
$
$
$
$
$
$
375
525
675
975
1,275
1,575
1,875
2,175
2,475
2,775
3,075
3,375
3,675
Increase Recordation Tax
School Increment
b~ ~1.00l~500 (~1.50l~1000)
and Recordation Tax Premium
b~ ~O.75l~500 (~1.50l~1000)
(Generates $196M for CIP and $30M for rental assistance in 6 years)
Consideration
Current Rates
Pro~osed
Rates
Increase
$
$
$
$
$
$
$
$
$
$
$
$
$
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1,100,000
1,200,000
1,300,000
1,400,000
1,500,000
$
$
$
$
$
$
$
$
$
$
$
$
$
1,725
2,415
3,105
4,105
5,105
6,105
7,105
8,105
9,105
10,105
11,105
12,105
13,105
$
$
$
$
$
$
$
$
$
$
$
$
$
2,225
3,115
4,005
5,355
6,705
8,055
9,405
10,755
12,105
13,455
14,805
16,155
17,505
$
$
$
$
$
$
$
$
$
$
$
$
$
500
700
900
1,250
1,600
1,950
2,300
2,650
3,000
3,350
3,700
4,050
4,400
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OFFICE OF
TIm
COUNTY
ATtORNEY
...
.
"
'.,,'
-
.":.
:
lsiah
~ggett·
COtIiity\ExeCUtiVe
Mare P. Hartsen
(;;Wltf!YAtI(}iiJej
Departmertt
otFmance
J~hB¢ac~Qi~to~
Scqtt
It
Fql1canl'iOti
f
AcnngChief
DiVision
.()fFinanceandPrQcurr;:rneni
VIA:
Edward It
Lattrter:t
Cl6ef
A,pri122*20J6
Divisi~)Q tJf:OQv~nml~t
Qm:rlrtions .
ct
DAtE:
BiU
1S-16E~
RecprdationTax:....
~-'-,~lp~tipns- AJn~Jl4mellts.
Ilu1ve
~d an.op~\lnity
toreVleWE:xp@iW<!·B.illlS,..16"RecordationTax
...,·.Rates
~
All()cati~
-Aihendmetlts. This
bf11mcreases
tlie
ratesoftecotdation tax
andmodifi~s
the'
allocatiOl1oftheree0(dation
ta~impo~.thi$bi.11~.authqriZe~bya.tate
law
andis
within:
the
authority
pftJie.
~()\U1ty Q>l#)p~l.
'f.he bill
j$,.ilO{Vagde.
Will
notmcreascor
decrease the
Gounty'$iiabilitye,posure~in
myopwQn,tru:biH
is, constitutional.
Over:
the
yeats there
have
beertlssucswithdte
proVisions ,0£'52-16(bj.
This
sectioIl
createsan~emp1:ionfor.the
first
$$O~OOtl of'Cpns:ide~l,)il
on aCQJlveyance
of owner
occupied
resitien~
property
where
the
buyer intends
to
Use
the
property
as
the
bUYer's
principaLtesidence
for7 out ofthe
12
months immediately .after the
pto~y ~.
conveyed.
This has
always
been
ipte~d
})y'the
(;o\itlW to
omy apply
to a transfer to
an:
individual and not toa transfer to a
t11lSt.
1 Would
reeommend
that
an amendment
be
proposed
in line
23
so
that
thisexen:iption
teads,'~
...
if·the~y~rQft.hat
property
is anindividuBJ and intends
to use the property•..
."Viith
t~eamendtrleIlti:)f
this
section
bfthe .County Code,
it
will·
become olea:( that the exemption
applielonly
to
an
individual
buyer
and
not
to
trarwferstoafi1lSt.
1~S3
8lll~rieW
lOI,M()ntge~~~'ll'1Maor~ 2tt8$~t$$O
(~<W)·177.fJ~9'jlTP:{24()J717~2S4~ .FMt(24\l}.m;;fj1(jj·.~nCaiulon~~u(itymd~v·