Thursday, May 3, 2007

State property tax to remain at 11.2 cents

Board of Public works votes 2-1 to make no change this year

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ANNAPOLIS — Over warnings from the state treasurer about Maryland’s dire financial outlook, the Board of Public Works has decided not to raise the residential property tax rate.

Gov. Martin O’Malley and Comptroller Peter V.R. Franchot supported the recommendation from the Commission on State Debt to keep the rate at 11.2 cents per $100 of assessed value rather than raise it by nearly a penny to help the state pay its capital debt obligations.

O’Malley said he feared boosting the property tax would especially hurt residents on fixed incomes, while Franchot said the tax should be part of a comprehensive solution to close a $1.5 billion structural deficit.

‘‘In the months ahead, I think we need to look at our entire tax structure and make it more modern, inclusive and fair,” O’Malley (D) said after Monday’s emergency meeting that was held because Franchot (D) has missed the April 18 meeting because he was ill. The state is required to set the residential tax rate by May 1.

Rising assessments across much of Maryland mean most homeowners will pay higher property taxes during the fiscal year that begins July 1, despite the board’s action to hold the line.

Treasurer Nancy K. Kopp (D) argued that freezing the rate would exacerbate Maryland’s budget woes and increasing it to an even 12 cents per $100 of assessed value would cover the state’s debt payments for the next six years.

‘‘I think it would send the message that we recognize the importance of fully supporting our debt service obligations as we deal with our serious structural deficit issues,” she said.

Such fiscal management would help Maryland preserve its AAA bond rating, which allows the state to borrow money at lower interest rates, Kopp said.

The board’s decision means the state will have to dedicate $29 million from the general fund budget in fiscal 2008 to cover debt payments on schools, roads and other capital projects that are financed in part by property tax revenues.

Franchot, who has historically supported tax increases as a member of the General Assembly, said his vote to maintain the property tax rate reflects his desire for a comprehensive solution to the state’s budget shortfall.

‘‘It’s not easy given all the demands that are out there, pent-up demands. All of us recognize that we’re facing a sea of red ink,” he said. ‘‘... I really believe we should not address this large problem in a piecemeal fashion.”

O’Malley took a shot at the administration of his predecessor, Republican Robert L. Ehrlich Jr., who raised the property tax by nearly 5 cents during his first year in office before reducing it 2 cents last year.

‘‘One of the unfortunate things we saw happen in the recent past is the raising of fees and taxes on people with fixed incomes,” O’Malley said. ‘‘... We’d like to get it back to where it was before the former governor increased the cost to homeowners.”

Solving the budget’s structural deficit will require savings, limited spending and new revenues, O’Malley said, acknowledging the likelihood of tax increases next year.

O’Malley said his staff is scouring the budget for savings and exploring specific tax proposals, but the administration has not mapped out a fiscal plan for next year.