Making changes that could raise house prices is a risk in a county that is short of affordable housing — and more so when buyers and sellers are grappling with rising rates on loans greater than $417,000.
In Montgomery County — where $601,995 was the average house price in July and most mortgages are ‘‘jumbo” ones — it could be a politically fraught decision.
Even before the mortgage and housing market crisis made headlines in August, county officials worried about the effect of such large tax increases.
‘‘This is not an easy conversation for us to be having, [but] this council has an opportunity to get things right,” said County Councilwoman Duchy Trachtenberg (D-At large) of North Bethesda. ‘‘There’s no doubt we will have to raise fees, but we don’t want to get to the point where homeownership is problematic.”
Upping the ante
On the table are proposals for the largest increase in taxes on home sales and development in more than a decade.
Planners have called for the council to raise the recordation tax rate (paid when houses are sold or refinanced) by more than 62 percent — which would raise the levy on an average-priced house by more than $2,400.
Planners also recommended roughly doubling taxes on new development for its impact on schools and increasing by 44 percent taxes for impact on roads and transit.
Equally prominent in the debate are the tests that planners use to determine how and where development goes and which areas can handle growth.
Most council members and County Executive Isiah Leggett (D) agree the tests used now have allowed for too many crowded roads and schools.
But that’s where the consensus ends, and no common plan has emerged so far from the nine council members, the five Planning Board members or Leggett.
What they all agree on is that changes must be made now.
‘‘Ultimately, growth policy is about what level of risk we want to assume,” Planning Board Chairman Royce Hanson has said.
Builders say raising development taxes will raise house prices, but Hanson and county planners say research shows higher fees drive down land costs for developers and make little difference in the prices homebuyers pay.
If higher impact fees improve the quality of life and services in the county, house values could increase, planners have told the council. Although that would be good for a homeowner, it may make it even harder for buyers to find a house they can afford.
‘‘The market is in a period of trying to correct itself [and] if you layer on that regulation — many would say overregulation — it might be overkill,” said Councilwoman Valerie Ervin (D-Dist. 5) of Silver Spring.
Also complicating the question of how to pay for expanding infrastructure is a renewed focus on bridge and road repairs.
Will it be enough?
Council President Marilyn J. Praisner (D-Dist. 4) of Calverton is concerned about how stable the revenue from development taxes will be — particularly from relatively volatile sources such as the recordation tax on house sales and refinancing. She expects the council will raise impact taxes, she said.
Praisner also expects to set a new transportation test that better measures road congestion and to spend a lot of time discussing how to modify school capacity tests. Both tests help determine where and when new homes, schools, businesses and roads go.
The Planning Board’s proposed revisions to the transportation tests are flawed because they assume that because Metrorail or bus service is available, people will use it, several council members say.
‘‘This council has got to face up to the implications of policy and make-believe credits” for reducing traffic, said Councilman Marc Elrich (D-At large) of Takoma Park.
‘‘If you want to encourage transit, you have to drastically improve transit,” he said, and that will take commitment and money.
Voters in Denver recently supported new taxes to pay for transit. And that was ‘‘out in the supposedly conservative West,” Elrich said. ‘‘We like to think we’re cutting edge, but we never present things like this.”
And ‘‘we still live in a community where the majority of people use cars to get around,” Trachtenberg said.
Leggett agrees the tests are not realistic.
‘‘People understand that we are in a metropolitan area that conjures up a certain amount of jobs and development, but there is a disconnect in what they feel and see in traffic and what the tests say,” he said. ‘‘There’s a credibility gap that needs to be closed.”
To really alleviate congestion, the council first must deal with the way it grows, said Cheryl Cort, policy director for the Coalition for Smarter Growth in Washington.
‘‘It’s critical that we create policies that create the kinds of communities that we want to live in,” she said. ‘‘It’s about building of communities to make them more walkable and available by transit; that’s where the growth should be guided towards.”
School crowding
The risk of not striking a balance between growth and infrastructure — roads, transit, schools, water and sewer — is too high, particularly when the target keeps moving, argues the Civic Federation, a coalition of community groups.
Although master plans recommend density and infrastructure, with flexible zoning ‘‘overlays” for development at transit stations and bonus densities for providing affordable housing, it is ‘‘virtually impossible” to predict accurately how much infrastructure is needed, said Jim Humphrey, chairman of the federation’s land-use committee.
For example, under the revised master plan for Damascus, planners say that area could see 1,371 new housing units under standard zoning limits. Or it could see as many as 1,865 under optional methods and if all available transferable development rights are used. Transferable development rights, paid to landowners in the Agricultural Reserve not to develop their land, can be sold to developers to use in designated ‘‘receiving areas” for increased density.
Until the Planning Board approves a project, there are too many unknowns, said Humphrey, who wants planners to model development potential to better estimate the project’s needs and costs.
Beyond roads lined with new homes and clogged with cars, more evidence of failure to keep up with the county’s 1 percent growth rate can be seen at the county’s public schools.
In Clarksburg, for example, 1-year-old Little Bennett Elementary already has five portable classrooms and 3-year-old Rocky Hill Middle School has two.
Planners have called for stopping development in a school cluster if a school has reached 135 percent of capacity, ending the practice of ‘‘borrowing” (on paper) capacity from another cluster and requiring developers to pay a school facilities fee when a school is at 110 percent of capacity.
Although the council sets the growth policy, Leggett has said the caps should kick in when a school reaches capacity, not after exceeding it.
Although the council established a school facilities fee in 2003, no developer has had to pay it. Why? Because in 2003, county officials increased school construction spending by 47 percent and avoided hitting limits that would have halted development approvals in four clusters.
This year, planners recommend moving from the assumption that a classroom is needed for every 22.5 to 25 students to calculations based on standards set by the school system that consider the lower student⁄classroom ratios required for special-needs programs.
Even that could pose a problem, some analysts said, because it could put pressure on schools to change or move programs to make room for development.
School officials said they support efforts to secure more permanent classroom space, but are worried about the effect of higher taxes.
The school board has asked council to analyze the economic impact of the proposed changes and noted that many teachers, bus drivers and other staffers cannot afford to live in the county where they work.
Planning Commissioner John Robinson said the county might need more complex models to allocate the cost of growth.
It might not be fair, he said, to tax a business owner on Route 29 in White Oak at the same rate as a business owner on Route 355 in Bethesda because the affluence and demands of the residents are not the same.
Looking ahead
On Thursday, the Planning Board will begin discussing other solutions, Hanson said, with the aim of offering the council more suggestions in October.
‘‘We’re hopeful the council will continue to raise questions, as we have, in how fees are determined,” said Richard Sullivan Jr., Montgomery County vice president for the Maryland-National Capital Building Industry and president of Alliance Homes. ‘‘We’re also hopeful that the council will focus their time and attention on the larger picture, which is identifying what infrastructure needs to be put in place, what it costs and who pays for it; rather than looking around the edges and increasing a tax.”
The county enacted a growth policy requirement in 1986, when it had a much higher growth rate, noted land-use lawyer Gus Bauman, who was Planning Board chairman from 1989 to 1993.
Bauman, who sometimes represents developers before the Planning Board, said the growth policy has outlived its usefulness and should be replaced with an infrastructure policy.
‘‘There are differences within the council, with the executive and with the Planning Board,” he said. ‘‘There is no agreement among these 15 people, and that’s what this is all about: 15 people. In two decades of the policy, I’ve never seen this type of stalemate.”
Fortunately, Bauman said, the county’s low growth rate allows the council to take its time in finalizing a growth policy this year. He said he would not be surprised if the council again sends it back to the Planning Board with some direction.
‘‘It gives them time to discuss how infrastructure is paid for, getting what the master plans call for to deal with the deficit, and I believe elected officials in the county are struggling with that,” Bauman said.
Meanwhile, the county’s economists, who are scheduled to give the council a more thorough economic outlook in about three weeks, are predicting 8 percent more revenue from real estate sales taxes next year. But they admit that with only two months of the budget year gone by, ‘‘it’s too early to tell.”
‘‘This area has to be viewed as a little different because we’ve got a good employment base,” said David Platt, the county’s chief economist. ‘‘Most of the mortgage problems have been driven by people who can’t make payments, and that’s attributed to employment.”
What is known is that land costs and taxes are high and labor costs are not going down, said economist Stephen Fuller, director of George Mason University’s Center for Regional Analysis.
Although Montgomery County home sales prices rose in July, sales are down in the region, Fuller said.
Asked what advice he’d give Montgomery County officials, Fuller said, ‘‘They probably should leave well enough alone at this point and let the market work out its troubles.”
