Note: This post originally appeared on Just Up the Pike.
Impact taxes are charges paid by developers of new projects to the county. The purpose of impact taxes is to pay for new infrastructure capacity, such as schools and roads, that is necessary to service new projects. Montgomery County first used transportation impact taxes for projects in East County and Germantown in 1986, and expanded them to Clarksburg in the mid-1990’s. In 2003, the County Council passed a package of development policy changes that raised transportation impact taxes, created new school impact taxes, and applied them to the entire county. The new taxes were intended to allow development to pay part of its own costs rather than be subject to moratoriums, several of which were then in effect around the county.
The current impact tax structure for schools and roads is:
SCHOOL IMPACT TAXES
Type of Unit Tax per Unit
Single-Family Detached $8,464
Single-Family Attached $6,348
Multi-Family Residential (except High-Rise) $4,232
High-Rise Residential $1,693
Multi-Family Senior Residential $0
TRANSPORTATION IMPACT TAXES (RESIDENTIAL)
Type of Unit Tax per Unit
Single-Family Detached $5,819
Single-Family Attached $4,761
Multi-Family Residential (except High-Rise) $3,703
High-Rise Residential $2,645
Multi-Family Senior Residential $1,058
TRANSPORTATION IMPACT TAXES (NON-RESIDENTIAL)
Commercial Use Tax per Square Foot
Bioscience Facility $0.00
Place of Worship $0.30
Private Elementary/Secondary Schools $0.40
Other Non-Residential $2.65
Transportation impact tax rates are lower in Metro Station Policy Areas and higher in Clarksburg. All impact tax rates are adjusted for inflation every two years.
The new rates have been in effect for two fiscal years: 2005 and 2006. The total volume of tax collections has been lower than expected. For example, the new school impact tax was expected to collect $24 million in 2005 and $28 million each year thereafter. Instead, it collected less than $8 million in 2005 and less than $7 million in 2006. These amounts are small compared to the $271 million in school capacity expansion the county is planning over the next six years.
The county’s planning staff recommends substantial increases in the impact tax rates. The staff calculated the actual cost of projected school construction through 2012 and divided it by the projected number of new housing units to be constructed over the same period of time to determine the impact tax rate necessary to actually pay for new schools. The new school impact tax rates advocated by the planners proved to be more than double the current rates. The staff performed a similar exercise for transportation. It recommended that transportation impact taxes be 40-60% higher for residences and 80%-120% higher for most commercial buildings (with retail rates going up by four times).
Several statistics put Montgomery County’s impact tax rates in perspective. Sixteen counties in Maryland charge impact taxes on development. On a per-unit basis, Montgomery County currently charges more per single-family detached dwelling ($14,283) than any other county except Prince George’s ($19,361). Last year, Prince George’s collected a much greater total volume of impact taxes ($43 million) than did Montgomery ($13 million). Frederick ($15 million) and Howard ($14 million) collected more impact taxes than Montgomery despite having lower per-unit rates. When impact taxes as a percentage of median home value is calculated, Montgomery’s ratio (1.8%) is lower than Richmond (1.9%), Prince George’s (4.4%), Frederick (3.2%), Charles (3.5%) and Jefferson County, West Virginia (6.6%).
The planning staff argues that their recommended higher impact tax levels are necessary to actually pay for the full cost of added schools and roads required by new development. Unless impact taxes were raised, the county would have to find another way to pay for new infrastructure – most likely through alternate taxes on existing residents. Developers predict that the higher impact tax rates would deter growth in the county through pushing up home and commercial building prices. Others argue that the entire concept of impact taxes is flawed because the revenues collected are not well channeled to actual infrastructure projects needed by specific developments. These are the questions to be decided soon in Rockville.