At tonight’s Council meeting, the Council Council will decide whether to reduce City’s Homestead tax credit to 2%.

Currently, the tax credit rate is set at 4%

At the October 4, 2016 Worksession, Council discussed this item and staff provided cost estimates for lowering the City’s Homestead Tax Credit Rate from its current rate of 4% to various lower rates.

It is estimated by the State Department of Assessments and Taxation (SDAT) that the City’s FY 2018 Homestead Tax Credit will total $236,995 at the City’s current rate of 4% (this is a reduction from the tax revenue that the City would receive if there was no Homestead Tax Credit). That reduction of tax revenue to the City provides an average annual savings of $121 to the 1,951 eligible owner-occupied homes in the City.

The Homestead Tax Credit is a percentage rate limiting the increase in real property assessment from one fiscal year to the next. Most residents saw huge increases in their property assessments this year. During budget discussion back in March, we asked about reducing the Homestead Tax in this year’s budget (FY2017) to provide some relief for owner-occupied households. However, it was too late to make changes to the rate in FY2017.

A bit of history. The City’s Homestead Tax Rate was 10 percent until 2005 (FY2006). The rate was lowered to 1 percent after residents received about a 30 percent increase in their property assessments in January 2004. The City kept the rate at 1 percent for two years and raised it to 4 percent in 2008 (FY2009). By that time property values had fallen dramatically. The rate has remained at 4 percent since 2008.

Section 9-105 (e) (4) of the Tax-Property Article of the Maryland Annotated Code establishes the deadline of November 25th for municipal corporations to set or alter their Homestead Credit, as well as notify SDAT of any change, for the taxable year beginning the following July 1st.

The additional cost (revenue reduction) resulting from lowering the City’s Homestead Tax Credit Rate from 4% to 2% would be $29,882. This would be reflected as a reduction to real property taxes in the FY 2018 Adopted Operating Budget. Future fiscal years would have a similar reduction in real property taxes as long as the rate remained at 2%.