In today’s edition of The Cecil Whig, intrepid reporter Jacqueline Covey has written an article that explains the concept of constant yield as it exists in the State of Maryland. The story was written to both educate citizens in Cecil County on the concept of constant yield, which has existed in the state since the late 1970s, and to clear up issues relating to an ongoing debate in the county about rising taxes.
Every year, thanks to the constant yield rate, a debate emerges as to whether counties across the state will follow the constant-yield rate or maintain a purely constant rate. It happens in Kent County, it happens in other places on the Shore. And it happens here in Cecil.
For instance, in the current fiscal year, there were 18 counties or county-equivalents who set tax rates higher than the constant-yield rate. Six set their rates lower than the constant yield.
Not one county set its rate at the constant yield rate. In fact, 17 counties kept their rates the same for this year as the previous year, while four raised their rates and three lowered their rates.
This is consistent with the statement made by Meghann Malone with the State Department of Assessments and Taxation who said that no counties are prone to adopting the constant yield rate and traditionally maintain their current rate.
While the constant yield rate is not mandatory, it does have significant flaws, mainly that it is effectively a tax roll-back provision. This would not be such a bad idea in principal if it were not for the fact that one of the largest costs for counties around the state is education expense.
Based upon the state’s maintenance of effort formula, counties pay more each year for education expenses and yet, if constant yield is followed to its logical extreme, counties will not have additional funds from year to year to help pay the rising cost of education expenses, not to mention the rising cost in other areas of county government.
Of course one counter argument is that economic growth and development helps to offset the constant yield rate, but this then adds additional pressure for a county to continue to grow in order to offset the decreasing constant yield rate.
It is possible for the constant yield rate to increase if a county’s total valuation for property in the county decreases, but this is normally a sign of a stagnant local economy and either the loss of properties to fill out the valuations or a depreciation in property values, neither of which is desirable. And neither of which is happening in Cecil County.
The current debate in Cecil County from organizations opposed to the current county administration is that the county, or more specifically County Executive Alan McCarthy, is raising taxes on the citizens of Cecil County to the tune of $2.3 million.
The county, of course, says it is not raising taxes.
Who is right?
Technically, both factions are right.
And both are wrong.
And the reason that is so is due purely to the issues relating to the constant yield concept.
On the one hand, due to increased valuations, county taxpayers will pay more in taxes on their properties, assuming those properties increased in value.
However, it is not true to say that McCarthy or the McCarthy administration is raising taxes, because the increase comes from property valuation increases, not the raising of the tax rate.
The argument is that — because the Maryland property tax code requires the public notification to follow exact verbiage including language that states the following: Notice of a proposed real property tax increase. The county council for _____ County, Maryland proposes to increase real estate property taxes.
That is the end of the discussion and clearly means the county intends to raise taxes, and because the county executive must produce a budget for consideration clearly the county executive means to raise people’s taxes.
It is a cute political argument, especially during election season, but it is also extremely simplistic.
In normal parlance, raising taxes means specifically raising the tax rate.
To think about it another way, imagine that you got a new job that paid you significantly more than what you were paid before. Unless you have an extremely creative accountant, you will probably pay more in federal, state and local income taxes.
Does that mean that those governments raised your taxes?
No. You did it yourself, through hard work and ingenuity.
The same generally holds true for property tax assessments. Perhaps you added on to your home or improved it in someway. Maybe your neighborhood got an upgrade.
Or perhaps — due simply to the overall improvement of life in the county you live — your property valuation increased. That added value means possibly additional taxes, but it also means you property should be worth more money as well.
In states that do not have a constant yield rate, the decision of county governments each year revolves around whether to raise or lower the rate. Just like in Maryland, most opt to keep the rates flat, because the additional money those governments will need generally comes from increased property valuations.
In fact, most counties around the nation start with the concept that the rates will not and then resolve their budget discussions from there. In Maryland however, the constant yield rate creates a situation whereby the issue must be resolved independently every year because the constant yield rate changes in relation to property valuation changes.
The other drawback is the constant yield rate doesn’t actually create a cap on taxes, it simply provides a “suggestion” of sorts as to what the rate would be to maintain constant revenues. Counties are then effectively free to set rates where they want as opposed to say capped at 1.00 or perhaps 1.25 percent, which might actually be a better method to control county government spending.
So who is right in this argument? While it isn’t a very satisfying conclusion, technically everyone is right and everyone is wrong. It is a tax increase, but it also isn’t one, depending on your point of view.