Fees, taxes, surcharges and other sources of confusion in Baltimore County.

I’ve used the expression “time for the gloves to come off” a lot recently. Maybe it’s just me, but it seems that the time for equivocating on any number of political issues confronting us on the local, state and national levels has passed.

Of all such issues, the debate in Baltimore County between the “development impact surcharge” proposed by County Executive Johnny Olszewski (Bill No. 23-19) and the “development impact fee” proposed by Councilman David Marks (Bill No. 16-19) is a small one indeed. Nevertheless, it is important enough to the county to make the following point, and to do so without equivocation:

It would be absolutely foolish for any county, if it had the option, to impose a development impact fee rather than a development excise tax. Spend the money on needed infrastructure, not on lawyers and economists.

(The “development impact surcharge” proposed by Bill No. 23-19 is, under state law, a development excise tax. My educated guess is that the bill refers to it as a “surcharge” because it is an easier word for politicians to get past their lips than “tax.”)

Anne Arundel County had a development impact fee rather than a development excise tax while I worked in the Anne Arundel County Office of Law; the county didn’t have the legal authority to impose a development excise tax. Long story short, while the “rational nexus” principles governing the fee approach sound fine in theory, in practice they are little more than a significant administrative burden and expense that contribute nothing to the general welfare of the county. The fee approach does guarantee plenty of work for lawyers and economists – i.e., transactional costs that provide no benefit to residents.

I, and others familiar with local government law, contribute to the confusion between development impact fees and development excise taxes by occasionally referring to both generically as “impact fees.” In any event, here is a brief explanation of the differences by the General Assembly’s Department of Legislative Services:

Differences Between Impact Fee and Excise Tax

A development impact fee is a regulatory measure designed to fund facilities specifically required by new development projects in order to mitigate the impact of such development on infrastructure or public facilities. However, there must be a reasonable connection between the amount of the impact fee imposed and the actual cost of providing facilities to the properties assessed. In order to justify the imposition of an impact fee, a jurisdiction must conduct a study that measures the effects that new development will have on public facilities. The amount of an impact fee is subject to judicial review. Moreover, the revenue from the fee must be dedicated to substantially benefit the assessed properties. Thus, a county cannot collect an impact fee in one geographic area and spend the funds in another area. [Emphasis added.]

A building excise tax is another means of raising revenue from new development. Unlike a regulatory impact fee, the amount of an excise tax does not have to be closely related to the actual cost of providing public facilities to serve new development. In addition, excise tax revenues do not have to be spent to specifically benefit the properties that are taxed but can generally be spent throughout the county.

As it happens, Baltimore County has the authority to adopt a development excise tax under § 11-1-102(a) of the County Code, which was enacted by the General Assembly as Chapter 769 of the 1953 Laws of Maryland. In a case called Waters Landing v. Montgomery County, 337 Md. 15 (1994), the Maryland Court of Appeals held that Montgomery County could use similar authority to impose an excise tax on development. As I recall, Montgomery County and Baltimore County are the only two counties to which the General Assembly has delegated this general taxing power.

Here is a general observation:  Better to give the county executive and county council the flexibility to impose the tax and spend the revenues as they deem appropriate through the budget process, and hold them accountable for their actions, rather than try to micromanage the results through laws and regulations. For one thing, the latter approach doesn’t work very well, and, for another, it furnishes plenty of grist for the litigation mill. Baltimore County already spends an inordinate amount of money on litigation that, with a little foresight, could have been avoided.

Over the years, I have become a firm devotee of the KISS principle. Elected officials, sometimes in the sincere belief that they are “fine tuning” the law, instead make things too complex. Government becomes byzantine, balkanized, and ultimately FUBAR when the KISS principle is ignored.

If Baltimore County had imposed a development excise tax (or impact fee) 25 years ago, it would have avoided the present need for an increase in the local income tax. In that sense, Bill No. 23-19 (development excise tax) is many days and many dollars short, although better late than never. Nor does Bill No. 16-19 (development impact fee) come close to making up for current revenue shortfalls, but it would add needless costs to administering the expenditure of the revenues that Bill No. 23-19 would not.

[My commentary on the suggestion by Mr. Marks that his development impact fee bill is a substitute for the increase in the county income tax rate proposed by Mr. Olszewski will be for another time. Suffice it to say that when he votes on the county budget next month his vote likely will be the pivotal one. And when Mr. Marks votes, we’ll know whether he is more concerned about his own political future than the future of the county. He’s been a part of the problem in the past; this may be his last best chance to become part of the solution.]

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