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The Tentacle


July 26, 2010

Pushing the Envelope: Taxes and Leadership

Earl 'Rocky' Mackintosh

One of the below-the-fold front page headlines in The Frederick News-Post last week caught my eye:  “City considering new tax options.” Seems that a couple of the Frederick City aldermen threw out some “preliminary ideas, including a hotel/motel tax, a property recordation tax and an excise tax on construction … to raise tax revenue for the City,” according to Patti Borda’s article July 20.

 

Of late I have been a big fan of the new mayor and Board of Aldermen and the general direction that they seem to taking in many areas. Fiscal responsibility seems to been a primary focus of this group, and I am very impressed with the fact that they are willing to continue the efforts of Gabrielle Dunn’s Land Management Code Workgroup Committee to unravel  some of the inconsistencies and unrealistic expectations found in the 700 plus page manual.

 

Many of the suggestions, if addressed properly, will aid in spurring economic development in the city which, at its core, typically involves real estate improvement or development. In the end I strongly believe this will provide a tremendous boost in the tax revenue to the city and county government coffers.

 

These movements to revise portions of such a massive planning and zoning regulatory document will bring back realistic approaches to something that was drafted in the “Hey-Day” of an out of control and unsustainable real estate boom time – more than commendable. But these efforts by the city stand in stark contrast to the efforts that the current Frederick Board of County Commissioners has taken within their fiefdom to continue to tighten the screws on all aspects of stimulating economic development through real estate.

 

While I know that county and municipal operational budgets are very tight right now, it seems that all of these proposals to impose more taxes in one form or another are on the use of, transfer of, or construction upon real estate. Now, I don’t have to tell anyone who is in touch with current state of the economy, but the real estate and construction markets are suffering from one of the worse economic setbacks in more than a generation. Prospects for a visible recovery of these related industries within even five years are optimistic … and I am not what one would call a “doom and gloomer.”

 

I wrote a post on the MacRo Report Blog on July 1, entitled “Seeking a ‘Normal’ Real Estate Market: Using Housing as the Barometer” (www.bit.ly/ciqvf4), which showed a graph of the boom and bust cycles that the housing industry has been through since 1890.

 

The startling part was to look at the size of the latest spike and its subsequent fall compared to all previous cycles of the last 120 years. The point that’s clear is that while there has been much talk about the recession being over and certain elements of the residential market “finding its bottom,” most segments still have a long way to go to a true recovery… especially with commercial, retail and industrial real estate.

 

With all that said, when I see that any elected official is even considering imposing more taxes on a beaten industry like real estate, I have to ask … “What are they thinking?” The old line that such a measure would be like squeezing water out of rock is about it.

 

Allow me to just briefly touch on each of these “new tax options.” First, a hotel/motel tax … excuse me, but unless I missed something this market is hurting. Secondly, an increase in the real estate property transfer tax anywhere in Frederick County is not a good idea, since the current tax is one of the highest rates in the state. And finally an excise tax on new construction, still suffering from industry low starts, will only make it harder to “make the numbers work” as the investors would say. These industries need to be stimulated to create a greater volume of business, which in turn will reap exponential returns to the city coffers, rather than have to find new ways to deal with the penalties of increased costs.

 

So, what is our city government (and county government for that matter) to do about finding revenue? While I truly applaud our aldermen for the very thorough approach they took in dissecting and slicing the city budget this past year, and especially the efforts of President Pro-Tem Karen Young for her analysis that parts of the city’s financial obligations are “unsustainable,” trying to solve or even mend the revenue side of the equation with just another tax on real estate is no longer the answer.

 

In several of my blog posts of late, I have suggested some aggressive out of the box approaches to resolving both the city and county budgetary woes. The feedback from an article that was published in the News-Post on May 16 entitled “Time to Lower Real Estate Taxes and Consolidate City, County Governments?” (www.bit.ly/bLNNu8), generated more than a lot of talk, and I still have residents of the city offering up positive responses about it.

 

Now some have said the article may have gone too far. Why not look at the idea of these two huge tax-eating machines coming together to look at efficiencies that could be obviously achieved in combining certain overlapping services? There are so many! This is not about cutting government services – that’s for another discussion – just combining. With all the discussion, no one has ever said that any level of the idea will not save the taxpayers money, and no one has raised the concern that it could make government services less efficient.

 

So, why hasn’t at least one of the elected officials from the city or the county even thrown the idea out to start a conversation? Could it be the fact that there is animosity between the two jurisdictions? Or are our respective fathers and mothers concerned about holding on the sacred turf over which they rule? Or is rocking the boat just not their thing?

 

Whatever the answer, these are truly unconventional times in all sectors of government and the economy. And it’s time for our leaders to find real courage to break the mold of tradition and think out of the box … even if it means taking a risk that could challenge their incumbency. While I am optimistic about the future, I am also realistic that our current economic situation is not going to change overnight.

 

So, I challenge just one of our elected officials from either camp to step up and push the envelope! You might be surprised where it goes … and you may be startled find out what true leadership is all about!

 

rocky@macroltd.com

http://www.macroreportblog.com/

 



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