Problems With Growth Fees in Maryland

The Washington Post has an article today assessing the “growth tax” that has been in effect in suburban Montgomery County, Maryland for the past two and a half years.  In 2003 the County Council passed a tax on all new homes being built in the county to pay for the requisite road improvements and school expansions associated with suburban growth.

This is a strategy being employed or debated throughout the country as the real estate boom of the last several years resulted in signifianct stress placed on suburan municipalities.  More and more building resulted in more and more people and demand for services.  Because the rate of growth is dictated by the market, municipalities often don’t have the revenue to initiate infrastructure improvements before demand emerges.  Existing residents, meanwhile, are less than enthusiastic to have to pay up front for the service demand generated by new arrivals.  Thus, taxes such as this one are established to help get growth to “pay for itself.”

In the case of Montgomery County, however, developers were given a four month window before the tax went into effect.  The Post’s analysis suggests that developers took advantage of the grace period and applied for permits in advance in order to get their projects in the pipeline before they had to pay the tax.  The problem, of course, is that revenues were less than expected while the costs associated with growth increased.

The other problem pointed to in the article is the fact that revenues generated from this tax are subject to the fluctuations of the housing market, making it difficult to plan long-term financing for the large-scale infrastructure projects the tax is meant to serve.

These types of taxes will probably continue to be adopted throughout the country as municipalities search for ways to pay for growth; but the grace period embraced by Montgomery County may be something that other municipalities want to question.