ROCKVILLE – Some people attending a Dec. 3 Montgomery County Council hearing on the proposed Housing Impact Fairness Act said it would go a long way toward ending homelessness and school overcrowding while others called it a double housing tax that would drive business out of the county.
The proposed act would levy an impact fee of about $50,000 every time an older home was torn down and replaced by a much larger and more expensive home on the same lot.
These teardowns, as they are called, can be seen throughout the county on streets where mini-mansions are situated amidst the older, smaller homes that were originally built there.
Councilman Evan Glass said he proposed the impact fee to close what he considered a loophole in the county tax laws. Under the current impact fee, all new home construction is charged an annual impact fee, but teardowns are not excluded.
Glass predicted that if the impact fees also were levied on teardowns, it would generate $10 million a year of new money for the county, of which $5.7 million would be dedicated to school construction, and $4.3 million would go into the county’s affordable housing programs.
“A newly rebuilt home is currently exempt. I don’t think that’s fair. I don’t think that’s equitable,” Glass said prior to the public hearing. “Ultimately, this legislation is about fairness.”
A home built in 1948 that is 1,700 square feet sells for $700,000, Glass said. If that home is torn down and a 42,000 square-foot-home is erected on the same lot, it would sell for $1.75 million, he said.
That homeowner would not be charged an impact fee under the current law.
But if someone built a new 1,700-square foot townhouse on a vacant lot, that developer would be charged between $34,000 and $50,000, Glass said.
The council has agreed to add 23,000 new affordable housing units during the next decade, and this fee would help meet that goal, Glass said.
County Executive Marc Elrich favors the impact fee so much he intends to act as if it already has passed, although it has yet to be voted on, noted Mary Beck, an Office of Management and Budget (OMB) manager with the county.
“Once final estimates are determined, the county executive intends to incorporate these revenue assumptions into his upcoming” budgets for fiscal years 2021 to 2026, she said.
The council will hold a work session on Jan. 16 to discuss the proposed impact fee.
Many of those who spoke in favor of the act represented nonprofits and those involved in assisting the needy and homeless who said they welcomed the additional dollars.
Shane Rock, Interfaith Works executive director, said the need for new money is great, because thousands of people in the county are experiencing the threat of homelessness or are homeless.
Some of the people in shelters are working but cannot afford to live in this county. He called the impact fee “a first step to ending homelessness.”
Pia Morrison, president of SEIU Local 500, which represents 9,500 school support staff in the county, called the revenue this fee would generate “a much-needed fund.”
Many schools are overcrowded, some students are learning in trailers, and some buildings need construction repairs, she said.
“This is not a new tax, just a matter of getting rid of a loophole,” she said.
“It’s about equity for our families” and a fairer tax code, Morrison said. Ana Levy of Jews United for Justice, added a new fee on teardowns would make it “so that everyone pays their fair share.”
But many people involved in building and selling homes spoke out strongly against the bill. Most of them sported round yellow stickers that read, “No Double Housing Tax.”
Andy Stern, chair of the Greater Bethesda Chamber of Commerce, said he was speaking “in strong opposition” for his chamber as well as the chambers in Greater Silver Spring and Gaithersburg-Germantown.
He called the fee a double tax, noting, “When a property is torn down and redeveloped, it will be assessed at a higher value and face higher property taxes.”
That would make the proposed fee “punitive and duplicative,” Stern said.
Small business owners who work on home construction will be most affected, he said.
“The tax will add tens of thousands of dollars to the budget for a renovation project and will deter home buyers from projects that require substantial renovation. Painters, plumbers, electricians and other contractors will be drastically impacted,” Stern told members of the council.
“If those businesses suffer – close, relocate, stop growing, or simply shrink – the effect this bill has on our local economic ecosystem will far outweigh any added revenue created,” he said.
Larry Cafritz, who remodels and builds new homes from teardowns, said the impact fee amounts to a $48,000 permit and “would completely kill” much of his what he does.
He noted that the owner of the original smaller home might pay $7,000 in annual taxes, but when that family moves into the larger home, that “could turn into $21,000 of annual taxes.”
That additional amount would continue annually and bring in more money in several years than the proposed one-time impact fee would, he said.