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Hagerstown City Council members on Tuesday began looking at how to implement a tax increase to help sustain city services, zeroing in on a two-tiered tax system they have discussed.
During an afternoon work session, council members considered a 3-cent across-the-board property tax rate increase, with an additional 2-cent increase on class M properties, or multiple-unit apartments.
The discussion came as the council, Mayor Bob Bruchey and city staff are formulating a 2018-19 fiscal year budget, which the city hopes to have completed by the end of next month.
City officials said earlier this month that the city is facing financial challenges such as increased costs for employee benefits. On the other hand, the city doesn't have a lot of ways to generate new revenue.
City staff have presented the council with a proposed budget that includes about $776,000 in new tax revenue, which could be achieved through a 3-cent tax rate increase.
The city's current tax rate is 94.1 cents per $100 of assessed value.
The council on Tuesday discussed how homeowners in the city generally subsidize the cost of rental units. Councilman Austin Heffernan said he can see the justification of adding an additional 2 cents to the class M rental property rate because those units could require more city services, such as police, fire and trash collection.
Class M properties are categorized as having four or more units. There are 415 class M parcels in the city, according to Scott Nicewarner, the director of technology and support services for the city.
If the council goes with an additional 2-cent increase for class M properties on top of the 3-cent across-the-board increase, it will generate about another $50,000 for the city, Nicewarner said.
Despite concern that homeowners subsidize the cost of apartment units, Councilman Lewis C. Metzner said he wants to start gradually with a 2-tiered tax system. At one point on Tuesday, council members discussed an 11-cent tax rate increase for class M properties.
Metzner cautioned against starting off too strong with a two-tiered tax system, saying the council chambers could be "packed with people telling us we're nuts with an 11-cent tax increase."
Councilman Kristin B. Aleshire said the city's taxing approach is out of balance. Because an owner-occupied house in the city's north end has a higher assessment, that homeowner will pay a "disproportionate share" of the 3-cent increase, said Aleshire, who added that that is an ongoing trend.
"At some point, we're going to have to say, 'Is that where we're going to keep going?''' Aleshire asked.
City officials said one financial challenge is paying for salary increases approved through collective bargaining contracts with employee groups.
The council needs to keep in mind whether it wants to continue helping to fund expansions to The Maryland Theatre and downtown revitalization efforts, city staff members said.
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