What are Tax Credits?
Like most local governments, Takoma Park is funded through taxes on the value of private property in the City. The value of a property is assessed by the State of Maryland every 3 years. When a property is reassessed, any new construction would be included in the increased assessment of a property.
- For example, if a property owner built a new apartment building that cost $1,000,000 to build, the new assessed value would increase by close to that amount (with some adjustments based on the price similar buildings in the area have sold for recently).
- The incremental assessment would be the difference between the previous assessment and the new assessment.
A tax credit is a reduction in the tax bill. Other names include a tax abatement, PILOT, or tax rebate. The credit is added to the annual property tax bill and reduces the amount the property owner owes the City. The City is proposing 2 tax credits which would forgo the increased tax revenue (the incremental assessment discussed above) created by a property owner’s investment in their property as part of the City’s Proposed Housing Tax Credits.
The City has focused on tax credits for several reasons:
- Tax Credits are specifically mentioned in the Housing & Economic Development Strategic Plan as a policy recommendation.
- Housing and Community Development agrees with this recommendation because, with limited annual revenues but high per property assessments, tax credits represent the best avenue for the City to realize more immediate gains in housing priorities with lower up-front cost.
- Furthermore, the proposed credits provide predictable financial support that can be used in obtaining financing from lenders.
- Additionally, the value of the credit is based on the value of the investment in the City, which means that higher quality housing will be rewarded with a higher credit.
In other municipalities, incentives such as increasing the speed of review, reducing parking or other requirements, and allowing more units have been implemented as incentives to encourage housing production. The City is in a unique position because we do not have the ability to change these policies since they are controlled by the County. Furthermore, the City has a significant amount of affordable housing (roughly 40% of the City’s rental homes are deed-restricted Affordable Housing). This necessitates different tools than other jurisdictions.
