Thank you. Everyone and welcome to this government operations and fiscal policy committee session. This morning we're reviewing the FY26 operating budget. We'll first look at the property tax rate and the income tax offset credit that the county executive sent over to us. And then we will take up the resolution to increase the County income tax rate and the working families income supplement. On the first items, the property tax rate and the income tax offset credit that will take up right now. We are looking to send a recommendation from this committee to the full council, so we will be voting on those items and I'll turn over to Mrs. Smith. Thank you. Chair Stewart and I also want to acknowledge and thank my colleagues from Finance and OMB who always join us for these discussions and they're helping putting these reports together. So as you shared, for the first item, the committee is going to be reviewing the weighted real property tax rate as well as the income tax offset credit that was recommended by the executive. So I'm March 14th the executive recommended a weighted real property tax rate of $1.006.05 cents per $100 of assess value that included a three and a half cent Montgomery County public school supplemental rate in it Compared to the fiscal 25 weighted real property tax rate. He also recommended an income Tax offset credit or I talk. I'll just call it I talk probably through the rest of this presentation of 860 dollars per eligible free geligible property which was a $168 increased over the $692 that was for the fiscal 25 value. On April 24th, he recommended some amendments to those two items. The first one for the weighted real property tax rate he decreased it to $1.0255 per hundred dollars of accessible base. Eliminating the three and a half cent property tax rate that he had recommended. As you'll see later on item number two, he's now recommending an income tax rate increase. And then for I talk, he decreased it from the recommended value of $860 to $750 per eligible property, which is still an increase of $60 from the fiscal 25 rate. Just some quick background for the committee members and those watching at home. The weighted rate is not a rate that anybody will see on their property tax bill. It's a compilation of all of the rates at the county charges and levies each year. There's multiple rates and this represents kind of the average weighted rate based on all of those rates. But again, most no resident will see that on their tax bill. They'll see each individual tax rate that the county levies The county charter currently requires an affirmative vote of 11 council members if they want to exceed the weighted rate from last year However, if the as the council did in fiscal 24 if they want to increase the tax rate based totally on MCPS supplemental rate a simple majority is required for that For the eye, that provides a tax credit to owner occupied units for the amount of revenues that county generates and income tax over 2.6%. The rate has been set at 6.92 for quite some time and as Council staff provide an attachment on Circle 3 shows the history of both the weighted rate and the I-Toc for multiple years just to get a sense of how they've changed and how they've moved. I won't go through those now for the purposes of this presentation, but it's available in the packet. I do note that any changes to the I talk value do impact the estimated property tax revenues and therefore affect how the council can consider resources during the budget. For this year based on the estimated number of eligible properties, any $1 increase to the I-Toc will result in $192,720 and $712 in reduced tax revenues or expenditures in this case. The opposite is true. If $1 decrease would result in $192,720 to $712 in terms of resources available for the council. So you summing that the total in terms of the executive's recommendation of $860 as in the March 14 budget that is a $32.4 million draw on resources available to the council or to the county for balancing the budget in fiscal 26. And as I did on table one, I showed some illustrativeous examples as well as the executive's recommendations in terms of actually how those resources would be impacted in council's decisions. Finally, I'll just note that there is still the old, it's still called the constant yield tax rate and state law even though that has changed a little bit based on the council's advertisement and public hearing. I believe given all the the options available to the council, you will not need to be concerned with that this year that any, any, both the executives recommended rate in March 14th and the April 24th recommended rate in that compilation. And so there's no concern for that. But I noted in terms of just meeting the state law. So I'll wrap it up and turn it back over to the committee. So the committee now needs to kind of make a recommendation both for the weighted real property tax rate, as well as I talk for the weighted real property tax rate. The two options before the committee is the executive's recommendation on March 14th, which was $1.0605 per $100 of assessable base, which includes the three and a half cents MCPS, supplemental rate. The other option and.0255 per hundred dollars of assessable base which is the same as fiscal 25. And then for the I talk, the recommended option from the executive on March 14th was $860. March, April 24th was $752 or the other option is maintaining the fiscal 25 rate of $692. And happy to go through those permutations if the committee wants but those are the options before the committee. Thank you very much. Thank you, Mr. Smith. Anything from Finance or OMB? No, any comments from colleagues? I think obviously, I think keeping the tax rate, the property tax rate the same given the recommendations from the County Executive, they sent over on April 24th and I think given the views of the council, that was where I would land and then I would also support keeping the eye talk at the current level that we have now. I've seen both the eye talk and the property tax increase as sort of linked together. If we were going to do one, we should do the other. But since we're taking the property tax increase off the table, I think we should keep the eye talk at the status quo. Council Member Treeton. Yeah, thank you for that. been advocating to hold the line on property taxes for a while now. Appreciate that that's where we're going to land here at this committee and that seems to be the broad consensus and would agree with your recommendation. I think there may be an opportunity down the line to take a look at the eye talk, but it was linked in the proposal to this from a revenue standpoint. I think the, you know, responsible thing for us to do is to, if we're not going to take up one, then, you know, holding things steady in both regards. And my quote is me too. I agree with you. So thank you. Great. All right. So I think for the recommendation to the full council is to go with the tax rate from FY 25 and then to keep the eye talk at the current rate and to not do the county executives recommendation. Great. I'll just note for the record the committee or the council will be looking at these both on Monday. Yes. And so the packet will go out later this afternoon for the council as well as for the public and reflect the committee's recommendation. Great. And just for folks listening at home, the council will be taking straw votes on this because we need to be starting to make decisions so that we can move along in our process with the overall budget. So, great. Thank you on that. Next, we're going to move on to the resolution to increase the county income tax rate. And since this one just came over to us last, yes, last week, the time is that the council, the committee today will just be reviewing this and not be making a recommendation to full council at this time. Very good. Again, just acknowledging and thanking our friends and colleagues and finance and OMB, assisting with this work and putting this together with council staff. I'll go through some of the information that's already in the report, but just to kind of get it all out there for the committee's discussion and consideration, and some of what we'll be talking about at full council when we get there. So that we just talked about property taxes. The county also levies an income tax rate, collects it separately. It is one of the larger revenue sources along with property taxes. However, it is much different than property taxes and Council staff will go through that now. So the state law does have a legal requirement that counties in state of Maryland need a levian income tax rate. Based on current state law, the minimum is 2.25% and the maximum just now is 3.3% as the general assembly amended the law this year. The council set the maximum tax rate of 3.2% back in 2003 for the fiscal 04 budget. So the county hasn't had an income tax rate, a local income tax rate of 3.2% since 2003. Unlike property taxes, the rate is approved through resolution. It does not need to be approved each year. And so once the council said it to 3.2% back in 2003, the council has not seen another resolution to consider. And there is no charter or legal mandate in terms of voting threshold. It is a resolution. So a simple majority will pass the resolution before the council. So because the county, the state of Maryland has the county's levier local income tax rate, the state of the comtroller does all of the work for the local counties. So when a resident in Montgomery County, the Maryland, anywhere are that wants to file based on their work elsewhere, but takes residence in the county. They file one return with the state of Maryland that both calculates their adjusted gross income for Maryland and then applies the Maryland tax rate based that, as well as the county tax rate. And so because of that, the Maryland has most of the information related to this and also gives distributions to the county. So as you can see on Table 1 on page 2, unlike county's property taxes, which come in two slugs September and December, and then there's some that comes in a little bit later, the income tax revenues are distributed throughout the year to the counties. They come in in variations based on the type of money that was collected, whether it was quarterly distributions or withholdings for wages and salaries or reconciliation payments. And because of that lag, most of the revenues of the counties receiving currently in fiscal 25 was from tax year 2024 and so the same would hold true next year for tax year 2025 a lot of that money is going to come in fiscal 26 so and that lag also creates a lag in terms of how we can interpret this data and for the purposes of estimating revenues and so finance does an excellent job not only looking at economic data and projections, and then adjusting based on the distributions, but these distributions do impact kind of where we see our income tax revenues going. I'll quickly note for the General Assembly in 2025, they did make changes to the state tax law extensively, a primarily affected, in, in filers who are going to file a greater than 250,000 AGI or just a gross income. And due to that, because primarily because they are going to change how itemized deductions work, the county is currently estimating an additional $14.3 million in 26 for income tax revenue that is irrelevant and irrespective of the county's consideration to raise its own income tax law. I mean, sorry, rate. So, Council staff did do some based on having conversation with council members to prepare for today. Looked at the impact on residents, both in terms of the state laws, changes, and the county executives' recommendation to increase income tax rate to 3.3%. And apologies I should have mentioned the recommendation from the executive is not only 3.3% going to the maximum but making it retroactive. And so that would apply immediately starting for tax year 2025. So income that has already been earned will be taxed at the new 3.3%. And as noted in the General Assembly's work, in order to do it retroactively, there's two caveats to that. The county cannot consider brackets this year to make it more progressive. And the county must file to the count controller by May 15th, which is partly why this is somewhat of a rush item. Should the council want to do it retroactively, we need to give control or notice by May 15th. I apologize for that quick divergence, but I wanted to make sure that data was out there. So we looked at both the residential impact or file or impact, and I should know the challenge with this is it's it's based on returns, it's based on filers. So if it's household is filing jointly, if there's a married couple, they have children, that's one return. If a couple decides they want to file separately, that's two returns, if it's individual, that's one return. So I caution us thinking about households with each return. That's an OK analogy, but it's not that simple in terms of when we talk about income tax returns. And so unfortunately, the Bureau of Revenue Estimates used to have a granular data on filers using Maryland AGI. That was discontinued in 2018 and so that's becoming more and more dated. And so for the purposes of our discussion, I use the current IRS data that's most recent, which is 2022. They have different breakdowns and it's based on federal AGI, but I do think it gives us at least some idea of the types of filers that are in the county. And so generally what I want to note as we kind of go into this is that most of the county's income tax revenues are generated by returns greater than 100,000 AGI. That's where it makes sense. I think that's an obvious statement, but nonetheless, like those that are having AGI over $100,000 or funding most of the county's revenues. These are also primarily where capital gains are considered, and that obviously makes sense again. And given the additional 2% that the state of Maryland is now charging on capital gains on top of the income tax rates that they've increased for filers greater than 250,000 AGI, there will be an additional state tax collected that's not realized for the county, but that those filers will be having to pay in 2025 in future fiscal years. And also finally, the filers that are over $100,000 are taking advantage of itemized deductions the most and of course the state changed how itemized as deductions will change for work for folks filing greater than 200,000 AGI. And then finally on the other end for those that had received less than or that report less than 50,000 AGI, those are where most of them are receiving the earned income tax credit refund. I highlight that because momentarily we'll be looking with my colleague of the working family income supplement. So the state piggybacks off of that refund and also provides a refund in the county matches that refund through our working family income supplement. And so based on the federal EITC or income tax credit requirements, most of that is going to be below those who earn less than 50,000 or report less than 50,000 AGI. But it's not all of them. According to IRS data, it's only about 17% of those that file with less than 50,000 AGI are receiving a refund. And so 83% are not receiving a refund. They may receive a tax credit so their liabilities reduce but they do not receive a refund. So summarizing how kind of how the increase both at the state level and the county level from 3.2 to 3.3%. I summarized it into three buckets. Those filing less than 50,000, we'll probably see a small increase. Again, impact here is just based on total tax liability. I don't want to suggest that a $50 bill is reasonable or not reasonable for our residents. Again, it's just based on what they were expected to pay in 2024 and what they're paying now in 2025 given this. Some of them but not all of them will receive the refund through the working family income supplement based on the executive's recommendation they might see a modest increase in that but again that's not all filers that will be about 20% of the filers in Montgomery County might see that there are less than $50,000 might see an increase in their refund. For those that are between 50 and 200,000, before you get to the new state law in terms of how itemized deductions are, they will see a modest increase. 0.1% increase is an additional dollar for every $1,000. And so as you get greater into the AGI, those will, we would expect a greater tax bill for next year if the county council increases the tax rate from 3.2 to 3.3%. And then finally for those that are filing greater than 200,000 AGI that will be where most of the impact is felt not both, because that is also changing for them at the state level. And then also the county's income tax rate would be impacted on that. And some of we're going to be paying more income taxes from the county anyway due to the itemized reduction changes regardless again of what the council is considering. Now turning the page to how we're expecting the income tax revenues to change for the county. I finance provided estimates both at the 3.3% retroactively for tax year 2025, at 3.3%, prospectively starting tax year 2026, and then based on the Council President's request, they did estimate 3.25% both retroactively and prospectively for 2026. Clearly retroactively at 3.3%, and creates the most revenues estimated in fiscal 26 at 75 million, should the Council decide to do it prospectively at 3.3% and creates the most revenues estimate in a fiscal 26 at 75 million. Should the council decide to do it prospectively at 3.3% the estimates at 25 million so there's a 50 million delta there. And then 3.25% is even less than that. So a couple caveats that I put in the packet just again for us as we get into this discussion. Our income tax is volatile, which more volatile than it is for our property taxes, primarily because of capital gains and behaviors that individuals take. So we don't know when those individuals will take capital gains. And as I show on chart one on page seven, the approved budget for income taxes versus the actual revenues fluctuates depending on those individuals' behaviors throughout the year as well as the macroeconomics that occur for the county and for the nation. And so even with the estimates that we have before from finance, which I think are excellent, it's hard to know whether or not where those will come in just given all of the changes that could happen for capital gains for our individual residents this year based on state tax law. To the finance did say that they included, I'm calling them make up payments. I'm not sure that's the best term, but nonetheless, because if the county council approves a retroactive tax increase, those that have already earned income from January until it goes into effect, until employers or others start to make those changes, that tax, that income will need to be taxed at a different level. And so finances assuming that there will be some makeup payments for January to let's say June for the first two quarters of the year. And then that's why it's slightly more than what we might get if it was just a flat rate starting in fiscal, sorry, in 2026. And so all I know is it's hard to know not only behavior for our individual tax payers, but also how our employers would respond to this and how they would make up those payments. And of course, any change in when those payments are made up, if they wait till the end of the next, like their tax year and their filing, then those payments may not come to the county until fiscal 27, like November 2026. And so there is some edges around there where that number may change as we get further into the year. And we see actually what the state does with these distributions. Finally, and the council has talked at this length that I won't be laboring it too long. We're obviously facing an unprecedented reality in terms of our economy, given the federal administration and how they're affecting federal workers, which the county has an outsized amount already here, in terms of tariffs and trade policy. And so there's just, regardless of the county's consideration of an income tax rate increase currently, there's a lot that can change for income taxes going into 2026, fiscal 26 and next year, just given the changes. And those are working through the system right now and nothing has changed in terms of finance as estimates given those because we just don't have enough data to change that. And so likely come November of 2025, well we're in the middle of fiscal 26 as one will have a better sense of what's going on and the economy and how it's impacting our fiscal or income tax revenues. And then finally we we just don't know how our highest income earners, those that report the most capital gains are going to behave given the state law changes and the potential county law changes. And so I know it's talked about and I'll just mention it. So they certainly can change residency if they believe those laws have impacted their revenues enough that they no longer want to realize those gains in the state of Maryland. really difficult really difficult to know how many and who would do that. But that is certainly on the table given all the changes before them in the state, especially given the, I mean, I put most of it in the state changes because of both the capital gains and the higher rates. So I think that's a lot of information. I've front loaded it. I saw a reaction. So happy to turn it over to finance. If they have things they want to add, but also if council members have questions for this discussion as we get ready for council. Thank you. Great. Thank you, Mr. Smith. And I really appreciate the packet and all the information knowing it was a very quick turnaround to provide all this to us so that council can, you know, deliberate and think about the potential of an income tax increase. Just want to turn it over to finance. I don't want B&C if you all have anything to add. Yes. Nancy? Yeah. Nancy Feldman, Department of Finance. I just want to say that I agree with you that this is a really good representation of the information that we've been pulling together and working with Mr. Smith to get this in front of you and we really appreciate the collaboration. We really appreciate that, Ms. Vellman. And I guess maybe one question for you all, I know Mr. Smith kind of laid out the volatility and kind of just gave our hands around income taxes and when people may file and when we're potentially gonna see, even if we don't raise, our income tax rate this year, knowing how we're gonna estimate moving forward. If you just wanted to maybe elaborate a little bit on what Mr. Smith said in terms of what finances, thinking about this time as you're looking at not just the potential of us increasing the tax rate, but just how we're going to move through this year. We think about it all day long every day and I know that you do as well. We are right now getting prepared to start meeting with the revenue estimating group. We have a report coming due May 15th as noted a few moments ago by Mr. Smith. There's no data of substance yet, but we all know what's going on, whether it's from our friends, our family, our neighbors here, our constituents in the county. But it has not, in many ways, filtered through into data until yesterday when the national GDP went negative for the first time in quite a number of years. There are all kinds of explanations for that and that it may or may not reverse because of behavior, right? There's a lot of behavior that we all have to try and figure out. So what we're going to plan to do with the revenue estimating group, first the technical group, and then with the full committee, is to go through as much data as we have, also go through discussions from our consultant that provide our economic assumptions. They have people who work all day long every single day trying to do their best guess because it's no more than that, unfortunately. We're going to take that in and we're going to evaluate it and how we think it may impact us. I don't think just for some, when we're not seeing higher unemployment rate claims of any substance. We have a big national data for employment on Friday of this week. We'll see how that plays out. We're just at the very beginning of starting to receive data that could be helpful in making future decisions about how income tax may behave in over the course of the next couple of months. Great, that's really helpful. And actually, if you could just, it might be helpful just to remind us all. I think our committee does think about this very frequently, probably not as frequently as you all do. But in terms of, you know, when you're looking at data, like, take us maybe just through a year and when you're thinking about the revenue estimating group, meeting the report, sort of the ebbs and flows of how you all are looking at the data and the estimates because I think, as Mr. Smith said, all of us are used to the property tax and the two distributions we get. Income tax is a lot fluctuates a lot more, and even the work that you all are doing on the projections is something that this committee takes up, but just kind of thinking about it more broadly as we have this conversation with the full council. Sure, let me walk through the revenue estimating group as four reports that are due. They're called quarterly reports, but they're not actually quarterly. They're slightly off. And we, the revenue estimating group, are talking about recommending among ourselves, whether or not we would want to change some of those dates. Right now, February 15th, May 15th, September 15th, and December 15th. Some of those are really great because they align with the budget process and the December fiscal plan update. The ones in the middle are a little harder. May 15th, we don't have likely a whole lot of information in most years from the time the budget is introduced by the executive to May 15th. So the assumptions are all agreed upon in February, but the revenues haven't been completed, if you will. There's a lot of inputs that go on. So those are the times of year where we are reporting specifically. As I noted, we're thinking about it pretty much every day, especially in the volatile times that we're experiencing right now. Among the many things that are important with respect to the income tax and they're discussed very well in the packet here is number one behavior of taxpayers, especially if you're thinking about changing tax rates either retroactively or prospectively because many tax payers have never paid an estimated tax payment. if you're doing an retroactive and there was income in the first six months of the year, some taxpayers who've never made an estimated payment might not know that they might have to make an estimated payment in the second half of the year. And so therefore, they're not going to be in a position or knowledgeable enough to do anything about the first six months of calendar tax year 25 until April of 26. At which point I believe I've read that they wouldn't incur a penalty for the state. I think that's one of the pieces of the bill, but that doesn't mean that we get the taxes any earlier. And so those dollars we probably wouldn't get until the very end of FY26 or if they file an extension, possibly FY27. So there's that piece of behavior that's in there. And then there are some other moving parts that are unique to the circumstance of the new administration in Washington where many employees were offered, you can stop working today and be on the payroll until September. So those folks are not technically unemployed because they're being paid. So we don't know exactly how they are going to impact our unemployment rate, our withholdings, et cetera. So there's a story for every piece of this. And then the state has to collect it and decide, according to their approach, of when they send that money to us. And we have to figure out what caused it. Sometimes we don't know until after we receive repayment, whether it's some of the larger payments we often receive in November and in February, for example. We then spend certain amount of time trying to dissect what caused something that may have been unexpected. So this combination of the state tax changes as well as any changes that the council may choose to implement are going to be spending a lot of time dissecting. We prefer to get it right up front where aware there's just a lot of behavior issues and and also at the county level our data is quite a bit delayed versus DC for instance which has data like a state right or the state of Maryland. Thank you. It was very helpful. Appreciate you taking the time to do that. Councilmember Katz. Thank you, Madam President. And first, again, thank you all for this information. It is helpful. You know, you use the term volatile, so volatile. And I think, and I have heard this before, and Jean, you and I have had this conversation before, but I have heard that in some cases about a half or 45% or whatever that percentage is of the people who pay income taxes in Montgomery County because based on capital gains, et cetera, it's about 50 people. Now, that number of of course, changes each year, depending on who's sold something for a capital gain. But if it's based on 50 people, even if it's 60 or less than 100 or whatever that number is, many of those residents have a home in various places throughout the United States. Whether it be here, whether it be Delaware, in addition, they have one in Florida, wherever. And they could, I think it's 183 days, is to be domiciled, and they could declare the other house their residents. And we would lose every dime from what they are paying and income down. We'd still get their property tax, but we would lose every dime of what they're paying in income tax to Montgomery County now. And I just believe that this is really, and we're gonna need to have the conversations. I don't wanna say that we shouldn't, but I really believe in many ways, this is penny wise and pound foolish, that if any of the people, the 50 people, would leave, we're gonna be worse off, and we still could be worse off, because what the state of Maryland did did because of the way that they've changed this tax situation. I just believe that we need to be extremely careful on what we do and how much we're doing. And to the point of that you would just raised, I was writing some notes and that in my notes, about the buyout. And so those folks are not quote unquote unemployed that they really are. They're still receiving a salary. So therefore we can't figure out how many that would be. And if they worked in the district or Virginia, then the unemployment part would come from the district or Virginia. Correct? That's where they would be getting their unemployment payments once they declare. I think it's where the business was. I don't know the answer to that. Yeah. We'll be looking at that. But I would say least for me that won't speak for my colleagues of finance that that is my sense and DC has seen a far greater increase in unemployment filings because that's where most of the federal workers are Which is why the state of Maryland and the county have not seen a similar increase but We will double check that but and so my question so my question on that is, does the district government or the Virginia government let us know who was unemployed in Montgomery County? How does that work? So would we even know how near unemployed? We will get back to you on that one. And we can have them and some of I think what the council president was doing here is we can include that in the future packet for the Council and note the committee's questions You know jean I have to tell you after reading your packet and you are a guru I'm saying is very very publicly hell in the world you can figure out what you've already figured out But this one is unbelievable for what the problems that could happen, and it's for us trying to get a better revenue. And in many cases, we might be getting something much worse than a better revenue. Thank you very much. Thank you, Councilmember Friedzen. Thank you. First of all, echo in the comments of colleagues. First, I want to thank both Council staff and Finance for all of the work. I'm very concerned about imposing a retroactive income tax increase on residents who are already struggling. And particularly, as noted on many employees in our community who are going to be taxed on wages from jobs they no longer have. To me that is just an incredibly difficult message to send those employees and those families who are already desperately struggling. That's in addition to the concerns that customer recats was raising, which I think are very legitimate of whether or not this is pennywise and pound for us to the extent that if certain decisions are made compounded from the state decisions that have been made, 50% of which are being born by our residents. In addition to us making decisions, what impact that's going to have on taxpayer decisions. So I'm just, I'm very concerned on the impact on, on, on families, on working families in particular, on federal employees who are under assault. You know, particularly concerned, and Ms. Feldman, you spoke to it very eloquently of many employees who wouldn't even realize that they owe more taxes than what they have with held for. They may have taken a buyout and have limited interaction with their office of human resources anymore, and are looking for their next career decision. And Rex career move in an economy regionally and nationally that is going negative for the first time as was noted. And this region more disproportionately impacted than any other. And so I'm just, I'm very, very concerned about that. A couple of questions that were noted that I wanted to follow up on. How confident are you on the timing? I know you mentioned we're not sure exactly when the timing is going to be, because much of this is being sold on how to solve our current budget challenges. And I'm concerned that that's not particularly realistic. And I used to work in this space, And so I do understand the flow of how it works. And generally, we don't see the county impacts of revenues for quite some time. And particularly when we don't know, that's an normal time. And this would be an abnormal dynamic where we would be increasing taxes for the first time since 2003 in one of the most challenging, if not the single most challenging economic environment that this county and region has ever faced potentially and we have no idea how residents are going to respond. But what level of confidence do you have that we will see significant revenue increase as has been suggested by the executive and his transmittal in FY26? I would love to say 100%, but there's no way that we are 100% confident in these forecasts. Let's start with FY25, if a retroactive income tax change were made and transmitted to the controller by May 15th, as the law says, there's a slight chance that we could see some revenue from withholding in FY25. We did not assume any. So we assume there will be earnings that are taxable in FY25, but are not making any assumptions that we would receive them because you have to collect, just submit, and then the controller has to calculate and then transmit back to us. So we understand the earnings, the timing of receipt we had to assume was in FY26. If you said to us, are you going to get it in August, September, October, November? We have our best estimate based on the timing of when these various distributions are made to us upon, you know, collection payment and then distribution. And so within FY26, we're not 100 percent certain that we'll get it in September versus October or November, but we feel that our models and the economic assumptions that we're using and our qualitative analysis are good. I can't give you a number percentage-wise, but feel that we are good. So is the $75 million number? It includes a little carryover from FY25. I thought you were assuming zero in FY25. Correct. But assume we're good, there's earnings, we're just not going to get them in Got it. So you're assuming that the carryover is from what should have been collected. Right. If everybody had the correct withholding. If it wasn't retroactive and they knew about it. Yeah. That's what would have been owed and would have been ordinarily paid. Had they been even aware that they were supposed to withhold or estimate at that level. Correct. And I think there's a table here that I have. Yeah, apologies. You can see one year, the first year page two, I went right past it. No, the 175 million for FY20. We're estimating 75 million. Of course, I don't have your packet memorized. It's on page six. It's on page six table five, 75 million in FY 25. If we were to go retroactive and estimate how much that would be in FY, I'm sorry sorry tax year 26. Let me step back. I got my tax years in fiscal years mixed up there my apologies Tax year 25 75 million which we expect we would receive in FY 26 in FY 27 for the next tax year that number would be lower because there's no carryover from this for six months of retroactivity. The number is around 60. Do you remember? I don't have it in front of me. It's sort of in the 60-ish million range. So there's that little differential for the carryover from May 15th to June 30th plus the retroactive piece. Based on your assumptions, how much of what you're assuming in terms of timing is based on wage earnings and how much of it is based on non-wage earnings? I'm going to have Dennis headman respond to that. Dennis headman department of finance that's a great question. So we are looking at historical proportional shares of what we receive in terms of withholding versus reconciling payments and one of the nuances to the income tax that makes it so volatile is in any given fiscal year, three different tax years traverse those collections. But we do have historical shares that we're applying to these additions and increases and we take a look at when this happened in prior instances and see if that holds. We also look at this mathematically from a probabilistic perspective. It's not just we understand the probabilities of what we will receive, knowing that it of course will not be 100%, but we want to estimate it in the most conservative way where we're ensuring that we're gently beating that in terms of the realized value. Yeah, I mean my concern is, I mean, if you're not being charged interest for being late on your tax payment, because you couldn't have possibly known that you were being charged a tax that you weren't even aware of that didn't exist when it was owed, which is the nature of a retroactive tax, which I'm particularly concerned about. As noted by Councilman Bracats, a disproportionate amount of the actual revenue that we receive are from higher wage and higher income earners that are non-wage or primarily non-wage earners. The overwhelming, the 50 people families that were referenced, the overwhelming amount, if not the exclusive amount of their income, does not come from a W2. They're not, you know, a payroll employee. You know, if they're, you know, those are already taxpayers that are paying estimated taxes admittedly, but they're actually filing their taxes in October almost across the board, if not exclusively. This is the nature of where the major fluctuations in our revenues tend to be on those November and early the next calendar year distributions. So we see the huge fluctuation. This is what happened when there was the federal tax change and the state responded with the past due entities and we ended up with $150 million approximately in changes just based on the change of timing where somebody went from a business which is on a calendar year, you know, timing to take a tax deduction based on the taxes you pay versus personal and that shift in timing had a massive impact on the county in terms of the timing of the road. It didn't change how much money people were making either. That just was exclusively based on timing and that was a smaller dynamic than this could potentially be because it was a more traditional you make your timing of when you pay your taxes and how you pay your taxes and it was just changing the schedule, not the amount. So I'm a little concerned and particularly if there's There's no penalty, why would somebody pay estimated taxes and provide an interest-free loan to the county and state government when they don't pay a penalty if they wait until April or October. The likelihood is they're not going to do that. Particularly, the most sophisticated people were hiring professional tax lawyers and accountants to help them. That's different from a wage earner who might be filing their own taxes or using an online tax service and may be doing what's easiest, what's simplest, but maybe not what's most financially advantageous to them. So I'd like to get back to you on how narrow or how broad the no penalty piece of this is. If your income is tax that is owed is from many other sources of income other than associated with just the piece of our income tax that may not have been paid in estimated taxes. There's a lot of moving parts in terms of penalties that would like to take a look at and get back to you on because I- That would be helpful. So our highest income payers, just not whether it's 50 or 100 or whomever it may be, the federal government has penalties and they have to pay their taxes and in theory, despite the fact that we don't always see this, even if you file for an extension, you're supposed to have paid your best estimate in April. It doesn't always work out that way, but you can extend the filing of your tax forms to October. Yeah, I just want to clarify that. I just want to clarify. It's not that they're not going to be filing timely. The question is whether they will have properly estimated or prepaid the right amount, that only affects the state. So it's not like, I don't expect somebody to say they're letting me not have to pay interest, so I'm not gonna pay any taxes at all. I think the likelihood is they're gonna file their taxes as they always do with their tax professionals, their tax lawyer and their accountants and they're going to figure out these sophisticated tax returns that have K1s and all kinds of different moving parts. The question is the state and county tax piece and the additional amount that will be calculated. And the answer to that, if it's a high enough amount, which in this case it probably is, a disproportionate share, their tax professionals and accountants are going to say, you are going to owe because of this retroactive tax increase an extra X amount. You are going to owe based on the state changes, this amount, but you don't have to pay it for another nine months. You don't have to pay it for another, you know, X period of time. So, you know, we'll send you a reminder, that's what you pay us for, to submit that payment at the latest possible moment that you can to be timely and not pay any interest. The challenge for us is going to be if the county executive is suggesting, which it seems like he has, that we're going to get those payments earlier, and the council then makes a determination based off of that. And that doesn't pan out. That might solve a structural issue down the road or might be able to be, you know, reconciled at some point, but at what point? And we're not gonna know the difference because it's not like each return comes to us and each distribution comes to us and we know which taxpayer it is under what circumstances. You're, it's not a guess because you all are professionals and do a terrific job and I'm very proud of the revenue estimating group which was the bill that I've put forward to bring everybody together to talk about these issues and use best practices that we've seen at the state but there's no way of you knowing that you have to analyze it and make your best determination for what you think likely is what's happening. So it would be helpful to look at what your assumptions are for wage versus non-wage. It would be helpful to look at the timing and it would be helpful to look at what the penalty and interest piece is at the state and how that impacts the county because I do think that has a significant impact on when the revenue would receive. All of this speaks to how complicated this is, how hard it is to weigh something as complicated as this in two weeks, which is what we're talking about here, and a potential public hearing that we're gonna have the day before we have to make a final decision. I have concerns about it no matter what, but that just adds significant additional complications, and I just wanna be very careful regardless of where the final decision is on this. Obviously, my position has been clear from the beginning that we're not making revenue assumptions that are real and that we're working together to figure out exactly how that works and you're moving quickly in real time and trying to respond as best as you can with extremely limited information. So it is in no way a criticism of the great work that you're doing, but it's just impossible to know some of the potential dynamics here that are kind of known unknowns and we don't even know the unknown unknowns, which is what concerns me quite a bit. So if you get back to us on that, I think that would be really helpful. Other question is the 14.3 million is revenue that we're going to receive based on the state changes. That's a revenue positive. The property tax increase, what's the status quo increase just based on the assessments of how much the property tax revenues have gone up based on the accessible base going up. If we keep the, keeping the rate the same, weighted average rate stays the same as we decided earlier, what's the revenue year over year revenue increases as a result? I don't have the full value. What I can tell you based on the executive's recommendation on March 14th, given the committee's recommendation for the previous item to keep the way to rate the same and to keep I talk the same, the net negative currently to the budget is $56.4 million. So if you add 14.3 to that, you would subtract 14.3 from that and there's still a hole is what I would put in. Yeah, we can get the full revenue value. Yeah, so that's not really what I'm at. So that's assuming a significant increase in revenues. So what I'm trying to say is take a step back and look at what are the additional revenues that we're receiving if we don't increase tax rates, either income tax or property tax? The reality is the county is receiving substantial additional revenue year over year based on assessments going up. Now residents are paying that. You know we're viewing it as well that status quo and we're only increasing it you know based on if we increase the rate but that's not the the reality., that's how an ad valorum by value property tax works. And I think it's the best system we've got. But I think it's important as part of the context to say the conversation has seemed to evolve into year over year is zero. And so you have to increase the rate to get above zero. That's not the reality. The reality is it's going up, you know, like $150 million, I want the exact number. I would you could share it, you know, prior to the next meeting of assuming just based on the accessible base year over year, what is that increase? Don't look at all the other moving parts. I will say this proposal that has come to us, every proposal is incredibly complicated because it's one thing tied to another thing tied to another thing. It's we're going to increase the property tax but we're going to also increase the eye talk and that's going to have this impact. But don't look at the fees because that's separate, separate even though it's still on the same property tax bill. Now we have an income tax being proposed, but it's, you know, we're increasing the income tax retroactively, but don't worry, you know, we're going to also significantly increase the working family's income supplement. So those are two separate decisions, but they have been presented as being tied together, even though 87% of the people who are purported to benefit from that don't benefit at all and would be significantly impacted. So I just think to take a step back and try to unwind how this has been messaged and packaged and just look at the actual numbers, I think would be really helpful for the context of the decisions that we have before us. Thank you. Okay, thank you. And I think given that conversation, it would be helpful. I'm just going to submit the ad for the packet on Monday, unless it's in here and maybe it's in the back, what the projections are on the income tax increase looking out. Since I think Ms. Feldman you said 70 you're you all are estimating 75 million this year but if we if we did do the proposal the count exact cent over the retroactive excuse me to 3.3 there would actually be less in FY27. I think that's really important for us to consider because if, and again, how the county executive transmitted this to us was, we're taking off the table, the property tax and kind of replacing it with the income tax. I think we got to be very careful if we're estimating 75 million and we know we had a great conversation on how that's volatile but that then for the next fiscal year we're estimating an actual decrease of that if we're saying this fiscal year we're trying to close the gap. If you understand what I'm saying because I think we can't we have to look at this budget but we have to be really careful about You know Next year's budget and the budget after that because many of the things that have been requested to Add to the budget are ongoing expenses and so If we're adding ongoing expenses this year and the assumption that The amendments were sent over to us is that the increase in the income tax would close the gap that we need that is probably not the case then the following year. So I think we just had to be really careful about looking at that. And I thought I had one other thing, but that left my brain. I'm sure I will come up with it again, but I do think as we're having this conversation, it's been a good one and thinking about in the same way not doing the retroactive, but looking at potentially increasing the property tax, what it gets us this year, and the out years as well because we need to look at you know our sustainability moving forward and knowing that the need on our services here in the county given the chaos coming out of the federal administration is just going to increase over the next few years and as we've all seen the reports on what's going on with the economy, you know, that need is going to grow. So I think, as I said, we're not, there's a lot here. And I just really want to thank Mr. Smith and Finance and OMB for all your work. I know this was, you know, we just got, we all just got news after the session ended in Annapolis that this was a potential, you all have done a really terrific job on crunching numbers, getting us information so that we could really weigh this moving forward. So appreciate that. And then the piece that's related to this is we're going to bring back and talk about the working families income supplement. This committee had already reviewed this kind of quickly last week in a work session and since we've received the county executives and amendments we wanted to bring it back again to be able to walk through what the county executive is proposing and do a deeper dive and thank you again for this excellent packet to make sure we understand who is able to who qualifies for this and then as we talked about with the income tax and the packet prior to this, in practice, who are the folks who are actually filing for this and receiving this credit. So, turn it up. Good morning. So we're here today to talk about the Working Families Income Supplement NDA. Sorry about that. Very short. So the county executive's March 14 recommended budget included an increase of about $3.1 million for the Working Families Income Supplement NDA to reflect increased costs due to actual state billing. However, on April 24th, 2025, the County Executive transmitted amendments to the FY26 operating budget. The County Executive recommended increasing the county's match of the state's EITC from 56% to 65%. A proposal that would add 5,031,000 to the FY26 cost. Below in your packet on page 1 you will find table 1 which details the FY25 approved amount, the FY26 County Executive Recommended amount, and the amended recommended amount for FY26. For some background on the working families income supplement, the Working Families Income Supplement provides funds to supplement the state's refundable earned income tax credit or the EITC and is intended to benefit low income working families in the county. The federal government authorizes the federal EITC for working people with low to moderate income. Eligibility to qualify for the county, WFIS is based on the ability to qualify for the federal EITC. Table two on page two of your packet shows the maximum adjusted gross income a filer can have in order to be eligible for the federal EITC in the tax year of 2024. Several states, including Maryland, provide state tax credits to residents who receive the federal EITC. Maryland also provides refunds to eligible residents if their EITC exceeds their state tax liability. The state administers the county refund, so the county provides funding to the state for any county related refunds and the related administrative expenses. In FY22, the county increased the WFIS appropriation in order to account for changes made by the state during the 2021 General Assembly. And those changes included expanding the eligibility of the program through the bill SB218, which provided the refund to tax payers that file with an individual tax payer identification number or an ITIN. The Council amended county law in 2021 in order to ensure that all residents could receive the benefit of the state's expansion of this program, and county law outlines a 100% match of the state EITC refund. It also allows the county council to establish a different amount as part of the annual appropriation. Montgomery County, however, is one of the few local jurisdictions in the country that offers a supplemental to the state EITC. The current county, a WFIS, is a 56% match of the state EITC for eligible county residents and has been at this level since FY24. The state match is currently 50% of the EITC or 45% if the resident receives a refund. Currently, the total combined county and state match is about 78% of the federal EITC. Table 4 on page 4 of your package shows the history of the county's WFIS match, as well as the total cost of the program since FY2000 of note, the county utilized 25 million of the county's allotment for the American Rescue Plan Act or the ARPA to expand the match amount and funding for the supplement and FY22 and FY23. During the FY24 budget process the county executive recommended and the council approved reducing the match to 56% since ARPA funding was no longer available. Table 3 on page 3 of your packet shows the county executive's recommended budget changes for the working families income supplement NDA. And as we move through the packet, I will discuss each recommendation in greater detail. We can also feel free to take a pause after each one if that works better for you. Okay. So starting first with an increase cost due to actual state billing in the amount of 3,179,321. The county executives March 14 budget recommended an increase of 3.1 million for actual state billing and this increase was to realign annual appropriations with actual expenses invoiced by the state. Finance staff noted that actual WFIS expenditures have exceeded the appropriation amount in recent fiscal years, which required the lifting of budget controls during the fiscal year and end of your transfers or supplemental appropriations. I can pause there if there are any questions. Any questions on that piece? No, not seeing anything. And I think that there's no objection from the committee to move forward with that piece in the county executive's recommended budget. Okay, great. So next there is a proposed amendment which will increase funds to the working families income supplement NDA and this is in the amount of 5,031,000. On April 24th, 2025, the County Executive transmitted his amendments to the FY26 recommended operating budget and this amendment was proposed to the working families income supplement NDA to increase funding by that additional 5,000,000,000 for an earned income tax credit or EITC adjustment. The increased funds are an adjustment to the amount of the county matches from the state refundable EITC and the proposed amendment would increase the match from 56% to 65%. This adjustment increases the tax credit for qualified families and provides additional progressivity to the county tax structure. Table 3 also on page 3 details the funding history for the working families income supplement NDA with the county executives original recommended match of 56%. The average EITC for an eligible file that they would receive is $567.42 with a proposed April 24th amendment to increase the match to 65%. However, the average EITC would then be $658.88, which is a resulting increase of about $91.46 per recipient on average. And then lastly on page five you'll find a table which summarizes the committee decision points for the WFIS based on the executives March 14 budget as well as 25th recommended amendments. As a consideration, the committee could choose to set the county match for the WFIS at a different percentage than recommended by the executive, and each 1% change for that for the WFIS match is equivalent to a $559,000 change, whether it's 1% up or 1% down. Thank you. Thank you for that. And thank you for updating the packet from the last time. We looked at it. I think understanding the eligibility criteria is really important for us as we're looking at it and thinking about who files for this, who is eligible for it as we move forward and how this is linked with a potential income tax increase. And I just wanted to go back to Mr. Smith, the packet that you did, and the percentage you said of what was it? 20% of folks who, if you want to repeat that, and so I just want to make sure we understand who's eligible for this and who's actually filing for these tax credits. Sure, we'll pair our two packets together for this one and congrats to Ms. Gosalie on doing an excellent packet. So based on the tax year 2022 data from IRS, about 17% of those less than 50,000 AGI received an EITC refund. As was noted in her packet, there is some eligible recipients to the county's working family income supplement that would not receive the federal EITC due to restrictions, but the state lifted those restrictions during COVID. And so using the finances estimates of about 52,000 getting that benefit in 2022, that's about 22% of those that filed less than 50,000 AGI. And so knowing that there's machinations in 23 and 23, tax year 23 and 24, I did an aggregate of about 20% received this benefit that filed less than 50,000 AGI. And so yeah, I guess I apologize. I would just say the converse of that is 80% that file less than 50,000 AGI do not receive this refund. That does not mean they don't receive the EIT. So he has a tax credit or able to reduce their tax reliability, but we're only talking about the refund because the working family and income supplement only provides cash to those who receive a refund. Right. Yes, it gets a bit confusing. Right, no, it's really helpful to kind of look at the crossover of the two packets and just I'll see if my colleagues have any questions on council member Feetson. Yeah, I mean, I think it's great that the county does this. I think it's great that during the pandemic, we were able to expand it with federal dollars. The EITC is one of the most proven poverty fighting tools for working families that exist. Credit to Steve Silverman, when he was a council member, I think in 1999, it was when this first started. So it's been around for a long time, 25, 26 years. I'm much more interested in focusing on the 80%. I think that should be our relentless focus. I think we have gotten caught up to a certain extent, understandably, in adjusting the numbers and not focused enough on doing the outreach and focusing on why are there 80% of people who clearly would want to get this benefit, not receiving it. Why aren't they filing it? Why don't they know about it? What obstacles are in the way to help them to access it? This was paired with the income tax. I really am uncomfortable with how this is being proposed in that way. But I think the bigger question that we have is should we focus more on increasing the rate for a very small proportion of the eligible folks who are receiving this benefit or should we take a step back and think about who are the folks that aren't receiving it, who should be receiving it, and how do we make sure they get it. And to me, that's hard work, but I think that is the more critical work because we are missing a lot of folks clearly. Council member Katz. Thank you. And I think that's a very, very good point. know, I've often been told that someone who has a minimum salary, when they get a couple hundred dollars, they spend it. Somebody who's, you know, a multi-millionaire, they get a couple hundred dollars. That might be a nice dinner for them, but they're not going to be spending it. They save and they should. I mean, I'm not suggesting people shouldn't save. But if to your point, if we can make certain that the people who are deserving of the monies, if they get that money, then it helps air economy because they'll spend that money in air economy. So I think that's the most necessary part of what we should be doing on this. The whole concept is we wanna help people and we need to help them, help themselves, thanks. Thank you. I apologize, I just asked, if I can find it, so it'd be one to jump in before we started asking questions. Is there anything you want to add there? No at that point. Okay. Well, I think I don't know if our committee generates the most OLO reports, but I feel like sometimes we do, because I do think this is to go to Council Member Freetz and Katz's points here, you know, given the significant number. And I think we can all guess at some of the reasons why, given that somebody actually has to file for this, be eligible and file. And I will say when we started this conversation, particularly this year, I even got on the websites and started looking at it and filling out the forms. And it's not easy. It is complicated. And so doing a deeper dive in understanding what are the barriers and how we can address that. I think as council member Freetzin said, I'm very proud of the fact that in Montgomery County we do this and we're one of the only or very few counties that do this. And so I think that's something we should be proud of and we need to build on that and make sure more people are receiving it. So we can reach out to OLO at another project to their list from the Go committee, but I think this is a good foundation looking at this and the income tax proposal. Like we did this afternoon and we'll lay the foundation for the Council discussion. We'll start this discussion on Monday with the Council and continue it. So thank you very much again for excellent packet and for all the work. And I think that is our last item today for us. So we are right now, for right now. And then we have a T&E transportation environment and go committee session this afternoon. But for this session, we are adjourned. Thank you.