Tax Inequities in Shore Counties
Residents of towns in three Eastern Shore counties may not realize they’re paying for services they don’t receive. More precisely, they pay taxes to their counties for services they already pay for with their town taxes.
This shouldn’t happen. Legislation by the Maryland General Assembly in 1986 required nine counties to provide some sort of tax set-off for towns that provide their own services, such as police protection and highway maintenance, so that the counties don’t need to provide these services within town limits. This set-off can be a reduced county tax rate — a “tax differential” — for residents of those towns, or a payment to the towns to defray the cost of those services.
However, the other counties, mostly rural, including all counties on the Eastern Shore — the “may" counties as opposed to the “shall” counties, which are required to provide a set-off — were merely encouraged (not required) to compensate their municipalities for the services they provide.
The majority of “may” counties have accepted the responsibility to help their constituent towns cover the cost of police protection and the like, but if you live in a town in the counties of Kent, Worcester, or Wicomico, you’re out of luck. The county commissioners in these three counties have so far refused to provide any offset for the difference in services.
As Chestertown’s Mayor David Foster put it in a November interview with Common Sense, “If you go back in a 10-year history, those are the three counties that are at the bottom of the barrel,” referring to their commissioners’ refusal to provide any tax set-off for their constituent towns.
The amount at stake can be significant. For example, in Chestertown, the 2024 town budget laid out over $2 million for its police department and road repairs while the Kent County budget laid out roughly $8 million for law enforcement and highway maintenance. Chestertown residents pay county property taxes at the same rate as the rest of the county, but do not receive a proportionate share of the county’s law enforcement or highway repair expenditures.
To add to the confusion, Kent’s commissioners allocated a “grant in aid” of just over $100,000 annually to Chestertown until 2014, but in the wake of the 2008 recession, the county’s tax revenues sharply declined and the commissioners decided they could not spare the money from their budget. Chestertown’s mayor and council members protested, but to no avail. One Kent County commissioner at the time reportedly said in a candidates’ forum that he wondered if the town even needed a police force.
Foster says the three counties’ failure to provide compensation of some sort raises the issues of equity, economic development, and trust in elected officials. The equity issue is clear enough. Town residents pay county taxes for essential services that they do not receive from the county. Instead, the services are provided by the town and are paid for by town property taxes.
The trust issue is easy to understand as well, especially when surveys show that trust in government is already at an all-time low, Foster says. Given that county commissioners have promised several times over nearly 10 years to work with the towns to resolve the issue — then backed away from that promise — the lack of trust is likely to increase.
Economic development is an important issue on the Shore. Foster points out that Kent County’s population declined by 5% between 2010 and 2020, with the loss mostly in the under-40 age group, who leave in search of good jobs. To retain young wage earners — potential entrepreneurs, homeowners, and taxpayers — Shore municipalities need to attract businesses that can provide good jobs. Foster says it’s especially hard for “a high-tax town in a high-tax state” to compete with nearby “tax-free Delaware.”
In an August 2023 letter to the Maryland Municipal League, Foster expanded on the economic development issue. He wrote, “Not only does the current Maryland policy create a severe equity problem, but when municipalities are doubly taxed without compensation, this runs directly counter to the Maryland Smart Growth Policy of Priority Funding Areas, which seeks to direct future economic growth toward municipalities and other areas that have the infrastructure to support it. Furthermore, as median household income is frequently lower within the municipalities than in the surrounding areas and property tax ultimately burdens the home renter as well as the homeowner, the current policy is highly regressive. In fact, this often results in low-income residents being required to subsidize their higher-income counterparts living outside the municipal boundaries.”
In support of that assertion, Foster points to data provided by the U.S. Census Bureau, showing that median household income in 2017-21 in Chestertown was $44,665, compared to $64,451 in Kent County and $83,877 in the non-municipal areas of the county. Foster believes that removing the current inequitable taxes on Kent County’s municipal residents will ultimately improve Kent County’s economy and allow an increase in services without requiring higher taxes.
Foster has been in touch with the Maryland Comptroller’s office, focusing on the economic development implications of the tax differential questions.
Along with his two immediate predecessors, Foster has tried to persuade Kent County to join the town in sponsoring an independent study of the tax structure, although the current commissioners have so far balked. However, the National Center for Smart Growth, at the University of Maryland, is organizing a study of the fiscal relationships between several municipalities in Kent, Wicomico, and Caroline counties. “It should be objective and reliable data,” Foster says, and available early next year.
Foster has been working with the MML to promote the issue in the General Assembly, the only body with the power to require all counties to provide relief to town residents paying taxes for services they don’t receive.
Unfortunately, the Maryland Association of Counties opposes this, making it unlikely that the state legislators will take sides. However, Foster hopes that Gov. Wes Moore will recognize the statewide economic benefits of such a change and be persuaded to take a stand, possibly making it easier to get momentum for a tax relief measure in the legislature.
It’s time for residents of affected towns to tell their county officials that they don’t want to pay for services that they don’t receive. As Foster points out, failure to correct this inequity retards economic development and will hurt all residents of the counties that fail to provide some kind of tax relief for their municipalities. It’s something everyone should think about the next time their county officials are on the ballot — and make it clear their vote depends on how those officials plan to address the problem.
For additional information, see Property Tax Set-offs, Md. Department of Legislative Services, 2022.
Peter Heck is a Chestertown-based writer and editor, who spent 10 years at the Kent County News and three more with the Chestertown Spy. He is the author of 10 novels and co-author of four plays, a book reviewer for Asimov’s and Kirkus Reviews, and an incorrigible guitarist.
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