On Friday, May 8, 2026, the Montgomery County Council convened at 9:30 a.m. and again at 1:30 p.m. to continue worksessions on the FY27 Operating Budget and FY27-32 Capital Improvements Program. The Council considered 22 agenda items including tax policy, departmental budgets, and non-departmental accounts (NDAs), taking straw votes and making amendments. Key decisions included adopting a progressive income tax structure, adjusting the property tax credit for income tax offset (ITOC), and approving numerous department budgets with modifications.
Good morning, everyone. Today's Friday, May 8th, the council is meeting today to continue the work sessions on the work on the FY27 operating budget and FY27-32 Capital Improvements Program. Councilmember Sales is attending a conference during the week and she is joining us virtually. Chair Stewart. Thank you, Madam President. The government operations and fiscal policy committee met on April 29th. We were joined by the council president and the vice president. Thank you for joining us. We looked at a number of items on the 29th. And this morning, Mr. Smith will go over the income tax rate recommendation and the ITOC, the income tax offset credit, and then we'll look at the working families income supplement later this morning. The other thing that we did discuss at committee was the property tax rate, which the council already took up on Monday. And as a reminder, the committee's recommendation, which the full council supported with Councilmember Mink abstaining, was to reject the executive's recommended property tax increase of 6.3% for uh si 6.3 cents for FY27. Our goal on the April 29th committee was to make sure everyone was fully informed of the impacts that uh and to whom uh they would uh occur on changing anything with our income tax um or our ITOC. And I want to say our staff did an incredible job of walking us through all that. We will have a shortened presentation of that discussion. Um, but I wanted to make sure, regardless of where we end up as a body next week that everyone understood all the polls and takes and how changing our income tax is also related to other pieces of uh our budget. So what we recommended um during that uh discussion to the full council on the income tax rate was we rejected the executives recommended income tax rate of 3.3 percent on all taxable income starting on January 1st, 2027. Uh what we did recommend was the creation of a progressive income tax structure starting on January 1st, 2027. The new brackets uh recommended by the committee are in your packet. Um the first 50,000 of taxable income, the new income tax rate would be 2.5%. On the next uh fifth over 50,000 to 150,000 taxable income, the rate would be 2.8%, and anything greater than 150,000 taxable income, the rate would be a 3.3 uh percent. We also recommended setting the income tax offset credit, the ITOC to zero to offset the loss of revenue from the recommended progressive income tax structure. I just want to underscore that moving to a progressive income tax actually means we have uh a loss of revenue. And so the in order to be able to move us in that direction and be able to work on this budget. We did the committee looked for how could we offset um that loss of revenue. Um, and that is why we're recommending to have the income tax credit offset credit set at zero. As a reminder, the ITOC is a property tax credit, and it is only available to eligible owner-occupied households. So those are folks who own a home. Um and I just want to note, and I know this will be part of the presentation that about 35 to 40 percent of our residents are renters and not able to receive uh that tax credit. Uh in doing the offset of the um the ITOC in addition to covering the loss of revenue for uh the progressive income tax structure. We also have $50 million in one-time savings from that reduction in the FY27 budget, and it was the committee's recommendation because it is one-time saving that that money go into our capital budget to offset um costs there. Um and as I said, we'll we also discuss the working families income supplement, but we will get to that uh after we discuss the income tax rate and the ITOC, and that is the committee readout. And I know Mr. Smith has presentation. Thank you, Chair Stewart. Um, want to acknowledge our colleagues from finance in the in the audience who can join me if they wish or not. But as always, um we work collaboratively and they did the the yeoman's work um on doing the estimated revenues for various progressive income tax rates as they do for all of our revenues throughout the year, and so much appreciated to their their help and work on that. And so much appreciated to their their help and work on that. I will be as brief as possible, but given the complexities of our income tax structure, the income tax offset credit, thought it'd be helpful if some of the government operations fiscal policy committee presentation was also shared for the full council and for the millions watching at home again. So I'm gonna be as brief as I can, but we're gonna maybe 1.1 million now. Um go ahead and look at some of the basics of our income tax structure. What is a progressive income tax structure look like? Talk a little bit more about the income tax offset credit and why that was used and recommended by the government operations and fiscal policy committee, and then provide some specific examples looking at what the county executive proposed, what the GO committee has proposed, and how that would impact specific residents. So the first thing to note is whether you use tax software, an accountant or you do it yourself, you file one tax return with the state. You pay your local income taxes, and if you live in a municipality such as the city of Rockville or City of Gatesburg or those, you also pay that through your one filing. Um I'm sorry, you you do that all through one filing. Um and then the state takes that one return and provides either you make one payment to the state to cover any um taxes you owe, um, or you get one refund back. Uh and that that is how all of our residents experience income taxes. Certainly, if they want to get into the minutiae, they can see where the current 3.2% is going and how that's happening.