According to  a new report from the Maryland Public Policy Institute, Maryland’s so-called “rain tax” is poorly conceived, has been ineptly handled by some jurisdictions, and may not live up to its billing as an important weapon in the fight to clean up and save the Chesapeake Bay.

MPPI’s John W. Walters, who wrote the report, concludes, “Despite its apparent environmental pedigree, the rain tax is basically just an additional property tax.”

The report discusses many aspects of the rain tax, including how various jurisdictions have decided to implement the program. Thomas A. Firey, also of MPPI, edited Walters’ report and was quoted in a recent story in The Daily Record. His assessment of how it’s all going so far: “It’s really important to understand, at least in theory, why this could be good, but why a lot of this is getting screwed up.”

In other words, the effort to address rainwater runoff as it affects the health of the Chesapeake Bay is a worthy enterprise, but this law and its implementation leave a lot to be desired.

Walters’ report identifies this fee as a “Pigouvian tax” — a  charge that’s intended to offset the negative consequences of certain behavior. In this case, that behavior would be construction and development that contributes to rainwater runoff.  

It would stand to reason, then, that local government would want its fee structure to discourage creation of impervious surfaces that repel instead of absorb water. The obvious way to do that would be to base property owners’ rainwater runoff tax on how much impervious surface area their properties include. The larger the area, the more the tax.

But some jurisdictions, in an attempt to be “fair” and equitable, we assume, have established flat tax rates,  which are the same for all property owners, regardless of the size of their impervious surfaces. Counties that employ a flat fee for residential property owners, are, as Walters puts it, “dampening the useful disincentives of a Pigouvian tax.”

When being billed in accordance with the amount of surface area that won’t absorb rainwater, there is an incentive to minimize that area in new construction. Moreover, trying to treat all property owners equally actually results in unequal treatment — those responsible for less runoff pay the same tax as those responsible for more runoff. The other perverse consequence of a flat tax is that it dampens the incentive of using construction designs that will reduce rainwater runoff.

Carroll County has refused to establish a fee, saying it will comply, as the Daily Record story puts it, by “reallocating money already being collected from taxpayers.” Firey likes that county’s independence and willingness to prioritize spending — as opposed to simply creating a new tax.  

As a symbolic act of defiance, Frederick County assessed an annual 1-cent flat fee on all residential and commercial properties. But sooner or later, the county will have to find a lot more money, somewhere, to fund mandated state/federal water quality programs. It could follow Carroll County’s lead or it could create a new fee structure for property owners. If it goes with the latter, the Board of County Commissioners should make the new fee structure as fair and effective as possible.

To do so, a flat tax should be avoided, as it would be counterproductive to both of those goals.