Ocean City v. Worcester Cnty.

Mayor and City Council of Ocean City, et al. v. Commissioners of Worcester County, Maryland, et al., No. 52, September Term, 2020. Opinion by Getty, J. MARYLAND CONSTITUTION – ARTICLE XI-E, § 1 – HOME RULE AMENDMENT – TAX SETOFFS The Court of Appeals held that Md. Code (1986, 2019 Repl. Vol.), Tax-Prop. (“TP”) §§ 6- 305 and 6-306 do not violate Article XI-E, § 1 of the Maryland Constitution.

The Court determined that, under the test set forth in Birge v. Town of Easton, 274 Md. 635 (1975), TP §§ 6-305 and 6-306 do not “relat[e] to the incorporation, organization, government, or affairs” of any municipal corporation, much less Ocean City. The tax setoff scheme set forth by the General Assembly in TP §§ 6-305 and 6-306 has significant implications for residents of Worcester County who do not reside in Ocean City, therefore the Court declined to classify the statutes as affecting purely local matters. The Court thus did not reach the issue of severability and affirmed the Court of Special Appeals’ judgment upholding the constitutionality of the statutes. Circuit Court for Worcester County Case No. C-23-CV-18-000021 Argued: June 3, 2021 IN THE COURT OF APPEALS OF MARYLAND No. 52 September Term, 2020 __________________________________ MAYOR AND CITY COUNCIL OF OCEAN CITY, ET AL.

V. COMMISSIONERS OF WORCESTER COUNTY, MARYLAND, ET AL. ___________________________________ Barbera, C.J., McDonald, Watts, Hotten, Getty, Booth, Biran, JJ. __________________________________ Opinion by Getty, J. __________________________________ Filed: August 5, 2021 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. 2021-08-05 13:21-04:00 Suzanne C. Johnson, Clerk This case involves a long-standing dispute between a municipality seeking tax setoffs and a county that has always refused to grant them, preferring instead to provide discretionary funding to the municipality. Against the backdrop of a constitutional amendment providing for home rule by municipalities passed by the General Assembly in 1954, Ocean City argues that all municipalities must be treated equally under the law of Maryland. Worcester County, citing to Tax-Property Article §§ 6-305 and 6-306, asserts that while certain counties are required to grant tax setoffs to municipalities within their borders under circumstances defined by statute, other counties including Worcester County retain the discretionary ability to do so under the same circumstances. As we explain below, we hold that these provisions of the Tax-Property Article do not fall within a category of constitutionally prohibited legislation, and we affirm the Court of Special Appeals’ conclusion that they are permissible within the scope of Article XI-E, § 1 of the Maryland Constitution.

BACKGROUND A. Ocean City’s Requests for Municipal Tax Setoffs. Incorporated in 1880, Ocean City is the second largest municipality in Worcester County by population. Ocean City taxpayers primarily receive governmental services, such as police, fire, and ambulance services, from the city despite paying taxes to both the city and the county. Neither Ocean City nor its residents receive tax setoffs from Worcester County for the money that Ocean City spends on these governmental services.

This prompted Ocean City to request tax setoffs from Worcester County, either in the form of a tax differential or a rebate to mitigate any duplicative spending by its taxpayers for such services. The earliest of these requests occurred in 1999 while the most recent occurred in 2017 for fiscal year 2019. All of Ocean City’s requests have faced the same fate: they have been repeatedly denied by Worcester County. In lieu of granting Ocean City’s requested tax setoffs, Worcester County has provided discretionary funding to Ocean City in the form of annual grants.

Since 2009, these grants have amounted to between $4 million and $5 million per year to assist in funding Ocean City’s ambulance and fire services, tourism, and other city services. B. Ocean City’s Declaratory Judgment Action. Following these repeated denials, Ocean City filed the present action in the Circuit Court for Worcester County. Ocean City sought a declaratory judgment that §§ 6-305(b) and 6-306 of the Maryland Tax-Property (“TP”) Article,1 which grant certain counties like Worcester County the ability to deny municipal tax setoff requests, are unconstitutional as violating Article XI-E, § 1 of the Maryland Constitution.

Ocean City also requested that the circuit court sever both provisions, thereby requiring all Maryland counties to grant tax setoffs to municipalities within their borders. In addition, Ocean City asked that the circuit court specifically declare that Worcester County is required to grant tax setoffs to Ocean City or its taxpayers. 1 See Md. Code (1986, 2019 Repl. Vol.), Tax-Prop. (“TP”) §§ 6-305, 6-306. 2 Worcester County moved to dismiss Ocean City’s complaint.

The circuit court declined to do so. Alternatively, Worcester County sought summary judgment on the ground that TP §§ 6-305(b) and 6-306 are constitutional within the scope of Article XI-E and therefore should not be severed. Ocean City cross-moved for summary judgment. Incorporating the reasons set forth in Worcester County’s motion, the circuit court granted summary judgment in favor of Worcester County on the basis that TP §§ 6-305 and 6-306 “are not ‘special or local in [their] terms or in [their] effect’ relating ‘to the . . . government, or affairs of . . . municipal corporations,’ as those terms are used in Article XI-E[,] § 1, of the Maryland Constitution[.]” Mayor of Ocean City v. Comm’rs of Worcester Cty., No. C- 23-CV-18-000021, at 2 (Md. Cir. Ct. Worcester Cty.

Oct. 19, 2018) (Order as to Declaratory Judgment) (quoting Md. Const. art. XI-E, § 1) (first two alterations in original). C. Appeal and Opinion of the Court of Special Appeals. Ocean City timely appealed the circuit court’s grant of summary judgment to the Court of Special Appeals.

Ocean City also filed a petition for writ of certiorari to bypass appellate review in the Court of Special Appeals, which this Court denied. The Court of Special Appeals heard oral argument on the matter and affirmed the circuit court’s grant of summary judgment in an unreported opinion, holding that “the question of whether counties must or may offer tax setoffs is not a purely local affair and need not comply with the restrictions on State legislation concerning local affairs found in Article XI-E, § 1.” Mayor of Ocean City v. Comm’rs of Worcester Cty., No. 2751, Sept. Term, 2018, 2020 WL 6041992 , at ⁷ (Md. Ct. Spec. App. Oct. 13, 2020). The Court of Special Appeals grounded its holding in this Court’s analysis in Birge v. Town of Easton, 274 Md. 635 3 (1975), in which the Court analyzed the constitutionality of a local charter amendment under the language of Article XI-E. Ocean City, 2020 WL 6041992 , at ⁵–6.

Because the court determined that “the tax setoff laws are constitutional,” it did not address the issue of severability. Id. at ⁴. Ocean City then timely petitioned this Court for a writ of certiorari which was granted on February 8, 2021. Mayor of Ocean City v. Comm’rs of Worcester Cty., 472 Md. 314 (2021).

Accordingly, two questions are before the Court, which we have rephrased as follows:2 1) Are Sections 6-305 and 6-306 of the Tax-Property Article constitutional under Article XI-E, § 1 of the Maryland Constitution? 2) If not, should the unconstitutional provisions be severed so that all municipalities are required to receive mandatory tax setoffs upon demonstrating that they perform a type of service that is provided by the county? 2 The questions presented in the Petition for Writ of Certiorari read: 1) Are Md. Code §6-305 and §6-306 of the Tax-Property Article (“TP”) – which provide for mandatory real property tax setoffs for certain municipalities, but only optional tax setoffs for other municipalities, including Ocean City – constitutional under Article XI-E, §1 of the Maryland Constitution, which requires the General Assembly to “act in relation to the . . . government or affairs of any . . . municipal corporation only by general laws which shall in their terms and in their effect apply alike to all municipal corporations”? 2) Should the unconstitutionally non-uniform provisions of TP §6-305 and §6-306 be severed to the end that all municipalities in this State should be entitled to receive mandatory tax setoffs from the counties in which they are located, upon a showing by a municipality that it performs services of a type provided by the county (i.e., upon a showing that it is entitled to setoff)? 4 For the reasons more fully stated below, we affirm the judgment of the Court of Special Appeals and hold that TP §§ 6-305 and 6-306 are constitutional within the language of Article XI-E, § 1 of the Maryland Constitution. Like the Court of Special Appeals below, we do not reach the question of severability given our upholding of the constitutionality of the statutes. STANDARD OF REVIEW This case hinges on the interpretation of Article XI-E, § 1 of the Maryland Constitution. Our interpretation of the Maryland Constitution is a question of law; therefore, we review a circuit court’s interpretation of the Maryland Constitution under a de novo standard.

See Peterson v. State, 467 Md. 713, 725 (2020) (“We review interpretations and applications of Maryland constitutional . . . law[] under a de novo standard of review to establish ‘whether the trial court’s conclusions are legally correct.’”) (quoting Schisler v. State, 394 Md. 519, 535 (2006)); see also Davis v. Slater, 383 Md. 599, 604 (2004) (“Because our interpretation of the Maryland Declaration of Rights and Constitution . . . [is] appropriately classified as [a] question[] of law, we review the issues de novo to determine if the trial court was legally correct in its rulings on these matters.”). DISCUSSION A. Article XI-E of the Maryland Constitution. Governor Theodore R. McKeldin established the Commission on the Administrative Organization of the State, now referred to as the “Sobeloff Commission,” in 1952 to address concerns that the General Assembly was inundated with local legislation during each legislative session that detracted from its ability to address significant 5 statewide issues. See J. Res. 11, 1951 Leg., 340th Sess.

(Md. 1951) (“[T]he introduction and consideration of local bills in the General Assembly is one of the oldest and most difficult problems confronting this legislative body[.]”). The Sobeloff Commission noted that “[l]ocal legislation ma[de] heavy demands on the time and energy of members of the General Assembly” because municipalities largely lacked the ability to enact their own legislation. Campbell v. City of Annapolis, 289 Md. 300 , 305–06 (1981) (citing Local Legislation in Maryland, Commission on Administrative Organization of the State 1 (2d Rep. 1952) (“Sobeloff Report”)). As a result, the Sobeloff Commission proposed a new amendment to the Maryland Constitution that would “prohibit State enactment of local legislation relating to municipalities” except in limited circumstances.

Id. at 306 (citing Sobeloff Report at 3). In 1954, the General Assembly passed a Constitutional Amendment that was ratified by Maryland voters that adopted Article XI-E of the Maryland Constitution. The purpose of Article XI-E was “to permit municipalities to govern themselves in local matters” while restricting the General Assembly from enacting laws that treat municipalities differently through broad legislation. Maryland-Nat’l Capital Park & Planning Comm’n v. Town of Wash.

Grove, 408 Md. 37 , 57–58 (2009) (quoting Inlet Assocs. v. Assateague House Condo. Ass’n, 313 Md. 413, 425 (1988)). Article XI-E consists of six sections. At issue in this case,3 Article XI-E, § 1 reads: 3 Amici curiae argue in support of Ocean City that TP §§ 6-305(b) and 6-306 are unconstitutional as violating Article XI-E, § 2 in addition to § 1.

However, this argument under § 2 was not raised by Ocean City in its petition for writ of certiorari nor was it argued below, making consideration of that argument improper before this Court. See Md. Rule 6 [T]he General Assembly shall not pass any law relating to the incorporation, organization, government, or affairs of those municipal corporations . . . which will be special or local in its terms or in its effect, but the General Assembly shall act in relation to the incorporation, organization, government, or affairs of any such municipal corporation only by general laws which shall in their terms and in their effect apply alike to all municipal corporations[.] Md. Const. art. XI-E, § 1 (emphasis added). Article XI-E, § 1 effectively prohibits the General Assembly from enacting local legislation that is not generally applicable while reserving the General Assembly’s ability to enact broad, uniform legislation.

However, what exactly constitutes an issue relating “to the incorporation, organization, government, or affairs” of a municipality has not been precisely defined by this Court nor did the Sobeloff Commission recommend a concise definition. In fact, the Sobeloff Commission specified that [t]he proposed constitutional amendment would not define matters of municipal [incorporation,] organization, government and affairs concerning which the General Assembly could pass no local laws. Since local affairs are not spelled out in the present Constitution, final determination as to what they are would continue to remain in the courts. Sobeloff Report at 32.

Ocean City now asks us to make a final determination as to whether the current tax setoff scheme in Maryland impermissibly regulates local affairs. B. History of Tax Setoff Laws. 8-131(a) (“Ordinarily, the appellate court will not decide any other issue [than jurisdiction over the subject matter and over a person] unless it plainly appears by the record to have been raised in or decided by the trial court[.]”); see also Md. Rule 8-131(b)(1) (specifying that “the Court of Appeals ordinarily will consider only an issue that has been raised in the petition for certiorari or any cross-petition and that has been preserved for review by the Court of Appeals”). 7 Shortly after the adoption of Article XI-E, the General Assembly observed that “[t]here [was] no consistenc[y] among the several counties in Maryland as to the bases for county tax differentials for residents of incorporated municipalities and/or rebates by the various counties to the incorporated municipalities therein.” See J. Res. 26, 1959 Leg., 351st Sess. (Md. 1959). This prompted the General Assembly to establish the Commission on City-Council Fiscal Relationships in 1959 (the “1959 Commission”) to examine the “fiscal relationships . . . between the city and county governments.” Id.

In passing Joint Resolution 26, the General Assembly recognized that it may be appropriate to grant municipal residents “lower county tax rates in consideration of the fact that many of their governmental services are provided by the town and not by the county.” Id. However, the 1959 Commission concluded that “any possible solutions” to the problem of municipality-county tax differentials would have to “be developed on a County- by-County basis.” See Local Legislation in Maryland, Commission on City-Council Fiscal Relationships 12 (1st Rep. 1963). This approach was later endorsed by both Maryland courts and legislative committees. See Griffin v. Anne Arundel Cty., 25 Md. App. 115, 124 (1975) (explaining that the Committee on Taxation and Fiscal Affairs of the Legislative Council of Maryland found in 1970 that a statewide tax differential system is unfeasible “because of the variation in the types of governmental services provided by . . . local governments”).

In 1975, the General Assembly acted on these recommendations by enacting Article 81, § 32A, which required certain counties to provide tax setoffs to municipalities within their borders if the municipalities provided government services similar to those provided 8 by the county. 1975 Md. Laws, ch. 715. The counties that were not required to grant tax setoffs retained the discretion to do so if the municipality provided government services similar to those provided by the county. Id. The General Assembly then adopted a resolution in 1978 mandating that counties discuss tax differentials with their municipalities on an annual basis in order to ensure that Maryland counties were continuously addressing the issue of tax differentials.

See J. Res. 31, 1978 Leg., 384th Sess. (Md. 1978). Under Maryland’s code revision,4 Article 81 was recodified as the current tax setoff statutes, TP §§ 6-305 and 6-306, when the General Assembly adopted the Tax-Property Article in 1985.5 The revised statute employs the same general framework. See 1985 Md. Laws, ch. 8, § 2.

Section 6-305(a) defines “tax setoff” as: 4 As we noted in Johnson v. State, “code revision is a periodic process by which statutory law is re-organized and restated with the goal of making it more accessible and understandable to those who must abide by it.” 467 Md. 362 , 381 n.8 (2020) (quoting In re S.K., 466 Md. 31 , 56 n.21 (2019)). We further explained that: Maryland Code Revision began in 1970 as a long-term project to create a modern comprehensive code when Governor Marvin Mandel appointed the Commission to Revise the Annotated Code. This formal revision of the statutory law for the General Assembly was coordinated by the Department of Legislative Services. Code Revision was completed in 2016 with the enactment by the General Assembly of the Alcoholic Beverages Article.

Id. 5 Although enacted in 1985, TP §§ 6-305 and 6-306 had an effective date of February 1, 1986. 9 (1) the difference between the general county property tax rate and the property tax rate that is set for assessments of property in a municipal corporation; or (2) a payment to a municipal corporation to aid the municipal corporation in funding services or programs that are similar to county services or programs. TP § 6-305(a). Section 6-305(b) sets forth that the provisions of § 6-305 only apply to the following eight counties: Allegany, Anne Arundel, Baltimore, Garrett, Harford, Howard, Montgomery, and Prince George’s. TP § 305(b).

Section 6-305(c) then mandates