Could a Maryland town create a special downtown tax district to fund business promotion without specific state legislative authorization?

Plain-English summary

A member of the Maryland House of Delegates asked the Attorney General about a proposed bill, House Bill 1201, that would have let municipalities create special taxing districts to fund professional coordination, promotion, development, and management of business and commerce, prompted by Hagerstown's interest in creating a "Downtown Assessment District" to promote its central business district. The delegate asked whether legislation was even necessary, whether House Bill 1201 (which did not pass) would have been adequate, and how it could be improved. The opinion concluded that enabling legislation was indeed necessary, because a municipality's power to levy a tax exists only to the extent expressly granted by the state, and Article XI-E, §5 of the Maryland Constitution specifically barred a municipality from levying any new type of tax not in effect on January 1, 1954, without express General Assembly authorization through a general law. The opinion found that neither Article 23A, §2's general home-rule power clause, which the Court of Appeals had already held in Campbell v. City of Annapolis fell short of the constitutional standard for a new fee or tax, nor Article 23A, §44's existing special-taxing-district statute, limited to storm drainage, parking facilities, pedestrian malls, and street lighting, authorized a business-promotion district like Hagerstown's proposal. The opinion further found House Bill 1201 itself imperfectly drafted, since its added language authorized taxes only to redeem bonds and to operate and maintain "facilities," a term that fit the bill's existing capital-improvement categories but not a business-promotion program with no comparable "facility," and recommended the bill be revised to expressly authorize taxation for that specific purpose.

Currency note

This opinion was issued in 1983. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The opinion's own editor's note reports that the General Assembly responded the following year, enacting Chapter 752, Laws of Maryland 1984, effective July 1, 1984, authorizing municipalities and counties to create "commercial district management authorities" as special tax districts with taxing power, codified at Article 23A, §§2(b)(35) and 44, Article 25, §3(oo), and Article 25A, §5(FF). Maryland's municipal and county taxation statutes have likely been further revised since 1984; verify the current versions of these provisions before relying on any specific description of municipal taxing authority for business district programs.

Common questions

Could Hagerstown create a "Downtown Assessment District" and tax property owners in it to pay for promoting the downtown, without asking the state legislature first?
No, according to this opinion. It concluded that Article XI-E, §5 of the Maryland Constitution required express General Assembly authorization, through a general law, before a municipality could levy any new type of tax not already in effect on January 1, 1954, and found no existing statute authorizing a business-promotion special taxing district.

Didn't Maryland's general home rule law already give municipalities broad power to pass ordinances for their own good government?
No, not for this purpose. The opinion relied on the Court of Appeals' decision in Campbell v. City of Annapolis, which held that Article 23A, §2's "general power" clause was a "usual non-specific delegation" that did not meet the Constitution's requirement of "express authorization" for a new tax, fee, or license charge.

Would the specific bill under discussion, House Bill 1201, have actually solved Hagerstown's problem if it had passed?
Only partially, according to the opinion. It found the bill would have authorized creating the special district for business promotion purposes, but its tax-levying language only covered redeeming bonds and operating and maintaining "facilities," a term that fit the bill's existing categories like storm drains and parking lots but did not clearly apply to a business promotion program, so the opinion recommended clarifying the bill to expressly authorize taxation to finance that specific kind of program.

Background and statutory framework

The opinion began from the settled principle that a Maryland municipality has no inherent powers, only those expressly granted, necessarily implied, or essential to its declared purposes, citing Jewel Tea Co. v. Town of Bel Air and Birge v. Town of Easton, and that in the specific area of taxation a municipality may levy a tax only to the extent the state has granted that power, citing Griffin v. Anne Arundel County. It grounded Hagerstown's taxing authority in Article XI-E of the Maryland Constitution, the Municipal Home Rule Amendment, and its implementing statute, Article 23A of the Maryland Code, while noting that Article XI-E, §5 specifically barred any municipality from levying "any type of tax, license fee, franchise tax or fee" not in effect on January 1, 1954, absent "express authorization of the General Assembly for such purpose, by a general law."

Working through Article 23A, the opinion found the general home-rule power clause in §2 insufficient under Campbell v. City of Annapolis, where the Court of Appeals struck down a municipal rental-unit license fee because the "general power" clause was too "non-specific" to satisfy the constitutional express-authorization standard, and found that a post-Campbell amendment to §2 authorizing new "reasonable fees and charges" applied only to fees tied to already-authorized licenses, permits, or governmental functions, not to a wholly new tax for business promotion. Turning to Article 23A, §44, the existing special-taxing-district statute, the opinion found its enumerated purposes, storm drainage systems, public parking facilities, pedestrian malls, and street and area lighting, did not encompass a downtown business promotion and management program, applying the rule from Mayor and Council of Mount Airy v. Sappington and Rushe v. Hyattsville that municipal taxing statutes are strictly construed with doubts resolved against the municipality. Finally, reviewing House Bill 1201's proposed amendment to §44, the opinion found the bill would have authorized creating a district for business promotion but only authorized tax levies to redeem bonds and to operate and maintain "facilities," a term that comfortably covered the statute's existing capital-improvement categories but did not clearly extend to a promotional program with no physical facility, and recommended the bill's tax-levy language be revised to remove that ambiguity.

Citations

Statutes:

• Md. Const. art. XI-E, §1 (restrictions on state legislation affecting municipal "incorporation, organization, government, or affairs")
• Md. Const. art. XI-E, §3 (municipal home rule authority)
• Md. Const. art. XI-E, §5 (bar on new municipal taxes without express General Assembly authorization)
• Article 23A, §2 (general municipal ordinance power)
• Article 23A, §2(b)(33) (post-Campbell amendment authorizing reasonable fees and charges)
• Article 23A, §44 (special taxing districts for storm drainage, parking, pedestrian malls, and street lighting)
• Chapter 752, Laws of Maryland 1984 (editor's note; commercial district management authorities)

Cases:

• Jewel Tea Co. v. Town of Bel Air, 172 Md. 536, 539 (1937)
• Birge v. Town of Easton, 274 Md. 635, 639-40 (1975)
• Bowie Inn v. City of Bowie, 274 Md. 230, 247 (1975)
• Griffin v. Anne Arundel County, 25 Md. App. 115, 126 (1975)
• Campbell v. City of Annapolis, 289 Md. 300 (1981)
• Mayor and Council of Mount Airy v. Sappington, 195 Md. 259, 263 (1950)
• Rushe v. Hyattsville, 116 Md. 122, 126 (1911)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1983/Volume68_1983.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

Local Government—Municipal Corporations—Taxation—Special Tax Districts—Promotion of Business and Commerce—Public General Law Needed To Permit Municipalities To Create Special Tax Districts.

August 19, 1983

The Honorable Paul Muldowney
Maryland House of Delegates

You have requested our opinion on certain issues related to House Bill 1201 of the 1983 Session of the General Assembly. House Bill 1201, which did not pass, concerns the authority of municipal corporations to create special taxing districts. That bill would have amended Article 23A, §44 to provide: "Pursuant to the provisions of §5 of Article XI-E of the Constitution of Maryland prohibiting any municipal corporation classified by the General Assembly under the provisions of §2 of Article XI-E of the Constitution of Maryland from levying any type of tax, license fee, franchise tax or fee which was not in effect in the municipal corporation on January 1, 1954, unless it has received the express authorization of the General Assembly for that purpose, by a general law which in its terms and its effect applies alike to all similarly classified municipal corporations, the General Assembly hereby expressly authorizes all municipal corporations in this State within the class created by §10 of this article for the purpose of financing the design, construction, establishment, extension, alteration or acquisition of adequate storm drainage systems, and for the purpose of financing the design, acquisition, establishment, improvement, extension, operation or alteration of public parking facilities, or pedestrian malls, and for the purpose of financing the design, acquisition, erection, construction, improvement and maintenance of street and area lighting, AND FOR THE PURPOSE OF FINANCING PROFESSIONAL COORDINATION, PROMOTION, DEVELOPMENT, AND MANAGEMENT OF BUSINESS AND COMMERCE, to create within their respective corporate limits special taxing districts for these purposes and to levy on all real and personal property located within these special taxing districts an ad valorem tax at a rate sufficient to provide adequate annual revenues to pay the principal and interest on any bonds or other obligations of the municipality issued for these purposes as the principal and interest become due, and to pay the costs of operating and maintaining these facilities. These taxes shall be levied in the same manner, upon the same assessments, for the same period or periods, and as of the same date or dates of finality as are now or may hereafter be prescribed." (Capitals indicate matter to be added to existing law.)

Specifically, you have asked the following questions: "1. Is any legislation necessary in order for the municipality of Hagerstown to establish a special taxing district, the revenue from that special tax being used to promote economic growth within that district? This would be accomplished by hiring a person to promote that specific area within the district. 2. If legislation is necessary, would [House Bill 1201] have been adequate in its wording to do what Hagerstown wants to do? 3. If [House Bill 1201], in your opinion, is inadequate, how could it be improved upon?"

For the reasons given below, it is our opinion that enabling legislation, in the form of a public general law expressly authorizing municipalities to create special taxing districts for this purpose, is required. We also believe that it would be preferable to modify the proposed legislation to expressly authorize municipalities to levy taxes to pay the costs of operating and maintaining this specific kind of program.

I
Background

On July 20, 1982, the Hagerstown Commercial and Industrial Commission recommended to the Mayor and City Council that a Downtown Assessment District ("DAD") be created to finance professional coordination, promotion, and management of the City's central business district.1 The Commission proposed that the DAD be financed by an annual tax or assessment against each property owner in the District in the amount of $0.00611 times the 1981 assessed value of that person's property. The DAD would be administered by a Board, consisting of five property owners from the District, appointed by the City Council.

1 The creation of a Downtown Assessment District was also one of the incentives and initiations included in the Enterprise Zone application submitted to the Department of Economic and Community Development by the City of Hagerstown and Washington County. See Enterprise Zone Application, Washington County and City of Hagerstown, Maryland, at p. 45 (October, 1982) (approved, December 14, 1982).

In an opinion dated July 28, 1982, the City Attorney, Robert E. Kucszynski, advised the Mayor and City Council: "It is my opinion that an ordinance, if drafted, unless it includes all of the specific provisions of Article 23A, §44 and is administered accordingly, would be subject to challenge. It does not appear that the concept of the Downtown Assessment District is in accordance with the provisions of that section. In order to be allowed to create D.A.D., it is my opinion that enabling legislation from the General Assembly would be required, subject to the restrictions of the Constitution and basic legal requirements as set forth above."

Subsequently, House Bill 1201 was introduced. The bill, however, received an unfavorable report from the Constitutional and Administrative Law Committee of the House of Delegates.

II
Municipal Enabling Authority

A. Introduction

As a municipal corporation, the City of Hagerstown has no inherent power. Jewel Tea Co. v. Town of Bel Air, 172 Md. 536, 539 (1937). The City has only the authority that (1) has been expressly granted to it, (2) is necessarily or fairly implied in or incident to the powers expressly granted to it, or (3) is essential to the accomplishment of the declared objects and purposes of the municipality. Birge v. Town of Easton, 274 Md. 635, 639-40 (1975); Bowie Inn v. City of Bowie, 274 Md. 230, 247 (1975).

In the area of taxation specifically, a municipality has the power to levy a tax only to the extent granted by the State. Griffin v. Anne Arundel County, 25 Md. App. 115, 126 (1975), cert. denied, 275 Md. 749 (1975). The authority of the City of Hagerstown to tax is derived from Article XI-E of the Constitution of Maryland (the Municipal Home Rule Amendment) and its implementing legislation, Article 23A of the Maryland Code. Id.

Article XI-E of the Constitution generally grants a municipal corporation broad home rule authority [Article XI-E, §3], and it significantly restricts the powers of the General Assembly to enact local legislation relating to the "incorporation, organization, government, or affairs" of municipal corporations [Article XI-E, §1]. However, Article XI-E, §5 specifically imposes certain restrictions on the taxing power of municipalities: "No ... municipal corporation shall levy any type of tax, license fee, franchise tax or fee which was not in effect in such municipal corporation on January 1, 1954, unless it shall receive the express authorization of the General Assembly for such purpose, by a general law which in its effect applies alike to all municipal corporations in one or more of the classes provided for in Section 2 of this Article." (Emphasis added.)

As noted above, Article 23A of the Code enumerates the basic powers granted to municipalities by the General Assembly. We do not believe, however, that these powers authorize the creation of a special taxing district for the purpose of promoting a downtown business district.

B. Article 23A, §2

Article 23A, §2 sets forth both the "general power" of municipalities and several "express powers."

In our view, the "general power" clause of §2 does not confer the necessary authority to levy taxes for purposes of a special taxing district.2 We base this conclusion on the decision of the Court of Appeals in Campbell v. City of Annapolis, 289 Md. 300 (1981). In that case, the Court held that a municipal ordinance, providing for the licensure of residential rental units and imposing an annual unit license fee, violated Article XI-E, §5 of the Constitution because the license fee had not been expressly authorized by the General Assembly. Article XI-E, §5 requires "express authorization" by the General Assembly, through enactment of a public general law, for a municipality to be able to levy any new "tax, license fee, franchise tax or fee". In Campbell, the Court specifically held that the "general power" clause of Article 23A, §2, characterized by the Court as a "usual non-specific delegation," "clearly does not meet the constitutional standard of 'express authorization' to levy a license fee". 289 Md. at 309.

2 Section 2 provides, in this regard: "The legislative body of every incorporated municipality in this State, except Baltimore City, by whatever name known, shall have general power to pass such ordinances not contrary to the public general or public local laws and the Constitution of Maryland as they may deem necessary in order to assure the good government of the municipality, to protect and preserve the municipality's rights, property, and privileges, to preserve peace and good order, to secure persons and property from danger and destruction, and to protect the health, comfort and convenience of the citizens of the municipality. ..."

Nor do any of the "express powers" listed in Article 23A, §2 authorize any municipality to create a special taxing district for the purpose of coordinating, promoting, and managing a business district, let alone impose a property tax to finance such a program. Although §2 was amended in response to the Campbell decision, that amendment simply authorizes the imposition of new "reasonable fees and charges", but not, perhaps, new taxes, and, even then, only: (i) fees and charges for the "franchises, licenses, or permits" that have been otherwise "authorized by law to be granted by a municipal corporation", and (ii) fees and charges associated with the exercise of "any governmental or proprietary function" that has been otherwise "authorized by law to be exercised by a municipal corporation". Article 23A, §2(b)(33).

Thus, we must look elsewhere for the underlying "express authorization".3

3 That Article 23A, §2 was not intended by the General Assembly to authorize the creation of special tax districts is further evidenced by the enactment of Article 23A, §44, discussed below, for that very purpose.

C. Article 23A, §44

In Article 23A, §44, the General Assembly "expressly authorizes" all municipal corporations to establish special taxing districts for certain specified purposes, and to levy a property tax for the redemption of bonds issued "for th[o]se purposes" and the payment of "the costs of operating and maintaining [the] facilities" there specified.

The specific purposes for which a special taxing district may be created and taxes levied under §44 are limited to the establishment and operation of "storm drainage systems", "public parking facilities", "pedestrian malls", and "street and area lighting". The Hagerstown DAD program, which is intended to promote and manage a business district, clearly does not fall within any of these capital improvement projects.4

Therefore, in order for the City of Hagerstown to create a downtown assessment district and to levy a tax to finance the program, the General Assembly must enact new enabling legislation.

4 Statutes granting powers to municipal corporations are strictly construed. Mayor and Council of Mount Airy v. Sappington, 195 Md. 259, 263 (1950). Any reasonable doubt concerning the existence of the power of a municipality to act must be resolved against it. Rushe v. Hyattsville, 116 Md. 122, 126 (1911).

III
Sufficiency of Proposed Legislation

As set out above, House Bill 1201 would have amended Article 23A, §44 to authorize the establishment of a special taxing district "for the purpose of financing professional coordination, promotion, development, and management of business and commerce".

However, the bill did not fully clarify that the municipalities could levy taxes to finance this kind of program. Section 44 only authorizes the imposition of taxes to redeem bonds and to pay for the costs of "operating and maintaining these facilities". The term "facilities" certainly applies to the types of improvements already listed in §44 (i.e., storm drainage systems, public parking facilities, pedestrian malls, and street and area lighting); it does not, however, properly apply to a DAD.

Hence, in order to avoid any questions, the section should also be amended to expressly authorize the imposition of taxes to finance the establishment and operation of the Downtown Assessment District program.

IV
Conclusion

In summary, we conclude as follows: In order for the City of Hagerstown or any other incorporated municipality to have the power to create a special taxing district for a program like the Hagerstown Downtown Assessment District proposal, express authorization from the General Assembly is required. The provisions of existing law do not contain such an express authorization; therefore, enabling legislation such as that contemplated by House Bill 1201 (1983) is necessary. However, we suggest that the proposed legislation be refined so as to remove any doubt that the General Assembly has authorized both the creation of the special district and the imposition of taxes to finance the operation of the program.

Stephen H. Sachs, Attorney General
Linda H. Lamone, Assistant Attorney General
Avery Aisenstark, Chief Counsel
Opinions and Advice

Editor's Note: Since the issuance of this Opinion, the General Assembly enacted Chapter 752, Laws of Maryland 1984, for the purpose of authorizing municipal corporations and counties "to create commercial district management authorities . . . as special tax districts with the authority to levy". The new law, effective July 1, 1984, is codified at Article 23A, §§2(b)(35) and 44, Article 25, §3(oo), and Article 25A, §5(FF).