'Slash' city property tax rate, economist says
Baltimore economist Anirban Basu makes a suggestion on the Open Society Institute-Baltimore's "Audacious Ideas" website, and the headline says it all: "Slash the City’s Property Tax Rate by More than 50 Percent over the Next 25 Years."
The city's property tax rate is more than twice that of Maryland's counties. Basu argues that a guarantee of big cuts over time would get the city out of its "classic Catch-22": With its population losses, the city needs a high rate to balance its budget -- which in turn drives more residents out. He writes:
The mayor and City Council should simply make a promise to the people of Baltimore that an irreversible path of tax slashing shall be pursued. Each year, City leaders should guarantee a 2 to 4.5 percent reduction in property taxes per year. Severe penalties for failing to deliver on this promise should be established, including total forfeiture of annual compensation. The only exception would be in the wake of an act of God, for instance a Katrina-like event.What’s remarkable about this promise is that it can be kept without too much difficulty. A credible promise of tax reduction would bring new residents and investors to Baltimore City even before the current tax rate was reduced substantially. The accompanying new tax base would under most scenarios more than offset the loss in revenues from tax rate reduction.
Do you agree?
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Comments
I grew up in Baltimore, but live in Northern Virginia to be close to work. I'd love to move back to the city because of lower real estate prices, but the higher taxes wipe out the lower real estate price advantage. Baltimore's property taxes are more than double than Virginia's counties as well.
Posted by: Mike | September 2, 2008 9:17 PM
I absolutely agree. My girlfriend decided not to move to the city in part because of the higher taxes.
Prices are lower in the city in part because after adding in taxes the cost of ownership is about the same.
Ned Carey
BaltimoreRealEstateInvestingBlog.com
Posted by: Ned Carey | September 3, 2008 10:24 PM
Though not an economist, I've been telling people this for the past several months when asked what can the city do to turn things around.
It seems obvious, to me anyway, that if the tax was cut in half, the property values would increase and the tax base would grow as demand went up for city properties.
This is now the perfect time to announce a tax cut in light of high gas prices, the coming BRAC move and the biotech centers on the east and west sides of the city.
All of these factors can create demand for city properties, but people will not buy in the city if they can get a suburban house for the same total price (cost of house + taxes).
In addition, the current blight of 20,000 vacant properties would be probably be gone within 5 years as hundreds or thousands of investors (like myself) rush in to rehab these houses.
Even 500 investors rehabbing 4 houses per year would clear out the boardups in 10 years. I'm pretty sure that there are at least 500 investors already working the area and, in a good market, they would average more than 4 houses per year.
I also think that the rate could be cut faster (say in 5-10 years) if the city would stop giving away huge tax breaks to large developers for a few big projects. Instead, keep that money and use it to offset the initial drop in tax revenues until the tax base and property values grow to replace those sums.
The large projects will take care of themselves as the population grows to justify the investment.
Short of legalizing drugs (which is not in the city's control), cutting the tax rate is the only thing that can really restore Baltimore to a city with the solid middle class needed to anchor sustained growth.
Posted by: Alan | September 4, 2008 9:05 PM
Besides lowering the rates for homeowners, we need to raise the assessments for commercial property owners. Why are homeowners subsidizing renters and landlords? Many apartment buildings in the city have assessments that are hundreds of thousands of dollars below "market value."
Posted by: Adam Blumenthal | September 11, 2008 3:06 PM