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November 15, 2009

Your take on city property taxes

An overwhelming majority of the people who took last week's Wonk poll think Baltimore should lower its property tax rate significantly, and now -- despite (or because of) the tight budgetary times.

As of last night, 92 percent of you poll-takers said you agree with Baltimore economist Anirban Basu that the city's rate of $2.268 per $100 of assessed value needs to be cut now.

Six percent said not now, but when the economy's doing well.

Just two percent opted for the straight "no."

And one person felt so strongly about this that he or she skipped over the "yes" option to write in an answer: "Hell yes."

People usually like the idea of having less taxes to pay, so that was a pretty easy question for you all to answer. Now I challenge you to tackle a harder one: What cuts or adjustments should the city make to account for the (at least short-term) drop in revenue? What can the city do to avoid counteracting the "come on in" message of lower taxes with the unwelcome-mat of decreasing quality of services?

Proponents of rate reductions say a big cut would bring more residents, increasing the sources of revenue, but let's assume for this exercise that tens of thousands of people won't immediately drop everything to move in. (Also, you'll want to take into account that the city is already grappling with reduced revenues. Mayor Sheila Dixon announced in September that the city would have to "immediately reduce spending" to deal with a $60 million decline in revenue and state aid.)

Extra points to anyone with an idea more specific than "reduce waste." Here are two proposals from commenters to get you started.

MCG suggests a tax-related strategy:
The city can immediately reduce the overall property tax rate and recover any lost revenue by doing the following:

1) Crack down on all homestead cheats by collecting back taxes, penalties, and interest for any years in which property owners were wrongfully claiming the homestead credit.

2) Discourage people from cheating on the homestead credit in the future by pursuing perjury charges against the most blatant cheaters (e.g. those who own multiple properties in the city and claim the credit on all of those properties).

3) Follow Washington DC's lead and raise the property tax rate for all vacant properties by 800% or more. With over 30,000 vacant properties throughout the city, this would seem to be a no-brainer.

Josh Dowlut has a budget-cutting suggestion:
Property taxes make up roughly half the general fund revenue. Public safety, education, and pensions/retirement plans make up the #'s 1, 2, and 3 expenses.

Roughly speaking you could trim property tax rates by 30% simply by eliminating pension benefits for government workers. We don't get them in the private sector, so why should they?

Dowlut points out that you can find the Citizens' Guide to the Fiscal 2009 budget here.

And here is the Fiscal Year 2010 budget -- the one we're currently in -- along with the mid-year budget-cutting plan.

Ready, set ... go.

Posted by Jamie Smith Hopkins at 7:00 AM | | Comments (18)
Categories: Homestead Property Tax Credit, Property taxes
        

Comments

The problem with "budget cuts" is that they don't add up to much and often just kick the can down the road. Furloughs are a prime example. Culling homestead cheats only gets more revenue for a year or so.

As for pensions, who would join up with the BCFD or BPD for $40,000/year (even $60,000 w/ overtime) if you took away 20 year retirement and the pension? You would need to increase annual pay and benefits to make up for the loss of pension benefits. Pay now, or pay later.

I would support the City if they actually RAISED the tax rate 40 or 50 cents for a year to pay down debt and fully fund their pension obligations. The City has $600 million in outstanding debt that costs $118 million in property taxes this year. This year's past pension cost for public safety is $161 million. That's 10% of the budget, or 20% of the General Fund.

On top of that, restraining capital spending to infrastructure (roads, traffic control, bridges, and buildings) repair would stop saddling the City with debt costs for new facilities.

A one-year goose to pay off these items would reduce spending in meaningful ways, and give the City a year to plan for strategic reductions in the tax rate in years 2, 3, and beyond. The City could even commit to "constant yield" rates and plan around that, since it takes a lower rate every year to yield the same revenue.

The nice part of this is that because of homestead credits, current homeowners would still not feel the impact of this increase. Like the 800% vacant property tax, the burden would be on non-residents.

We love the idea of charging slumlords a higher property tax rate, and going after people who illegally claim the homestead tax credit.

However, unless the city is prepared to actually collect the fines, and prosecute the slumlords, having the laws on the books won't make a bit of difference. We currently have so many laws that are ignored by city prosecutors -- how can we guarantee these won't fall by the wayside?

Legg Mason received 15 years tax forgiveness on their new $200M tower. That's a break of 4.5M/year. The average homeowner (200k house) pays an extra $45/year for this. I wonder how many other big businesses get the same favorable treatment.

http://articles.baltimoresun.com/2009-06-30/business/0906300013_1_legg-mason-harbor-east-new-building

The City should raise money by issuing Municipal Bonds. That way, they can lower property taxes while the economy is in recession, and then raise them slowly when the economy recovers. Also, it would have been a smart idea for the City to push for Pimlico to get slots. They could have received a percentage of the revenue. But, I guess Arundel Mills Mall is a better option. How long has it been since slots was passed? How much revenue has been generated? Hopefully Ehrlich will be back and turn this State around.

Aaron,

I concede that certain physically demanding fields that one can't reasonably be expected to do into their 60's or beyond should draw a pension. The majority of city employees however are clerical office workers. With 10.2% headline (U3) and 17.5% U6(also a BLS stat the U6 counts those who have given up finding a job and those forced to work part time) no one is going to be quitting their job over this and you would not have to pay them more. The median public sector employee makes 59% more than the median private sector employee in wages alone, and 108% more when you include benefits, namely pensions.

Frank,

Issuing municipal bonds is just a fancy way of saying borrow money or go into debt. It is reasonable to raise money for a one time large project, like building a new mass transit system. It is unreasonable and unsustainable to fund your regular operating budget that way. It's like borrowing money to buy a house versus borrowing money to buy your groceries.

The solution is not to target easy scapegoats like landlords (oh so evil!!??) and pensions (oh so undeserved!!??). That does nothing to change the fact that the property tax rate is double the rate of every other county in the area, which is the crux of Basu's argument.

The solution is a total restructuring of the tax base since the city never should have become so dependent on property taxes in the first place. An opportunity to begin this process may present itself as the post bubble property assessments kick in.

Job creation and rehab/redevelopment of blighted neighborhoods are essential but longer-term solutions to increasing all forms of tax revenue. I suppose that's part of the logic behind the huge corporate tax breaks, but that a bit disheartening to the rest of us. Also, bear in mind that investors/landlords, many of whom rehab homes, also play a roll in this urban development process without being eligible for many of the related income tax breaks that owner/occupants can get.

I do not see any easy ways out for the City. The high tax rate, weak school system, and high crime rate end up making redevelopment in the city a high risk business.

Properties get tax abandon when the owner dies, is unable to continue paying taxes or it makes economic sense to abandon properties to tax auction verse lead paint abatement. It’s also an expensive and slow processes to clear the title of tax abandon properties although improvements have been made to the state legal code.

Yes cutting the tax rates would help but not without a significant restructure of the city’s service departments. Possible options may include merging some departments into Baltimore County, such as road service, fire, police training centers, key purchasing departments (school system books as an example).

Property taxes are unfairly levied by the State of Maryland at a different rates for residential and non-residential properties.

That is inherently wrong in a neighborhood like Mt.Vernon in Baltimore where a owner-occupied residential property is taxed at a higher rate then the neighboring apartment house.

Why do landlords get a tax break? Owners of office buildings in downtown Baltimore get even bigger tax breaks.

Why does that State of Maryland insist that residential property owners subsidize commercial properties?

The State's tax rate is purely arbitrary and without justification.

For years Bill Struever, who sat on the School Board, argued that commercial properties (including his own) were assessed at too low of property values, placing too much of the City's tax burden on residential properties.

To all those who offered a "we can't, because..." comment, you're getting in the way of those who want to try. Slumlords (different from Landlords) who refuse to keep up their vacant properties should be asked, just like the rest of us, to pull their fair share. Vacant, unkempt properties hurt homeowners by dragging down property values, not to mention the disease and potential crime that they harbor when the rats, cats and addicts move in (speaking from experience). Part of living in the city is that you have to give up the idea that your neighborhood look and feel like a gated community in Towson. However, it doesn't mean that it is unreasonable for homeowners to fight to remove blighted properties to improve quality of life, and it most certainly doesn't mean that we have to simply roll over, do nothing and complain about why things never get better. Stop asking why and start asking why not. Even better, join the rest of us and start doing.

There are over 30,000 abandon houses in Baltimore City. Abandon houses are taxed at minimal rates. As a result, the owner has no incentive to clean up the property and put it back to normal use. If Baltimore taxed those absent and irresponsible owners at relatively high rates, the City would encourage clean up and sale of the property or demolition AND could use that revenue to decrease property taxes on those that actually live in the City and care for their property.

Announce that a permanent property tax cut will take effect 3 years after the announcement. The tax base would grow before the the lower rate kicks in, and that would save the City short run pain.

If there's a will to change the tax structure permanently, then this is actually a good cause to issue bonds. It's a one time charge that can be financed with future increase in earnings. It's like a business that borrows to build new production capacity. The city government needs will and some financial knowledge. But I doubt the people who run the show understand the difference between investing for the future and mortgaging the future.

There's also the possibility of changing the voting demographic if taxes are reduced, which is not good for the current regime. I don't see this issue being resolved in the near future.

Property taxes are the ultimate boondoggle, but be glad you don't live in a state like Ohio, where my folks live. They pay almost $3500 on a house valued at $100,000. And that's not even in a city like Cleveland or Columbus.

Property taxes make it clear that the city does not want me as a resident. I am a young professional earning six figures. I spend money out with my friends. I use no social services. I have no school age kids. I am a very profitable citizen for wherever I live. But I am also subject to the AMT, which essentially means I am taxed double by property taxes. The city makes it clear they don't want me.

Also, as to what can be cut in the budget, the answer is simple. Social programs and school spending. The city has hundred of social programs which provide job training, mentoring, fatherhood initiatives, etc. In other words, many non-essential services (do not involve public safety, food, or medical care) that in bad times must be cut and the communities can try to pick up the slack. As for schools, Alonso is great, but he has never acknowledged the school system's responsibility for the astonishing tax rate and hence, faltering economy. Baltimore school system is failing and is certainly not attracting new employers and citizens. We can get a failing school system for far cheaper than we are paying for the current one. Why not acknowledge the system is a failure and a drag on the economy and cut it accordingly? Focus on larger, lecture style higher-level courses for those who want them. If we expand the tax base by providing incentives to move into the city, maybe then we will be able to fund the schools at a better level, But as of now, they are drag on the economy.

The city gives businesses these tax breaks so that they will consider moving into an area of higher taxes than the surrounding counties. These projects also create jobs in Baltimore which attract more people to the area, and ultimately more homeowners. If you take away the tax incentives, businesses move out to the counties, as we have seen time and time again with businesses such as McCormik and Schmitt (hence why "Baltimore's" Old Bay is actually made in Hunt Valley!). When that happens other businesses that rely on the lunch crowds and population density of those office buildings move out as well.

Take this into account before you suggest that we tax the business buildings, not a single building has been build in the Inner Harbor/Harbor East area WITHOUT a tax incentive. So taxing those buildings from the day of construction would probably just mean no new construction. Also, if anyone thinks the new Legg Mason building is going to uproot itself and move after 15 years please raise your hand... It ended up being a good gamble with the Inner Harbor and it attracted a number of businesses that stayed well after the tax incentives went away, and honestly, I'm willing to sit it out and wait rather than stifle the amazing growth Baltimore has been experiencing lately.

Ace:

The Alternative Minimum Tax (AMT) was set up for high income people that qualify for so many tax deductions that they do actually pay any tax on earned income. As a single man making over six figures I don't see how that is possible?? Could you please send me the name of your accountant??

Also, I can't disagree with you more about cutting school system funding. The main reason people give for moving out of the city is that they need a good school system for their kids, so unless you want the city to only be for single people who are constantly moving in and out, schools have to be our number one priority.

First, this is an extremely complex issue, so anyone claiming that any one action will "solve Baltimore's problems" is just talking out of their...you know.

With that said, like it or not, property taxes are part of - not separate from - the real estate market. Property taxes are part of any property buyer's "where to live" calculus, and thus they really get rolled into the price of the property. High property taxes, in other words, is one reason property in the City is so cheap relative to the surrounding counties. (Yes - crime, property size, transportation, etc. all have a role as well.) Housing in the suburbs is more expensive, but the taxes are lower; housing in the city is less expensive, but the taxes are higher. Pick your poison.

Second, Baltimore's real problem is one of jobs. We need more jobs - and fully private jobs, not government or non-profit jobs, OR private sector jobs that require huge subsidies. If the City had a critical mass of the region's employment, there'd be more money for things like an excellent downtown transit network, which would make it very attractive to both live and work downtown. In other words, higher taxes aren't the problem, per se; the problem is high taxes, and the sense that the middle class isn't really getting anything for those taxes.

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie
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