Councilman: Cut Baltimore's property-tax rate in half
Baltimore City Councilman Carl Stokes submitted a charter amendment last week that would do what most readers here seem to want: cut the city's property-tax rate in half.
In an interview, he said everyone is telling him such a reduction is important -- "except the mayor and City Council."
One colleague on the council calls his proposal a "tooth fairy plan." A spokesman for Mayor Stephanie Rawlings-Blake said the idea would result in "irresponsible cuts" to an already strapped budget.
Here's what Stokes, a mayoral candidate, is suggesting:
Voters would get to approve or quash a city charter amendment that would decrease the property-tax rate from nearly 2.27 percent to 1.1 percent -- same as Baltimore County's rate -- over a three-year period. The drops would begin July 1, 2013.
Right now, the city's rate is at least twice that of any other jurisdiction in the state.
Stokes' amendment specifies that the rate "may not exceed $1.10 for every $100 of assessed or assessable value" (otherwise known as 1.1 percent) from July 1, 2016 onward.
It could come with a catch for taxpayers, at least initially. Because Stokes anticipates an initial drop in revenue, he also submitted a companion bill that would temporarily increase the ceiling on the Homestead tax credit and put the extra money collected from residents into a fund to help the city pay its bills once the tax rate takes a nose dive.
The Homestead cap currently protects owner-occupiers from seeing more than a 4 percent increase in their taxable assessment in any given year. Stokes' amendment would increase the ceiling to 6 percent in July 2013, to 8 percent the following year and to 10 percent in 2015 -- the state maximum. It would stay there until July 2020, when it would drop back down to 4 percent.
The bill specifies that any money generated from the higher Homestead cap must be used "exclusively to reduce the City property tax."
Newcomers, landlords and most homeowners who haven't owned their properties for more than a few years would see no change from a higher Homestead ceiling because they're getting zero benefit from it now.
Longer-term owners would feel the impact. If my back-of-the-envelope calculation is correct, someone who has amassed a particularly large Homestead credit amount would pay just 7 percent less in taxes in 2020 under Stokes' plan than she's paying now. But if nothing changed, she'd pay 37 percent more in 2020 than her current bill. (I did the math for a hypothetical homeowner whose place is assessed at $200,000 but who is paying on just $100,000 of that amount right now.)
Stokes says he's offering a variety of suggestions to get the city over the hump of the initial revenue hit and isn't married to the idea of a Homestead increase. But he said he does feel strongly that the city needs to make its property-tax rate competitive with other jurisdictions in the state. He believes it would help Baltimore increase its population, jobs and development activity -- thus increasing its tax base.
"It is based on sound economic principals that have been proven to work over and over again in other towns and other cities," said Stokes, chairman of the council's taxation, finance and economic development committee.
He added, "The city recognizes that the tax rate is an impediment -- it recognizes it, because when someone comes to town and says, 'I want to build a big development in your town,' we say, 'Here's a tax incentive, here's a tax break, please come in and do it.'"
Meanwhile, homeowners complain that they're not getting twice the services of the suburbs for twice the tax, he said, and some leave as a result.
"In the short term, we're going to have to make some adjustments" to the budget if the rate plummets, Stokes said. But he believes "at some point, the fact that the property tax is going down will cause such an expansion in the tax base that we won't have to cut."
Stokes' plan is similar in some ways to a proposal by a Loyola University Maryland professor and one of his former students, which would drop the rate to 1 percent even.
But the academics' proposal calls for a charter amendment specifying that the rate will fall all at once in three or four years. They believe growth would start immediately -- leading to an increase in revenue that officials could bank and use when the rate plummets. They don't suggest a Homestead hike.
Steve Walters, the Loyola economics professor, said in an email interview that Stokes' plan is "a good first step down the path of a genuine, organic renaissance for Baltimore." That it's proposed as a charter amendment means people shouldn't fear it's an empty promise, he said.
He doesn't think the Homestead increase is necessary. And he'd rather see a rate that's a bit lower than Baltimore County's to give the city an edge.
"But the Councilman deserves considerable credit for his insight and courage on this issue," Walters wrote in his email. "The status quo well serves many entrenched, special interests -- especially our redevelopment bureaucracy and an in-crowd of developers who have 'paid to play' and now receive the kinds of subsidies that offset the City's brutal tax rate; they'll fight this change tooth and nail. The problem is that the status quo just isn't working very well, as the latest census numbers showed -- as did the census before that, and before that. How long will we keep doing things the same way and expecting different results?"
The Baltimore Sun has not yet taken an editorial position on either plan, saying the population growth needed to cover a tax-slash budget gap would be "massive."
"But the knee-jerk dismissal the ideas are getting at City Hall is wrong," the Sun says in an editorial. "Of all the things holding Baltimore back, there is only one that the City Council and mayor could change with a stroke of the pen, and that is the property tax rate."
Categories: Homestead Property Tax Credit, Property taxes
Sign up for the At Home newsletter 
Comments
The homestead credit violates a tenant of good tax policy: Universal applicability. The current system pits the interests of old owners against the interests of new owners. To have identical properties pay very different tax bills is bad policy.
Also, by not applying to rental property, it pits owners against renters, and introduces a degree of regressiveness.
Ultimately it leads to renters and new owners subsidizing old owners.
Posted by: Josh Dowlut | March 14, 2011 8:47 AM
Why would previous developers fight this tooth and nail? Eventually their tax subsidies will run out and they will be subject to the same debilitating tax rate as everyone else. In addition, a higher population in the city benefits everyone. If you are a developer, an increase in demand for your space directly benefits you because you can charge more for leases!
Posted by: Matt | March 14, 2011 11:35 AM
I applaud that someone is actually tackling this vexing problem. The point is that this already worked in San Francisco and Boston, I don't see why it can't work here. SF and Boston had more crime and just as bad schools.
The problem is that Stokes and Rolley will probably split the challenger vote. For this to work, there must be one strong candidate with this platform.
Posted by: semiconscious | March 14, 2011 11:40 AM
Josh, I don't have any problem with non owner occupied properties (renters), businesses and the newest home owners paying a higher level of tax than longer term owners do. Actually, that seems like a laudable public policy goal to reward owners of long standing who have stuck with the City.
The question is how we get to what those respective numbers should be and structure that in ways that are clear and simple and that don't leave anyone with an exposed flank.
Whether that is through continuing with the convoluted assessment process and sliding scales of rates applied (which I abhor in principle) or using the sale transaction as evidence of change in market value and a table of known and fixed multipliers based on status and term (my personal preference)... so long as the actual market values are increasing then everyone wins. Up to a point.
Posted by: MrRational | March 14, 2011 11:56 AM
If a city council member like Stokes continues to come up with progressive, economic ideas that challenge the status quo, then he will win. If I were him, I would continue to consult with economists that are forward thinking.
As other people have said, here are some suggestions to generate more money:
-Make the owners of the city's 17,000 vacant properties pay a determined amount of money each year.
-Make sure that non-profit organizations pay property taxes.
-Study the other cities (Boston, San Fran, and Oakland) that have made similar reductions in property taxes. What did they do to make the transition? How did they avoid drastic cuts to schools, police, and fire departments?
Posted by: Bayview | March 14, 2011 12:31 PM
All this tax rate mumbo jumbo would be a moot point if banks didn't overcharge for services and people stopped hiring or using the services of companies or buisnesses that they didn't need. Why are there so many "middelmen" taking their cuts of transactions and not providing anything at all of value. Real Estate agents? Why are they paid so much on the sale of a home? Ever taken a look at a closing costs on a mortgage? What the heck are all those fees for? Don't we have computers these days? I can look for a home on line, have someone get a key to open the house I want to see, get a loan on line and pay for the house. It is not that complicated. Sure, an "honest" inspector is needed to make sure house is Ok. Taxes are fine b/c in theory, you are getting at least something for them but when you sell your house and a real estate agent gets 6% - what did they do for you? Stop paying people for doing nothing. Same with the City and State - be accountable for what you spend. Don't worry about pensions - worry about "businesses" not paying their share or gaming the system.
Posted by: Peter Elling | March 14, 2011 12:33 PM
here's your solution, lower the tax rates, but at a way that will make up the budget deficiet.
Current home owners will see a 1/2 percentage or 1% drop each year to the decieded date & % rate. Say the final would be 1.5% property tax by 2016. So each year they go down to that percent. The new home owners who buy in each year would enter at the going rate for the year and continue down to 1.5% in 2016. This way the lowering tax rate would encourage more buyers to make up the budget loss from the current homeowners lowering taxes.
Posted by: pigtown girl | March 14, 2011 12:44 PM
With this idea if it works, great. Everyone is happy, and we all reach the New Jerusalem. But if it doesn't, someone has to volunteer to be the guy to tell the fire department they won't be being paid anymore. And those folks have axes.
Posted by: Cheap Jim | March 14, 2011 1:31 PM
The mayor's office needs to realize that budget cuts aren't necessary if you're not OVERSPENDING and wasting tons of money. Where is all the money that was made during the real estate boom through gouging of recording fees and transfer taxes??
Posted by: Anonymous | March 15, 2011 9:12 PM
Councilman Stokes will be speaking at the April 20 meeting of the Mid-Atlantic Real Estate Investors Association. (www.MAREIA.com)
We invited the councilman and he graciously accepted so that he would have a chance to talk to our membership of investors who rehab and rent out property in Baltimore City.
We are looking forward to hearing from the councilman about his plans for the property tax cuts and his vision for Baltimore's future.
We hope that we can work with all the city officials to make Baltimore a place that will be more attractive to homeowners and good landlords.
For those interested in learning more about our organization, MAREIA has a meeting this evening at 6:30 pm at the Pikesville Hilton.
Posted by: Alan Chantker | March 16, 2011 11:11 AM
While the Councilman has great intentions, what we really need is a metropolitan government. If we don't get one soon, we will all lose.
Posted by: Carl | March 17, 2011 12:05 PM
Thanks Girlie for keeping me up to date with the stand of the mayoral candidates on property taxes.
Stokes just got my official endorsement.
Posted by: JuanitaBeasley | March 17, 2011 2:26 PM
Glad you found the information useful, JuanitaBeasley. I think it's likely there will be other property-tax proposals before the campaign is over, so that will be interesting to watch.
Posted by: Jamie Smith Hopkins | March 17, 2011 10:05 PM
Jamie, thanks again for covering this topic. We'll see if Councilman Stokes gains any political traction. Keep us informed!
Posted by: bayview | March 21, 2011 1:06 PM
Councilman Stokes will be facing competition in the mayor's race from Joseph "Jody" Landers who is formally announcing his candidacy on April 20.
Both Mr. Stokes and Mr. Landers will be at the April 20 MAREIA (Mid-Atlantic Real Estate Investors Association) meeting.
www.MAREIA.com
Councilman Stokes was previously scheduled to speak as a result of this blog.
Coincidentally, Mr. Landers was also previously scheduled to present his quarterly update on the Baltimore area real estate market from his position as Executive VP of the Greater Baltimore Board of Realtors.
MAREIA does not endorse any candidate at this time, but does support the reduction of the property tax rate for Baltimore City to help revitalize the city.
Posted by: Alan Chantker | April 19, 2011 12:37 PM
Amen, to any tax cuts. I know I could use one. Thanks for the great blog.
Posted by: Debbie Jones | May 19, 2011 6:39 PM