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January 10, 2012

Stokes tries again on property taxes, the Tremont tries again with apartments

City Councilman Carl Stokes' proposal last year to cut the city's property-tax rate in half didn't get anywhere, but he's trying again now. And he said he'll likely launch a signature drive to get the measure on the ballot in November if the rest of the City Council remains opposed to the idea.

Scott Calvert has more in this story, the crux of which is that Stokes wants a charter amendment voted up or down by city residents -- whether the council puts it on the ballot or citizens do. He said he would need 10,000 signatures by May 31 if he goes the petition route.

Like last year, Stokes is pairing the plan to reduce the city's rate from 2.268 percent to 1.1 percent with a proposal to temporarily raise the cap on homeowners' annual increases in property assessments.

The Homestead Property Tax Credit now limits increases on city homeowners to 4 percent a year. Stokes would increase that ceiling to 6 percent, then 8 percent and finally the state maximum of 10 percent, holding it there for five years before dropping it back down to 4 percent. (More on that in a bit.)

Also like last year, Mayor Stephanie Rawlings-Blake's administration is saying this change would not be a good idea. The major sticking point is whether a dramatic drop in the city's rate would bring in enough new residents and businesses to avoid cataclysmic cuts to services. You could see why this possibility might keep officials up at night. (The city's finance department said last year that Baltimore would need more than 500,000 new residents to make up for the revenue loss of a 1.1 percent rate, though some lower-rate proponents contended that this overstated things.)

And in the same category of everything old is new again, the owners of the Tremont Plaza Hotel in Baltimore are planning to bring it mostly full circle. William C. Smith + Co. converted the building from apartments to a hotel in the early 1980s and is now proposing to use it as apartments and long-term-stay suites.

It hasn't been a great few years for hotels, but it's a fabulous time to be an apartment-building owner. The city's "Class A" apartments -- newer, nicer complexes that are largely in and near downtown -- saw rent increases of more than 8 percent last year as vacancies continued to drop, according to real estate research firm Delta Associates.

"Concessions, or 'specials,' … are very low as well," said Grant Montgomery, a vice president at Delta Associates. "They’re down to 2.1 percent of your monthly rent. So [because] 8.3 percent would be the equivalent of a month off on a year lease, that’s a week off, a free week, or the equivalent thereof on a year-long lease. I think that speaks to the strength of the market too and how tight it is.”

It's harder to track the rest of the rental universe, particularly the individual homes with tenants. But in general the rental market appears to be much stronger for owners than the for-sale market.

OK, back to property taxes: Stokes is firmly in the camp that believes a substantial cut in the rate would ultimately expand the city's tax base, but his proposal to temporarily raise the homestead cap is intended to help the city bridge the gap between "build it" and "they will come."

When he first proposed this last year, I noted that anyone not getting a break (or much of one) from the homestead program -- newer residents and landlords -- would make out the best. People with significant homestead credits would also see reductions, just not as substantial. I calculated that a hypothetical homeowner paying on just $100,000 of her $200,000 assessment, thanks to the homestead credit, would under Stokes' plan have a bill 7 percent lower in 2020 than it is now but a lot less than it would otherwise be under the current system.

I wondered how someone with a really huge credit would do. And Stokes, as it happens, is one of those people -- his homestead credit covers 84 percent of his bill this tax year. So I did the math on his taxes, and yes: He too would fare better under his plan, despite the raised homestead cap, than if things continued on as is.

If the property tax rate drops by at least 15 cents annually before notching to $1.10 per $100 of assessed value by Year Four, the minimum drops specified, Stokes' bill would be lower in each of those years than under the current setup. His first-year drop would be 5 percent, then 8 percent, then 10 percent and -- as the full rate cut kicked in -- 43 percent.

The reductions would moderate for the next few years with the homestead cap at 10 percent, so his 2020 bill would be 32 percent less than he'd pay under the current system.

So Stokes' plan wouldn't appear to raise taxes on long-term owners, despite the temporarily higher homestead cap. The big question is whether it would work out revenue-wise for the city.

Posted by Jamie Smith Hopkins at 6:00 AM | | Comments (2)
Categories: Property taxes, Renting
        

Comments

It's important to remember that once tax rates are cut, property values will go up significantly, somewhat offsetting the cost of the tax break. There are also other ways to raise offsetting revenue, such as high taxes on vacant properties. And it will be probably be necessary to trim some of the fat in the city government. But other cities have shown that it can be done, and the long-term gains are well worth it. Baltimore would be in much better shape today if this had been done decades ago.

Baltimore's high taxes are the domino that needs to fall for this city to turn around. In other cities, when they've moved to a competitive property tax code, middle class people have moved into the city, the local economy has picked up, and the crime rate has fallen sharply. Baltimore could use some of that.

If property values popped up we could do something really valuable. Leave.

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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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