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News Maryland Baltimore City

City to make lump-sum payments to property owners whose bills have soared after mistakes

Mayor Stephanie Rawlings-Blake said Monday that the city will make lump-sum payments to owners of historic properties whose tax bills in coming years will be higher than what government officials told them to expect.

The checks — which will cover portions of up to nine years of future tax bills — are intended to compensate property owners who were awarded excessive 10-year credits for renovation or restoration of historic buildings. The city intends to cover the mistakes with a single check now. Officials expect about $3 million to be distributed to an estimated 300 property owners.

"These are families who were told their tax bills would be one thing, and now they're finding out they're expected to pay thousands more," Rawlings-Blake said. "During these tough economic times for families, this is particularly harsh and unfair."

Some officials applauded the move, though City Councilman Carl Stokes questioned the wisdom of covering future bills now.

"We should not do lump-sum payments," he said. "I definitely don't think we should be paying money for someone who may take the money and move."

Stokes said the city needs to correct chronic problems with many of its billing offices. "The best solution is to get our act together," he said. "Unfortunately, for three years, we've been saying to the council and the citizens that we're going to fix these billings and we haven't done it yet. We still get too many complaints from people."

The compensation plan, which the mayor calls the city's Tax Recompense Program, is the latest step by the city to make right chronic miscalculations in the state's historic property tax program.

The Baltimore Sun has detailed problems with the historic tax credit program, in which the full value of approved home renovations goes untaxed by the city for 10 years. In 2012, The Sun found the city did not collect more than $1.5 million in taxes because of historic tax credit errors on some apartment buildings and commercial properties.

And in July, about 315 city homeowners saw significant increases in their property tax bills after officials discovered that previous tax breaks were larger than they should have been. City and state officials have been trading blame over who bears responsibility for the errors.

Some had encouraged the mayor to just issue tax bills in the amounts people were promised, but that turned out to be against the law, officials said. Once the mistakes were found, the bills must be issued correctly.

But the compensation program is complicated because the money sent by the city must be treated as income — and therefore must be taxed.

"It doesn't make folks 100 percent whole, but I think it's as close as we can get," said City Councilman James B. Kraft, who advocated for the payments. "If people take the money and sit it on the side, and use it to supplement their payment, then they're going to be pretty close to 100 percent whole. If they take it and go out and buy a 52-inch television, then it's not going to solve their problems."

As part of the program — funding for which requires City Council approval — officials also plan to issue refunds to historic-property owners who can show they were overbilled during the past three years because of miscalculations.

Whether seeking a refund for past years or an offset for future tax bills, owners will need to apply for a check and provide state documentation to support their claim.

Rawlings-Blake said if the property owners lack the documentation, the city will file public information requests with the state Department of Assessments and Taxation, which until recently handled tax calculations for the city.

City Council President Bernard C. "Jack" Young is supportive of the plan, according to his spokesman, Lester Davis.

"It seems like a no-brainer," Davis said. "He has called for the city to hold people harmless."

In the current fiscal year, more than 1,250 taxpayers are receiving historic tax credits.

The payments from the city could be sizable for some affected property owners. The owners of a Little Italy condo, for example, could be in line for $40,000 — the amount they were banking on saving over the remaining three years of a 10-year credit. The credit was a key factor in the decision to buy the condo in late 2012, said co-owner Mark Struble.

Sharon Slevin, a realtor with Prudential Homesale YWGC Realty who has sold several houses that had a historic credit in place, called the mayor's plan a "reasonable compromise."

"It's unfortunate they have to pay taxes on a refund check from the city — that's an expense incurred through no fault of their own," she said. "But I applaud the city's attempt to make it right for people who bought their houses in good faith without any understanding this was going to happen to them."

Slevin said the city's initial decision to raise about 300 homeowners' property taxes without reimbursement, after revelations of errors surfaced, was "very bad PR" given that Rawlings-Blake wants to attract 10,000 new families to the city over a decade. The city's tax rate is twice as high as in surrounding counties.

"It didn't help for the city and state assessments office to be pointing fingers at each other," Slevin said, adding that it looks "like they don't really know what's happening."

Marie Blackburn, who bought her Federal Hill condo in 2008 because of the historic credit, had mixed feelings about the program announced Monday.

"On one hand, I'm happy they're doing something for us," she said. "On the other hand, I feel the best solution for property owners would have been to honor the documented historic tax credit."

Blackburn is among 36 condo owners in Baltimore who found themselves owing thousands more than anticipated on July's tax bills after the city removed their 10-year historic credits with little, if any, warning.

They are in a different situation from the 315 owners who have valid credits that the city concluded were too high in past years. The city says the three dozen condos should never have been granted discounts. In some cases the units were newly built, according to the city, and in other cases the building had previously received a historic credit and was not entitled to another round.

All told, the 36 erroneous credits have cost the city $2.6 million in potential taxes over eight years, officials calculate, money the city says it cannot legally recoup.

Blackburn has work sheets from the state assessments agency showing that the historic credit on her South Charles Street unit would last through the 2017-2018 tax year. Based on those assurances, she expected her tax bill to hover around $1,100 a year — not the $5,800 listed on last July's bill.

Under the plan outlined by Rawlings-Blake, Blackburn stands to get $4,700 for the current tax year, plus similar amounts for each of the next four years — an amount that could exceed $23,000.

While a lump-sum payment seems beneficial at first blush, Blackburn wants to explore whether there are any negative financial consequences. And she faulted errors and lax oversight by government officials for creating the problems in the first place. "We shouldn't have been faced with these challenges," she said. "They should have had their bookkeeping in order."

Rawlings-Blake has said the city is implementing an automated system to reduce mistakes in calculating tax credits — which officials acknowledged have cost the city $11 million in the past decade. However, officials said they have saved nearly $16 million through internal audits of tax credits.

She said she realizes the tax bills themselves will remain higher than expected under her program. But she said the plan is the best option available to her.

"We're doing the most that we can to the extent of the current law," Rawlings-Blake said. "Our goal is to the make this right for the residents of Baltimore."

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Copyright © 2014, The Baltimore Sun
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