By Scott Calvert, The Baltimore Sun
8:07 PM EDT, July 30, 2013
Up to 300 Baltimore homeowners are seeing a jump in property tax bills because the city says they have received excessive credits for historic renovations, according to a city councilman briefed on the issue.
The city has promised not to seek back taxes from homeowners who benefited from miscalculations made by the state. But city officials have made upward adjustments on tax bills starting with the fiscal year that began July 1 — prompting complaints of unfairness from homeowners in the 10-year program.
"I'm a little dumbfounded," said Joe Eckard, whose tax bill tripled on his rowhouse east of Patterson Park. Over the remaining years of the program, the higher taxes will cost him and his wife, Kaitlin, about $16,000. "The overall mentality of the city is, 'Sorry, you're going to have to pay for it.' As if everyone can come up with an extra couple thousand dollars."
The revelations about the historic tax credit are the most recent problem in the handful of programs that homeowners can use to ease the bite of Baltimore's property tax rate, which is the highest in Maryland.
Councilman James B. Kraft, who represents Canton, Fells Point and other parts of Southeast Baltimore where comprehensive housing rehabs are common, wants the city to honor the higher historic tax credit amounts for the full 10 years.
Kraft noted that many people bought homes based on assurances from state assessments officials showing what they would save on taxes, an approach that city officials now say was flawed. If anybody should pay the city going forward, Kraft said, it is the state, not the homeowners.
Referring to Mayor Stephanie Rawlings-Blake's population growth target, he said, "We cannot say we want 10,000 new families in 10 years if every time our people get screwed — regardless of who they get screwed by — we turn around and say we're going to make you pay. That's absurd."
He added, "This is not the citizens' fault."
City officials declined to comment on the issue Tuesday, but offered to provide details later in the week.
State officials, meanwhile, say some calculation errors identified by the city likely resulted from a poorly designed database program. Others reflect a different approach taken by the city since it assumed responsibility for the historic credit program last year.
State officials could make retroactive changes to help some affected homeowners, said Owen C. Charles, deputy director of the state Department of Assessments and Taxation.
Miscalculations involving the historic credit program recently made headlines when the city said it could not rebill several commercial property owners who were collectively undertaxed by more than $1.5 million going back to 2004 because of similar calculation errors by the state assessments agency.
An analysis by The Baltimore Sun last year revealed the erroneous calculations for the commercial properties, including a downtown hotel and apartments. But that analysis was limited to the 10 biggest recipients.
More recently, the city has reviewed all 1,200 or so historic credits, according to postcards mailed to homeowners.
Kraft said city officials told him last week that they detected problems with 250 to 300 of the credits — at least 20 percent of the total. In most cases, he said, qualified recipients were found to be receiving unduly large discounts because the state deemed too much of their home's value tax-exempt.
But Kraft said that in fewer than 50 cases, owners were receiving the break without even asking.
The Sun last year documented five such cases in which homeowners got a historic credit for two years without applying. Charles blamed a "coding error." One owner said she didn't realize she was getting the discount, partly because it is listed on tax bills as a "special credit." All five owners were told to repay the city.
When the Eckards bought their rowhouse on South Robinson Street in 2011, the 10-year historic credit was "the deciding factor," said Joe Eckard, a medical device salesman.
The couple had been planning to continue renting an apartment in Baltimore County. But they realized that, thanks to the historic credit, their monthly payments would be about the same if they bought the restored rowhouse. He felt confident after getting a worksheet from the state that put the tax break in writing.
The first two years, their tax bill was a relatively low $1,000. Then came this year's bill: $3,000. This is the third year of the credit, so they expect to pay $16,000 more than anticipated through 2021.
Canton real estate agent Andrew Lehr, who sold the Eckards their rowhouse, often works with developers to market rehabbed homes and says the historic credit is a major selling point. Under the program, the full value of approved home renovations goes untaxed by the city for 10 years.
Lehr said he routinely made a point of getting proper documentation from the state assessments agency so he could accurately market the projected savings. "Buyers bought based on that," he said.
In 2008 Stephanie and Greg Pezzo worked with Lehr to buy their home, an end unit on Linwood Avenue in Canton that a developer had transformed from an eyesore to a knockout. This year their tax bill jumped $1,000, to about $5,860.
"It's almost like we're getting punished for it because someone's calculation was wrong a while ago," said Stephanie Pezzo, who like her husband works for Marriott International in Bethesda.
An extra $1,000 is "not making or breaking us," she said, though with a 2-year-old son and a baby on the way they are increasingly watching their money.
"It definitely goes in the con column of living in the city," she said. "We want to stay in the city. At the same time, I feel like everywhere you turn, the city is making it harder and harder to stay."
The issue of repayment has stirred claims of unfairness from some city owners who were forced to pay back taxes because of problems with a different tax credit program — the homestead credit, which effectively caps annual tax increases regardless of how much a home's assessed value rises.
In recent years, the city has rebilled many homeowners after they were found to be improperly collecting homestead credits on a second home or a rental property. The homestead credit is available only to owner-occupants on their principal residence.
City Finance Director Harry E. Black said last week that the city lacked the legal ability to collect back taxes from owners in the case of the miscalculated historic credits. City Solicitor George Nilson sent an email Tuesday citing several court cases to justify that conclusion.
"For the city to chase after taxpayers a second time where the earlier tax bill was lower than it should have been because of some governmental mistake (here, of SDAT), rather than the fault of the taxpayer simply because it would be useful to have the additional funds, or because some in the press or the public think we should, would be utterly irresponsible," Nilson wrote.
He added, "The law here is settled in Maryland."
Collecting prior year homestead credits is different, he said, because it is rooted in "the failure of the taxpayer to honestly and accurately report or disclose facts about the property subject to taxation (e.g., people claiming two homestead tax credits who were clearly entitled only to one)."
According to Kraft, the miscalculations in the historic renovation credits stemmed from two practices.
He said the state effectively set the pre-renovation assessment too low — by using the price a developer paid, even if it was well below the assessed value at the time of the sale. The effect was to wall off more of the value from taxation when the credit kicked in.
The state also exempted from taxation the value of the renovations as well as any later market-driven appreciation, inflating the credit, Kraft said.
Charles, the state assessments official, acknowledged that such appreciation was improperly exempted. He blamed that on a design flaw in a database program that the city and state created in 2009. Because of the flaw, which wasn't caught until 2011, a home's current assessment — not just the value attributed to the rehab — was automatically used to calculate each year's historic credit
As for using the sale price rather than the assessment as a baseline for the credit, Charles said that was not an error. "It's simply a different way of calculating," he said, and it saved buyers from having to take the time to appeal their assessment.
Depending on the circumstances, Charles said, his agency could retroactively reduce assessments to sync up with purchase prices. That would keep homeowners from seeing a jump in their property tax bills, assuming that was the only issue.
"It would be on a case-by-case basis," he said, noting that he would need the city's approval for such changes.
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