By Julie Scharper, The Baltimore Sun
5:58 PM EDT, July 23, 2011
Penn Wilbert and his wife, Amanda Ferchak, have lived in Southeast Baltimore for six years — riding bikes to the grocery store, playing kickball at Patterson Park and meeting friends for drinks at bars inCanton.
But last month, when the young couple purchased their first home, they chose a house in Anne Arundel County. The reason, according to Wilbert, an information technology specialist, was lower crime, better schools and — most importantly, he said — lower property taxes.
"I'm part of the thirtysomething generation that wanted to live in the city," said Wilbert, 31. "But every single place we looked at that was in our price range, the property taxes were $5,000 to $6,000."
The couple found a spacious home in Arnold with an annual tax bill of $3,200 — as well as a garage, a yard and a good elementary school nearby.
Baltimore's property tax rate — more than twice as high as those in surrounding counties — has emerged as a key issue in the mayoral election.
Mayor Stephanie Rawlings-Blake rolled out a plan last week that she said would reduce property taxes on owner-occupied homes by 9 percent over nine years.
Her opponents — state Sen. Catherine Pugh, former city planning director Otis Rolley and Realtor Joseph T. "Jody" Landers — have promised for weeks that they would cut the rate by one-third to one-half, which they say would spark growth in the city.
Rawlings-Blake dismisses her opponents' plans as unrealistic. But some economists say that Landers' and Rolley's proposals, modeled after the District of Columbia's property tax program, in which vacant and blighted homes are taxed at a much higher rate, could work if new residents could be persuaded to move to Baltimore.
Economists question whether Rawlings-Blake's proposal, which calls for a change in state law and projects reductions spread over two mayoral terms, would cut property tax bills enough to reverse decades of population decline in the city.
City life has grown more expensive in recent years. Faced with two gaping budget shortfalls in her first 18 months in office, Rawlings-Blake has raised more than 60 taxes and fees — including the income tax, cellphone taxes, parking meter fees, parking fines and environmental control board hearing fees.
Water and sewer rates have risen by 9 percent in each of the past two years, and similar increases are planned over the next three.
Rawlings-Blake increased the city's operating budget by 1 percent this year, to $1.3 billion. City spending has gone up even as the population has declined. Baltimore has lost about half a million residents in the past 50 years; about 30,000 left in the past decade.
Rawlings-Blake's property tax proposal relies heavily on projected revenue from a long-delayed slots casino in Baltimore, money that by law can be used only to reduce property taxes or improve schools.
On the day last week that Rawlings-Blake unveiled her property tax proposal, the state slots commission pushed back by two months the deadline for potential casino operators to bid on the Baltimore slots license.
Rawlings-Blake said she is "confident that the Baltimore slots site will be successful." She described her plan to cut property taxes as "real, achievable and fiscally responsible." She said her plan is "the beginning, not the end" and would pave the way for future growth.
She would cut 20 cents from the city's property tax rate — now $2.268 per $100 of assessed value — by 2020. The owner of a home assessed at $200,000 would save $40 in 2013 under her plan and $400 in 2020.
"As long as I'm mayor, I'll make sure that this plan is carried forward," Rawlings-Blake said.
In 2005, then-Mayor Martin O'Malley signed a measure that reduced the property tax rate by 2 cents for five years. O'Malley's successor, Sheila Dixon, continued the 2-cent cut in her first year as mayor, but halted it amid the recession.
Economist Anirban Basu said Rawlings-Blake's promised cuts could lure new residents to the city.
"The mayor's approach, though unspectacular, would put the city on the right trajectory and is fiscally responsible," he said. "Nine percent is not enough, but at least the mayor, if she is elected, is moving the needle in the right direction."
Basu, head of the Sage Policy Group, said Baltimore finds itself in a Catch-22.
"What the city needs more than anything else is more taxpayers," he said. "But … more taxpayers won't come unless the tax rate is cut significantly, and the tax rate can't be cut significantly without more taxpayers."
Perhaps no candidate has studied the property tax issue more closely than Landers, who served as vice president of the Greater Baltimore Board of Realtors until last month and chaired a blue-ribbon commission in 2007 that focused on lowering property taxes.
The commission, appointed by Dixon, considered alternative sources of revenue for the city. Rawlings-Blake implemented many of them last year when she crafted a $50 million package of taxes and fees to help plug a $121 million gap between projected revenue and spending in the city's $1.2 billion budget.
While Pugh and Rolley promise to cut the residential property tax rate in half, Landers says he would cut it by one-third within three years. Landers would also create a tiered tax structure in which commercial properties would be taxed at a slightly higher rate than residential properties. Vacant and blighted properties would be taxed at a much higher rate — $5 and $10 per $100 of assessed value, respectively.
Under the current system, Landers said, "If you don't maintain your property, your assessment goes down. If you improve your property, your assessment goes up. I think we need to reverse that. We need to create an incentive for people to invest and fix up their properties or divest themselves of them."
The 2010 Census counted 47,000 vacant housing units in Baltimore. City officials estimate that there are about 30,000 vacant properties; they say the Census figures included temporarily vacant apartments or homes on the market.
David Brunori, a professor of public policy at George Washington University and a property tax expert, said taxing vacant properties at a higher rate is "good economics" and is supported by research and by leading economists. But he cautioned that owners of vacant properties often have political power and predicted that they would fight the proposal.
Basu also supported taxing vacant properties at a higher rate, saying it would abolish the "perverse incentive" against fixing them.
Landers says he would create a land bank to speed the sale of vacant properties. Dixon supported a land bank, which would have created an independent authority to sell vacant properties, but Rawlings-Blake decided that the housing department should continue to handle the sales of vacant properties. She streamlined the process last year through a program she calls Vacants to Value.
Rolley said last week that he embraced the District of Columbia model of charging significantly higher rates for vacant and blighted properties. Maryland's General Assembly would have to approve the tiered tax structure, just as it would need to approve Rawlings-Blake's plan to tax owner-occupied homes at a lower rate than other properties.
Rolley said he would use the revenue from higher taxes on vacant properties to gradually cut the residential property tax rate in half over 10 years.
He said he also would reduce some of the city's "overly burdensome" taxes — he named tariffs on cellphones, land lines and hotel rooms — and would seek to repeal the "stupid" 2-cent tax on bottled beverages that Rawlings-Blake implemented last year.
Rolley criticized Rawlings-Blake's plan to allocate 90 percent of the slots proceeds for property tax reduction. He said he would use the money to rehabilitate schools, which he believes would attract and retain families with children.
In 2007, when voters approved slots in Maryland, the ballot question did not mention property taxes but focused on education. The revenue would be used for "the primary purpose of raising revenue for education of children in public schools, prekindergarten through grade 12, public school construction and improvements," the ballot said.
However, the city is permitted under state law to use its portion of slots revenue to reduce the property tax rate.
Rolley characterized taxes as "a key issue, but not the primary problem."
"I do not believe that reducing taxes, in and of itself, will grow the city, that people will kick down our doors because we have lower taxes," he said. "We need to create more economic opportunities, reduce crime, improve schools, and put ourselves on a path to start to reduce taxes in a reasonable and responsible way."
Pugh has appointed a committee, co-chaired by former car dealership owner Scott Donahoo, to come up with a plan to reduce property taxes. She said she plans to cut the rate in half over four years, but did not provide details last week.
Pugh said she would create programs to help low- and moderate-income residents buy homes and to rehabilitate 3,000 vacant homes each year.
Landers, Pugh and Rolley all were critical of the tax incentives that the city provides to big development projects.
The quasi-public Baltimore Development Corp. recently issued a report showing that the city provided incentives totaling $14.5 million to 13 development projects. The city has issued $332 million in bonds for tax-increment financing deals to seven projects, which provide developers with capital to make infrastructure improvements. Property tax payments from these projects are used to pay back the bonds.
"Every single new development that comes into the city holds out for a tax abatement," which indicates that the tax system is fundamentally flawed, Landers said.
Pugh said she wants to provide more incentives to residents and small businesses, and fewer to big developers.
Steven J.K. Walters, a Loyola University economist, said that doling out tax breaks for big development projects cements politicians' power.
"If you're wealthy, if you're politically connected, these are the people they're giving tax breaks to," he said. "They're just not willing to give out those tax breaks to everyone. John and Mary Q. Public looking to renovate a townhouse, they just don't have a seat at the table."
Rawlings-Blake noted that her vacant properties program includes many homebuyer incentives, including a new $5,000 forgivable loan for city employees.
Walters, a visiting fellow with the Maryland Public Policy Institute, co-wrote a report urging city leaders to sharply reduce property taxes to increase the city's population. He believes that cutting the tax rate would quickly cause property values to increase. He says the city should cut its budget aggressively to compensate for the lost property tax revenue — and that it eventually would see tax revenues soar as new residents arrive.
Walters described Rawlings-Blake's planned cuts as "trivially small" and a "vague promise" that would do little to draw new residents. He also criticized Landers' and Rolley's plans for taxing vacant properties at a higher rate.
"They're vacant because they're worthless, not because someone is waiting on them like a pot of gold," Walters said. Ultimately, he said, the city would wind up owning many of the vacants — which it is ill-equipped to sell.
Brunori noted that most cities have substantially higher property tax rates than their suburbs because city residents usually are willing to pay more for easy access to urban amenities.
"Taxes matter, but you can't look at taxes in a vacuum," Brunori said. "What would bring people into Baltimore is lower crime, better schools, better roads and better services in general."
Disappointment with the city's services played a large part in the decision by Wilbert and his wife to move to Arnold, in Anne Arundel County. During their years in Canton and Fells Point, they witnessed a shootout in front of their home, their cars were broken into several times, and they stopped leaving the neighborhood in the evening because it took an hour to find a parking spot at night.
"When cars would get broken into, the residents had to clean up the glass in the street because the city would leave it there for weeks," he said. "It really makes you wonder where the money for city services is going."
Matthew Hackner, a 36-year-old defense contractor, agrees. After four years of city living, Hackner and his wife are selling their home in Canton and buying one just over the county line inMount Washington.
The couple will pay about $7,400 in annual property taxes on their new home. Similar houses a few blocks away in the city have tax bills in excess of $12,000, he said.
"It becomes a matter of simple economics," Hackner said. "I like cities. I like being able to walk around, the vibrancy, the entertainment. But the services the county is providing are better and more affordable."
Hackner said the birth of his daughter two and a half years ago made him realize he needed to move his family out of the city.
"If I have the means to escape, I'm going to do it because I have a responsibility to my family," he said. "But the sad thing is, a lot of people don't have that luxury."
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