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City says it can't collect $1.5 million in erroneous tax breaks

RentalsCredit and DebtCarl Stokes

Baltimore can't legally recoup more than $1.5 million in erroneous tax breaks given in recent years for renovations to historic commercial properties, finance director Harry E. Black said Wednesday.

"Although those errors were identified, the city doesn't have the ability, legally, to go back and rebill those individuals," Black said. "They've already paid what they were billed."

Black's comments represent a departure from past efforts to collect undeserved tax credits. Officials had maintained they could issue revised tax bills going back seven years if they learned that a property tax bill was inaccurate — including for other tax credits that go primarily to homeowners.

The underbilled commercial properties include a hotel and apartment building that a Baltimore Sun investigation found last year had received excessive benefits from a program that encourages the rehabilitation of old structures.

City Councilman Carl Stokes, who chairs the taxation committee, expressed surprise and dismay at the revelation that the city wouldn't be able to collect.

"I'm disappointed, and I don't understand it because in other instances we have gone after homeowners to pay the property tax," he said, adding that the city has told homeowners: "You owe us a lot more, and you owe it now."

More than a year ago, the state Department of Assessments and Taxation acknowledged making chronic miscalculations on historic credits for several big commercial properties in Baltimore. The errors, which city finance officials failed to catch as far back as 2004, resulted in unduly low bills, costing the city more than $1.5 million in potential taxes.

Black said city lawyers had determined that the revenue could not be recovered but did not provide the legal analysis Wednesday.

City officials also did not respond to questions about how the decision might affect cases in which the city collected back taxes after becoming aware of errors involving a tax break on a person's primary residence.

In 2011, for example, city officials asked the state to strip more than $1.3 million in such homestead credits they said were improperly granted to 2,157 homes. And 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.

Some of those homestead recipients complained about vaguely worded tax bills and said they struggled to repay.

In 2011 Eugene Schoene had to max out a credit card, drain a checking account and borrow money from a relative to repay the city $22,000 in back taxes after homestead credits were removed from his three rental homes in Northeast Baltimore. He says he never knew he was getting an improper tax break.

On Wednesday, Schoene said it doesn't seem fair for the city to let historic credit recipients keep their undeserved discounts, given that he had to repay his. But he sees no point in getting upset at the city: "It's over and it's done and we survived."

Last year, finance officials billed five city homeowners for two years' worth of erroneous historic tax credits — the same type of break at issue now. In those cases, the mistakes did not stem from miscalculations. Rather, the owners never asked for the credit but instead received them due to an error by state assessments officials.

The historic credit errors that have cost the city more than $1.5 million were uncovered by a Baltimore Sun analysis in spring of 2012 and confirmed by the state assessments agency. In some cases, historic rehab credits were not reduced over time as required; in others, the wrong values were used. In some cases both errors were made.

Two downtown apartment buildings, the Atrium and the Munsey, were underbilled by more than $500,000 each, The Sun found, and several other commercial properties got windfalls as high as six figures.

The Sun's analysis was limited to the top 10 recipients of the historic credit, a 10-year discount based on the value of improvements. As of last year, nearly 1,200 properties received a tax break of some amount because of a historic rehab.

As early as 1999, the city complained to the state assessments agency, or SDAT, that it was not properly computing historic credits. Two years later, the city realized errors were continuing, according to a 2001 memo that was copied to Henry Raymond, then an official in the city Finance Department and now its deputy chief.

Last fall, months after being informed by the state of its mistakes, Raymond told The Sun that the city wasn't ready to act on the historic credit errors.

"We are in our continuous audit process," he said, "and will not take any action until all accounts can be reviewed and we can approach these errors with a standardized procedure and communication."

In 2011 Raymond expressed no sympathy for homeowners struggling to repay unwarranted homestead credits. "We're not getting into the 15,000 excuses a person might have," he said then. "If you're not entitled to it, we're seeking recovery. End of discussion."

lbroadwater@baltsun.com

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Copyright © 2014, The Baltimore Sun
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