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News Maryland Sun Investigates

Errors cut tax bill on tower owned by Angelos

Baltimore has underbilled a downtown office tower owned by Orioles majority owner Peter G. Angelos by $390,000 in property taxes since 2011, government officials say — the most recent example of mistakes emerging from the city's Finance Department.

Kevin Harris, a spokesman for Mayor Stephanie Rawlings-Blake, called the billing on One Charles Center an isolated error. But a sampling of tax records shows that the city has also undercharged the owners of two other commercial properties by more than $300,000 in the past four years because of similar errors.

The recent underbillings, which total more than $700,000, mirror previously reported problems in city tax collections. In recent years the city failed to collect more than $2 million because of errors in other tax programs, The Baltimore Sun has found.

City Councilman Carl Stokes says it might be time for the city to hire a private firm to manage municipal tax bills.

"It almost sounds as if whatever fee they'd charge us would be better for us to keep from screwing this up governmentally," said Stokes, chairman of the council's taxation committee.

The new mistakes involve a tax break called the Enterprise Zone Tax Credit. The city also has had chronic problems with a tax break meant to encourage historic renovations. And lax oversight by city and state officials let hundreds of homeowners wrongly claim more than one homestead credit, a tax discount limited to a primary residence.

City officials have said they cannot legally collect most of the taxes that were underbilled years ago. Some of the undercharges ultimately are borne by Baltimore taxpayers, and in the case of the recent property tax errors, by state taxpayers as well.

Last year and the year before, state officials concede, they miscalculated the credit for the office tower at Charles and Fayette streets, where Angelos' law firm is headquartered. City officials failed to catch the mistakes as they underbilled his real estate company by $80,000.

This year, frustrated by what it called the state's calculation errors on several tax break programs, the city took over the job of computing enterprise zone credits — as it had with some other programs. It then undercharged One Charles Center by about $311,000.

On Sept. 9, the day The Baltimore Sun first asked city officials about One Charles Center's bill, the city sent a revised bill for about $311,000 to fix this year's error, bringing the total tax on the building to $496,000. But city officials say they cannot legally collect on the earlier $80,000 mistake.

An Angelos representative said his management company was unaware of any tax bill problems until contacted by a reporter and wants to pay what it owes.

In addition, the city undercharged the owner of a retail parcel in Harbor East by about $126,000 going back to 2010, state officials say. And the city wrongly gave W.R. Grace & Co. a $208,000 tax break this year on its Curtis Bay facility, even though the company said Monday that it hasn't been eligible for years.

Harris and city finance officials did not respond to requests for more detailed comment about One Charles Center or about the Harbor East and Curtis Bay properties.

Asked earlier why the city hadn't taken steps to ensure that the state accurately calculated Baltimore's few hundred enterprise zone credits — which this year will cost the city more than $8 million in forgone taxes — Harris said such verification "fails all benefit to cost ratio tests."

That comment drew a rebuke from City Councilman William H. Cole IV, who represents downtown.

"I would beg to differ," he said. "When we start getting into the six figures, high five figures, until everything is fixed it certainly does make sense for there to be additional staff review."

City officials say the Finance Department is revamping the tax credit process and that will eliminate most errors. While Cole said the city is "well on the path" to upgrading its system, "we still have a long way to go."

"It does make you shake your head a little when you see these large-dollar items," Cole said, "because that's real money."

The state of Maryland reimburses local governments half the cost of the enterprise zone credits, which are designed to spur development in distressed areas. That means the state will spend more than $8 million this year for the roughly $17 million in credits in the city.

Similarly, when companies receive enterprise zone credits that are unduly large, the state's taxpayers end up paying more.

"It's a no-brainer that you can't afford to waste tax dollars like that," said Del. Keiffer J. Mitchell Jr., a Baltimore Democrat. "At least do an accurate calculation."

Mitchell worries that the errors will make it harder for Baltmore's state lawmakers to advocate for the city.

"You're going to have legislators in Annapolis who are going to see this and say, 'Why are we giving the city of Baltimore more [money] when they seem to be giving away the store and can't get it right?'" he said.

The mistakes might not be large in the context of a $2.4 billion city budget, he said, but they can have a real impact: "That's part of the budget of a rec center. It's a firehouse not having to close or rotate."

The enterprise zone credit reduces a company's local property taxes on the value added by new construction or improvements to an existing building. The break eliminates the tax on 80 percent of that added value for five years. Then the credit diminishes annually by 10 percentage points until reaching 30 percent in the final year.

A recent Sun article about the enterprise zone program reported that One Charles Center this year had one of the city's 10 largest credits — more than $450,000. But state and city officials later said that the city had wrongly computed the property's tax credit for bills that went out in July. The correct amount should have been $141,840, which would not have put the property in the top 10.

The city made two errors. First, it used the pre-renovation value of the wrong building — one miles away in the Holabird Industrial Park, according to Henry J. Raymond, the city's deputy finance director. That building's pre-rehab value was under $2 million, whereas One Charles Center was valued at $6 million before a major renovation that Angelos says cost more than $20 million.

The city's second error was to apply an 80 percent credit against the value of the improvements. Because the building is in the final credit year, the correct credit was 30 percent.

Angelos declined to comment. But Constantine Hadjis, chief financial official of Artemis Properties, which manages the building, said the revised bill of about $311,000 would be paid.

"I obviously don't think they've done it on purpose," Hadjis said of the error, adding that he was confident the city would fix any "flaws in the process."

Raymond has said the city recently assumed responsibility for computing several kinds of credits — enterprise zone, historic renovation and brownfields — because of concerns that the state Department of Assessments and Taxation had made too many calculation errors.

Owen C. Charles, deputy director of the state agency, acknowledged the errors made last year and the year before on One Charles Center. Both mistakes stemmed from applying the wrong percentage for the tax credit. Last year the credit was $40,000 too small; the previous year it was $120,000 too large — for a net loss to the city of $80,000, before factoring in the state's 50 percent reimbursement.

Charles blamed the state's mistakes partly on data entry error and said a switch to an electronic database a few years ago wasn't a cure-all because some information still had to be entered by hand.

A Sun analysis of One Charles Center's tax bills over the past decade turned up an additional four years in which the credit was wrong, meaning that seven of the past 10 years were incorrect.

Charles said one problem was that his staff lost track of when the credit began, throwing off the percentages in some years. Another problem, he said, was that the city did not reduce the credit after an appeal lowered the property's assessed value.

Errors went both for and against the city. All told, the city collected about $107,000 less on One Charles Center than it should have prior to this year, according to the analysis, which Charles confirmed.

The affected property in Harbor East is a retail parcel on President Street that includes the restaurant Talara.

Charles said the city failed to recalculate the tax credits for 2010 and 2011 after the owner got its assessed value reduced. And this year the city applied the wrong percentage — 70 percent instead of 60 percent.

Tim O'Donald, president of Harbor East Management, said one of his accountants noticed the 2011 error and emailed Charles about it in July 2011. Charles said he does not recall getting the email but said his agency did notify the city that it needed to reduce the tax break.

"We recognize it takes a while to get things straight," O'Donald said. "We're working with them to get it right, and we have all the confidence in the world that they will get it right."

In the case of W.R. Grace's facility in Curtis Bay, the company applied for the credit in 2007, and it was granted for the July 2010 tax bill, company spokesman Greg Euston said. But after the company succeeded in getting the assessed value lowered, it became ineligible for any break, Euston said.

After inquiries from The Baltimore Sun last week, the company confirmed with the city that this year's $208,000 credit was issued in error, Euston said, and the city recently removed the credit.

Harris, the mayor's spokesman, said the city is working to overhaul the tax credit process. It will involve the "centralization of granting city credits, automation of credit calculations, electronic capture of audit data, and automated tracking of credits throughout the life of the credit."

After the new system is in place, he wrote, "virtually all of the errors that have been identified will be eliminated."

scalvert@baltsun.com

twitter.com/scottmcalvert

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