MayorStephanie Rawlings-Blakehas taken a bold step forward to alleviate Baltimore City's painfully high residential property tax rate. In the face of very difficult economic and budgetary conditions, she has introduced the Targeted Homeowners' Tax Credit ordinance. It is designed to reduce the effective property tax rate for homeowners in the city by approximately 2 cents per $100 of assessed value in fiscal 2013, increasing annually to 20 cents by fiscal 2020.

Two cents may not sound like much on a tax rate of $2.26, but if such a plan had been put in place earlier, we could be in a very different situation today. More than 15 years ago, then-Mayor Kurt Schmoke said he would endeavor to annually reduce the property tax rate by 10 cents, which under the formula in use at that time equaled less than 2 percent of the tax rate in effect. This was never accomplished by him or his successors. Had that plan been implemented and adhered to, the city's tax rate would now be about 30 percent lower — approximately $1.60 instead of $2.26.

Some have suggested that the city immediately cut the property tax rate in half and hope that action stimulates population growth, with corresponding substantial increases in property tax values. The concept is that this would generate property tax revenues at least equivalent to those lost due to the rate cut, thus enabling the city to meet its financial requirements. While that idea sparks the imagination, it puts the city and its inhabitants at considerable risk of failure, with possible disastrous consequences.

In 2012, Baltimore finds itself with the highest real property tax rate in Maryland, more than double the $1.10 rate of next-door Baltimore County, which is the second highest in the state. The rates in all other counties in Maryland are less than half the city rate.

And it's not just taxes on buildings that our out of whack. The city tax rate on tangible personal property owned by businesses is $5.67, which is clearly not competitive with Baltimore County's $2.75 rate. This puts the city at a considerable disadvantage and leaves many questioning why residents and business owners should pay such disparate rates.

More than two decades ago, the Baltimore City Homeowners Coalition for Fair Property Taxes coined the slogan "One State, One Rate." As business owners in the city, we feel that is ultimately the correct answer.

Currently, the city's options are quite limited. The assessed value of all city real estate is approximately 40 percent of Baltimore County's and 20 percent of Montgomery County's. The income of city residents, upon which its local piggyback income tax is based, is only about 40 percent of Baltimore County's and 25 percent of Montgomery County's. The City's 3.2 percent local income tax rate is already the highest in the state. To make the situation more daunting, nearly 40 percent of the value of all Baltimore real estate is exempt from property tax as a result of ownership by federal, state and local government and nonprofit organizations.

The city's population continues to shrink, albeit at a greatly reduced pace from 15 years ago. Little additional assistance can be expected from the state, which is also in its own revenue crisis and has just pushed heavy financial burdens for teacher retirement benefits to the counties and Baltimore.

Under current and anticipated economic conditions, there certainly is no quick fix. The only way to solve the city's property tax problem is gradually and permanently. The mayor's approach may lack sizzle, but it is a significant step in the right direction.

Initially, the Targeted Homeowners' Tax Credit is available only for the improvements portion of the total assessment on principal residences. Ultimately, it is necessary to reduce the property tax rate on all real estate, commercial as well as residential, and on business personal property as well. Exorbitant city property tax rates provide too meaningful an incentive for businesses to locate or relocate in the surrounding counties, along with the jobs they provide and the demand for real estate they generate.

The city must drastically reduce its property tax rates to successfully compete with its neighbors. But not all at once. We should encourage our elected leaders to take innovative actions driven by the search for desired long-term outcomes, even though the first steps may seem to be small ones.

Tracy Gosson (tkgosson@comcast.net) is president and David B. Rudow is a board member of the Baltimore Efficiency and Economy Foundation Inc., a nonprofit dedicated to improving the efficiency and effectiveness of Baltimore City government and the city's quality of life. http://www.beefbaltimore.org.