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Report: Baltimore needs influx of residents to pay for property tax cut

Baltimore would need to attract more than half a million new residents in order to make up for the money it would lose by cutting property tax rates in half over the next four years, according to a report from the city's Finance Department.

The city's property tax rate, which is more than twice that of the surrounding counties, is emerging as a key issue in the Democratic primary race for mayor. Mayor Stephanie Rawlings-Blake backs a gradual decline in the rate, while many of her challengers say a dramatic cut is necessary to stem decades of population loss in the city.

"It is unreasonable to think that the city can get out of the financial situation in just a few years through the use of unproven tax policy," the report says.

"A property tax rate equivalent to the surrounding counties is not necessary to make the city economically attractive to new residents," it adds, because of the proximity to offices and cultural attractions.

But Stephen Walters, an economics professor at Loyola University Maryland, called the report "ridiculous" and "really bad economics."

Walters, who with other economists wrote a report on how to lower the city's tax rate, said the Finance Department failed to account for the other economic benefits that an influx of new residents would bring, such as more jobs, new businesses and an incentive to rehabilitate vacant properties. Walters also pointed out that many governmental costs are fixed and that adding new residents would not require a corresponding increase in bureaucracy.

The 17-page report, written by William Voorhees, the city's director of revenue and tax analysis and a former public finance professor, is a response by Rawlings-Blake's staff to a proposal from Councilman Carl Stokes, one of Rawlings-Blake's challengers in the Democratic primary.

The city's Finance Department released the report in response to his proposal to slash the rate to $1.10 over a four-year period beginning next summer. Stokes introduced a bill this spring that would temporarily raise the limits on tax increases for primary residences to mitigate the cut in the rate.

Fellow candidates Otis Rolley III, the former city planning director; state Sen. Catherine E. Pugh; and Greater Board of Realtors vice president Joseph T. "Jody" Landers are also advocating significant cuts to the city's property tax rate, $2.268 per $100 of assessed value.

Rawlings-Blake plans to announce a plan this summer to cut taxes for owner-occupied homes, which spokesman Ryan O'Doherty said would "responsibly" reduce spending and use revenue from a planned slots casino.

According to the report, the proposed property tax cuts would result in a $138 million deficit in the fiscal year that begins in July 2013. That deficit would swell to $532 million by 2016. In contrast, raising the Homestead Tax Credit cap would bring in between $1 million and $7 million a year.

To compensate for the lost revenue, the city would need to attract 218,000 new households, or 527,000 new residents, the report says. The city's population is 621,000, down from a peak of 950,000 in 1950.

Stokes said the report was based on inaccurate assumptions about his plan. "It's crazy to say we have to increase the population by 500,000 to make this work," he said.

Stokes disputed the Finance Department's estimations on the amount of revenue new families would generate and the amount they would consume in city services. And he said the influx of new residents would spark home construction, create jobs and lead to businesses opening or expanding in the city.

"It's not just about how many people buy a home and move into it; it's about the creation of an economic engine," he said.

Stokes said he will release a detailed version of his plan before a June 28 committee hearing on his bill.

Landers, who headed a task force formed in 2007 by former Mayor Sheila Dixon to reduce property taxes, wants to charge different rates on four categories of properties — residential, commercial, vacant and blighted.

Landers says he has been receiving an enthusiastic response to the idea while campaigning in neighborhoods.

"People are particularly interested in learning about alternatives to the current property tax structure," he said. "Universally, everyone responds well to the idea of a tiered property tax system."

At a news conference Friday, Pugh vowed to cut the city's tax rate in half over four years, but did not detail specifics of her plan. She said she is forming a task force headed by Scott Donahoo, the former owner of a chain of car dealerships, and media entrepreneur Dorothy Brunson to examine the issue.

Rolley said he will release his plan to reduce property taxes in early July, when residents receive their city tax bills.

His plan calls for a reduction to a $1.15 tax rate over 10 years. Additional measures would be implemented to raise revenue in the first two years and property tax rates would decline steadily over the next eight, he said.

He said improving schools and cutting crime along with reducing property taxes would draw new residents. The Finance Department's report also notes the need to maintain services.

"Revitalizing the City requires a delicate balance of simultaneously improving education, lowering crime and reducing property tax rates," it says. "While dramatically cutting the tax rate will improve the economics of living in the City, the lower revenues would do irreparable harm to education and crime reduction, both of which are key components of making Baltimore City an attractive place to reside."

Walters, the professor, also criticized Rawlings-Blake's reliance on slots revenue to reduce property taxes, noting that the casino was long delayed and there were no guarantees it would be profitable.

"We need to stop pretending that if we do nothing, things are going to get better," he said. "Can the city afford not to do anything about the property tax rate?"

julie.scharper@baltsun.com

twitter.com/juliemore

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