City moves to strip undeserved tax breaks from vacant properties

Baltimore officials moved Tuesday to take back undeserved tax breaks from owners of vacant properties who are profiting from a program intended for primary residences.

The effort followed a Baltimore Sun report that the owners of 465 empty homes — cited by the city as unsafe or uninhabitable — had their city property tax bills reduced by a total of $325,000, thanks to homestead property tax credits meant for owner-occupiers.

Challengers to Mayor Stephanie Rawlings-Blake in the Democratic primary next month were quick to pounce on what they described as a symptom of insufficient oversight.

But one of those candidates has a tax-credit problem of his own. Circuit Court Clerk Frank M. Conaway Sr. is receiving homestead breaks on two properties: a rental property as well as his home.

He said he was unaware he was getting credits on both properties and notified the state Tuesday, vowing to repay the break on the Northwest Baltimore rental.

The city Finance Department said Tuesday that it was sending a list of vacant properties to the state Department of Assessments and Taxation, which oversees the homestead credit program but relies on local jurisdictions to provide information about empty or rented properties.

Candidates for mayor said that should have happened long before.

"We don't have good checks and balances," said Otis Rolley, a mayoral candidate and former city planning director.

The homestead credit was intended to act as a cap to protect owner-occupiers from big spikes in their property taxes. In the city, the amount of assessed value on which a homeowner may be taxed cannot increase by more than 4 percent per year.

Even with the home price declines of recent years, the tax break has been valuable for many homeowners because the housing bust has not fully erased the gains of the past decade.

To ferret out landlords getting undeserved tax credits, city officials twice a year provide state assessors with a list of properties registered as rentals and ask that they be cross-checked against the homestead files. The city had not done the same with the list of homes it has identified as vacant.

City officials, who launched a "billing integrity program" last month to make sure no one gets an undeserved break, said they could not explain why the information had not been sent before.

Henry Raymond, deputy director of the city's Finance Department, said Tuesday that the state agency would have the list by the end of the afternoon.

Robert E. Young, director of the state Department of Assessments and Taxation, said his agency got a heads-up that the information was coming. Staff members are coordinating to get the analysis started, he said.

Rawlings-Blake said earlier this week that the city had found $2 million in potential new revenue through the billing-integrity effort.

But her challengers say not enough is being done. State Sen. Catherine E. Pugh said she hopes the billing-integrity effort works but called it "a little late."

"There's a lack of oversight," Pugh said. "The city needs to take every step it can to correct this problem so we don't see it again. It's costing the city money."

A spokesman for Rawlings-Blake declined to comment on the matter Tuesday.

"The mayor is focused on responding to the earthquake and has no comment on politics," spokesman Ryan O'Doherty said in an email.

Former City Councilman Joseph T. "Jody" Landers III, another mayoral challenger, called vacant homes with homestead credits "a symptom of the overall problem."

Landers said it underscored the need for city government to better manage the thousands of empty and dilapidated homes in Baltimore. He repeated his call for the city to create a land bank that would take sole responsibility for that oversight.

He says the city should follow in Washington's footsteps and tax vacant properties at a higher rate than occupied homes.

Landers said he suspects that the assessed value of some of the vacant properties with homestead credits is higher than the market value, meaning that owners could successfully appeal to have the assessed value reduced.

But if the owners are receiving a sizable tax break, he said, they have no incentive to do so. If they lose the break, he said, they would probably appeal the assessed value and lower their tax bills that way.

Conaway, contacted by a Sun reporter Tuesday about his two homestead credits, said he had no idea he was receiving breaks on both his home and his rental property.

Conaway has received $1,657 in city homestead credits over the most recent three tax years — as far back as records are available online — plus a small state homestead credit.

He said he tried to write a check Tuesday afternoon but could not figure out to whom he should send it. The city told him to call the state — which oversees the homestead tax credit program — and the state insisted he had to call the city, which handles the billing.

"I tried to pay it today, but they wouldn't let me," Conaway said. "Nobody wanted to take the money."

Young, of the state assessments department, said Conaway should send a letter to the agency explaining the problem. A corrected bill would be mailed to him by the city after the state records are updated, Young said.

Conaway sent his explanation in an email to the state agency's city office, copying the Sun article.

The rental property on Bareva Road in Northwest Baltimore was identified as Conaway's primary residence in mortgage papers that he signed in 2005. That is how it shows up in records kept by the state Department of Assessments and Taxation, which made it appear eligible for the tax break.

Conaway called that an error.

"Sometimes when they put papers in front of you at settlement, you go on and sign without scrutinizing as much as you should," he said.

Conaway said he sent in his rental registration application, which should have raised a red flag for the city, but the city's housing agency said Tuesday that it does not have one on file.

Conaway's daughter, City Councilwoman Belinda Conaway, ran into a homestead tax credit problem of her own this year when local blogger Adam Meister reported that she was collecting the homestead credit on a house in Baltimore County while representing a district in the city.

Conaway said her official residence is her father's house in the city. Conaway's attorney said his client inadvertently signed mortgage documents describing the Randallstown home as a primary residence and that she would pay back any credit that wasn't warranted.

A variety of Maryland officials have run afoul of the homestead credit rules over the years. The Baltimore Sun reported in 2008 that several state legislators in the Baltimore area received the credit for homes they weren't living in.

They said they did not intend to collect the credits and had done so unwittingly — the same thing that several owners of vacant homes told The Sun when contacted last week.

State assessors say mistakes do happen. For years, the credit was granted automatically to homeowners who said in land records that they would occupy the property. Now, new purchasers must apply for the credit, and longer-term homeowners have until the end of next year to follow suit.

Anirban Basu, head of the Baltimore economic consulting firm Sage Policy Group, said the city needs to ensure that vacant properties are not getting unwarranted tax breaks, because that is unfair to other owners.

But mostly, he said, the city must figure out how to speed up the effort to get boarded-up properties back into productive use.

"What we really need is a transfer of property away from negligent owners to responsible owners," Basu said.

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