A mayoral task force will propose cutting Baltimore's property tax rate by 11 percent in a report due to be released today, but the panel's plan also calls for raising the cap on annual assessment increases - a change that could cost many city homeowners thousands more a year.
The panel, created shortly after Mayor Sheila Dixon was inaugurated in January last year, will also recommend increasing the city income tax, raising the tax on hotel rooms, increasing fees and fining owners of vacant buildings in an effort to reduce the city's property tax rate of $2.268 per $100 of assessed value.
If all of the panel's short-term recommendations were adopted, the rate would be cut to $2.017 per $100, which would still be the highest in the state. Officials say the reduction could be made within two years.
Baltimore's property tax rate, which is twice as high as Baltimore County's, has stifled the city's ability to grow, officials have said, making it hard to attract new residents and businesses. They say that reducing the rate, even if it requires raising other taxes to pay for it, could make the city more competitive with surrounding counties.
"The question we have to ask is, are we willing to take a little foul-tasting medicine for a short while in order to cure the disease?" said Joseph T. "Jody" Landers III, executive vice president of the Greater Baltimore Board of Realtors and co-chairman of the task force.
"We cannot continue to do what we've been doing year over year for the last three decades, and that is just accept the high tax rate," he said.
But critics said such a change would hurt longtime city residents whose home values have appreciated rapidly in recent years.
"If you raise the Homestead Tax Credit, that doesn't help us," said Keith Losoya, a community liaison for the Baltimore TEA Party, a nonprofit whose acronym stands for Tax Education and Action. "You kind of get this feeling of a shell game. If the overall goal is to retain residents and get more residents here, this would have a negative impact."
The committee also considered a local sales tax, a commuter tax and revenue from potential full-scale casinos, which the report suggests would be more beneficial for the city's bottom line than the slots parlor that is currently under consideration. But all of those measures would require General Assembly approval.
A proposal to lift the annual cap on the increase in assessments on principal residences, known as the Homestead Tax Credit, from 4 percent to 10 percent is likely to be among the most controversial of the panel's ideas. It would cost taxpayers $24.2 million, the report says. That money, in turn, would be used to reduce the tax rate by about 4 percent.
Even with a reduced rate, that plan would force many residents to pay significantly more if their home values continued to climb as they have in the past several years. Under one scenario presented by the committee, the owner of a $300,000 home that increases in value by 25 percent every three years would pay thousands more in taxes.
But in the past three years, the average increase in value for city residents was 25 percent annually.
The homestead credit acts like a circuit breaker so that even if an assessment doubles in a given year the homeowner would pay property taxes on a value that is only 4 percent higher than the previous year's assessment. The credit does not apply to residences that are not owner-occupied or to commercial or industrial property.
Five counties use a 10 percent cap - the highest allowed by state law: Montgomery, Calvert, Allegany, Somerset and Wicomico. Five counties, in addition to Baltimore City, have caps at 4 percent or lower: Anne Arundel, Baltimore, Prince George's, Talbot and Worcester.
The report notes that if all of its proposals are put into effect, those other measures - such as raising the income tax and increasing fees - could lower the tax rate enough to offset the negative impact from increasing the homestead cap.
Dixon created the 26-member task force in February, months before the Sept. 11 primary election that she ultimately won. The committee, which held public meetings every other week, included many of the city's best-known financial and civic leaders, such as Atwood "Woody" Collins III, head of M&T; Bank Corp.'s Mid-Atlantic division; Robert C. Embry Jr., president of the Abell Foundation; and C. William Struever, chief executive of Struever Bros. Eccles & Rouse.
Its recommendations are not binding, and city officials said a public hearing will be scheduled for mid-January to discuss the report. A spokesman for Dixon said it would be inappropriate for the mayor or other high-level administration officials to comment before the public had a chance to weigh in.
"I don't think we're willing to dismiss any recommendation out of hand, but I also don't know if I would say the mayor's willing to commit to raising the cap," said the spokesman, Sterling Clifford. "This is the committee announcing that they're ready for public comment, not that they're done with their report."
The committee was not charged with reviewing city spending, a key factor in determining the property tax rate.
In addition to raising the cap, the committee also suggested increasing the local income tax rate from 3.05 percent to 3.20 percent. That would yield $12.1 million in new revenue that the report says could be used to offset the property tax rate by about 5 cents per $100 of assessed value.
If the city tax on hotel rooms was increased from 7.5 percent to 10 percent, the report states, it would raise $4.1 million in additional revenue for property tax reduction. The report also suggests imposing a new fee on owners of vacant property as well as reviewing all city fees to ensure they cover the cost of the service provided. As one option, the committee noted that a fee for trash collection could yield $14 million a year.
About $8.7 million the committee proposes for tax reduction will come to the city because the General Assembly tightened a corporate tax loophole last year that allowed limited liability corporations to sell buildings without paying the transfer tax.
Most of the recommendations in the report - including raising the assessment cap and the income tax - would require City Council approval, which could be a difficult sell. City Council President Stephanie C. Rawlings-Blake issued a statement praising the effort to reduce the property tax rate, saying it is necessary to help attract new people to the city.
But she said that "lifting the cap on the homestead [credit], while undoubtedly a short-term revenue builder, may also have the unintended consequence of accelerating the pace at which current residents are priced out of the city."
A task force created by Mayor Sheila Dixon will announce today a number of ideas to reduce the city's property tax rate, which is the highest in the state. Here are some of the short-term solutions being proposed and how much they would reduce the property tax rate per $100 of assessed value.
Increase the homestead credit cap from 4 percent to 10 percent How much it would cost: $24.2 million How much it would reduce the property tax rate: $.092
Raise the income tax from 3.05 percent to 3.2 percent How much it would cost: $12.1 million How much it would reduce the property tax rate: $.045
Increasing the hotel tax from 7.5 percent to 10 percent How much it would cost: $4.1 million How much it would reduce the property tax rate: $.016
New rate if all recommendations were approved: $2.017 [Source: Estimates from the report of Baltimore's Blue Ribbon Task Force on Taxes and Fees]