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Baltimore analysis finds proposed exemptions would cost affordable housing trust fund $1.15 million

Just two weeks ago, housing activists joined Mayor Catherine E. Pugh at City Hall to celebrate a hard-won agreement that she called “historic” — an eventual $20 million annual commitment to affordable housing, funded in part by new excise taxes on real estate transactions of more than $1 million.

But those activists said this week that last-minute proposals to exempt some of those big-ticket transactions from the new taxes threatened to diminish the size of that commitment — although it was unclear by how much. A City Council committee passed the exemptions Sept. 27, a day after Pugh’s event, and the full council will vote on them Monday.

Some activists say they were blindsided by the exemptions, presented in amendments to a bill authorizing the new excise taxes, and angry that they were passed before the city provided an analysis of their effect.

“It was a surprise, and a punch in the gut,” said Peter Sabonis, an economist and lawyer who is part of the Baltimore Housing Roundtable, one of the groups that have been trying to get the affordable housing trust off the ground.

On Friday, the city completed its estimate of the impact and told activists it should be no more than $1.15 million.

Sabonis said he has no reason to doubt the estimate, and was heartened that it was much less than he expected after he made his own back-of-the-envelope calculations.

“We’re pleased they now have figures,” Sabonis said, “two weeks after the exemptions were adopted.”

The full council will consider two exemptions: one, for residential properties valued at over $1 million, for the next two years, and another that would exempt construction loans for projects that are currently in the pipeline and have a building permit by the effective date of the new taxes, which is Jan. 1.

The proposed exemptions are the latest hurdle in what has been a years-long effort to address the need for affordable housing in Baltimore.

Voters approved a ballot measure in 2016 to create an affordable housing trust, but it remained unfunded.

Activists called for $20 million in annual funds — as well as a similar amount for demolishing vacant houses — and Pugh voiced her support for that vision in 2017. When funding failed to materialize, activists launched a petition drive to get another measure onto the ballot in November of this year to require the city to devote a nickel of every $100 in assessed city property value to the trust. They said they had more than the necessary 10,000 signatures to get the question on the ballot.

With voters generally approving such ballot questions, city officials negotiated an alternate funding stream in exchange for the activists’ dropping their referendum effort.

In August, the city announced the new excise taxes: an extra 0.6 percent tax on the transfer of real estate valued at more than $1 million, and an extra 0.15 percent tax on recordation fees for transactions of more than $1 million. The city estimated those taxes would generate about $13 million a year for the trust, and Pugh committed to providing additional funds to bring the total to $20 million by fiscal 2023. City officials and activists signed off on the deal, which was celebrated at the Sept. 26 City Hall news conference with much applause and mutual thanks.

“I stand here today with the advocates from across the city to announce a historic commitment to the Affordable Housing Trust Fund,” Pugh said at the time. “My administration will allocate over a four-year period at least $20 million annually.”

The following day, the council’s taxation and finance committee voted to forward the measure with the amendments that would create exemptions to the taxes and end the funding measure after seven years.

City Councilwoman Sharon Middleton, the tax and finance chairwoman, said there was some confusion over the effect of the exemptions, but those could be ironed out later.

“That piece will have more discussion at the [Monday] meeting,” she said. “We didn’t want that to hold up the total bill. I didn’t want one amendment to hold up something so important to the city.”

Josh Greenfeld, vice president of government affairs for the Maryland Building Industry Association, said the group sought the exemption that would grandfather in development projects that already had received building permits.

“It’s a significant increase to the overall costs of these projects,” Greenfeld said.

Greenfeld said it’s important to protect developers who have projects in the pipeline and have secured financing on the basis of the current tax rate. Adding a new excise tax on top of that increases costs and jeopardizes that financing, he said. Already, even without the new excise taxes, Baltimore has the state’s highest transfer and recordation taxes, he said.

The builders’ group has not estimated the economic effect of the exemption, Greenfeld said, but he expected it would be “limited.” He said developers likely would not be able to rush the process to secure a building permit by the end of the year in an attempt to protect future loans from the new taxes.

“Filing a building permit comes after significant due diligence and engineering and can’t really be hurried in the next 2½ months,” he said.

Greenfeld said he did not know which projects underway in town might get an exemption should it pass. A spokesman for Port Covington, which recently announced the first major phase of development on the 260-acre waterfront site in South Baltimore, said it will not have a building permit issued by Jan. 1 that would qualify for such an exemption.

Housing activists were concerned that the exemption for construction loans on permitted projects as passed by the taxation and finance committee did not specify a time limit. Matt Hill, a lawyer with the Public Justice Center and member of the housing roundtable, said activists have proposed reducing the exemption period to six months.

Hill said activists also oppose the seven-year sunset clause the committee passed on a verbal amendment, saying it signals less than a long-term commitment to affordable housing.

“We’re just really concerned that it sends the wrong message — that the city is not on board,” Hill said.

City Councilman John Bullock, who introduced the funding bill in April, said he “feels good about it” despite the revisions.

“We’ve been looking at the analysis,” he said, “and it doesn’t look like it will cripple the fund.”

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