Why Hogan should help Baltimore reduce its property tax burden

Let’s be honest, you could likely fill a book with Baltimore Sun op-eds written about the city’s property tax rate. It doesn’t take an economist to realize that a poor city charging twice the rate of their rich neighbor is shooting itself in the foot. In fact, at $2.248 per $100 of assessed property, we have the highest property tax rate in Maryland.

It’s no mystery why the rate has stayed high, year after year, mayor after mayor: It’s hard to justify cutting revenue in a city with so much need. How do you return $60 million to homeowners when our kids are forced to wear coats in their classrooms? And with the Baltimore County rate a full dollar lower, how much good would a 10-cent reduction really do for the city anyway? Economists may promise future returns from lowering the rate, but what about tomorrow’s bills?

Gov. Larry Hogan made his second-term agenda clear: nonpartisan redistricting, school accountability and tax cuts. He was immediately handed a win on the first when a panel of federal judges struck down Maryland’s congressional map; and the school heating crisis was bad enough that he may have some luck on the second. But broad tax cuts? With a Democratic supermajority in Annapolis? I wouldn’t hold my breath.

The governor should settle for something more achievable (but no less important) by helping the city equalize its property tax burden with the surrounding counties. Baltimore’s property tax revenue accounts for 32 percent of our $2.8 billion budget in 2018 — about $900 million. With that $2.248 rate, the city would need to make up roughly $450 million in revenue (depending on how existing credits are treated) to reach Baltimore County’s $1.10, though that figure could be much lower depending on how existing credits are treated. Rather than let one of the state’s poorest municipalities deal with that burden itself, the state should help the city adjust.

The program, call it tax adjustment assistance, would work like this. After one full assessment period, Maryland would provide Baltimore City with enough funds to lower the property tax rate to $1.10, replacing dollar-for-dollar the city’s projected lost revenue. A rapid drop of this size would have two effects: providing quick, substantial tax relief for nearly half of Baltimore citizens, and making the city more attractive for investors. Remember, Baltimore hasn’t had a Fortune 500 company headquartered here since 2012; a big, bold tax cut is the kind of policy move that gets their attention.

After the first year, the amount given by the state would steadily decline, eventually going away entirely. If all goes according to plan, Baltimore should be able to make up the revenue from a growing economy. If not, the alternative is simply the status quo: higher taxes and state aid.

The state should by no means write a blank check; the funds could be given as a long term loan. Alternately, Maryland could provide the money as a direct grant but with strings attached. For example, the state could require a thorough review of city spending in return for funds.

Rather than giving the city a handout, this temporary assistance would be used to make the city a more attractive place to live and work in the long run. Something to keep in mind: While 32 percent of the city’s current revenue comes from the property tax, nearly 14 percent comes from state and federal grants. Baltimore is already a fiscal burden for the state government, and school funding does not come cheaply. A thriving Baltimore could be a bigger economic engine for the state.

For Democrats this all may stink of trickle-down economics, and it may seem like a gamble. But even if you doubt the financial benefits of cutting taxes, equalizing our rate with the county is something worth doing. Going back to the days of legal segregation, the Baltimore county line (with the exception of the Reisterstown corridor and Woodlawn) has served as a more genteel barrier between rich and poor, black and white, investment and blight. The property tax difference is just one more reason people provide for making choices in house and location that perpetuate our metro area’s divide.City leaders have long recognized the need to lower property taxes. Mayors Martin O’Malley, Sheila Dixon and Stephanie Rawlings-Blake all promised to lower the rate. Mayor Catherine Pugh included an expanded homeowner’s property tax credit in Baltimore’s 2018 budget. Yet, for all the many exemptions and carve-outs created, none have managed to achieve a significant, across-the-board reduction.

Governor Hogan has received some heavy criticism in Baltimore for cancelling the city’s $2.9 billion Red Line project. Many residents feel that he has continued a long Annapolis tradition of neglecting Maryland’s largest city. If the governor believes tax cuts will boost Maryland’s economic growth, he should try to prove it in Baltimore, and prove his doubters wrong in the process.

Ted Walsh is a Research Associate at the Center for Public Policy and Private Enterprise at the University of Maryland School of Public Policy. His email is tedwalsh7@gmail.com.

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