As political scandals go, Mayor Bernard C. “Jack” Young’s failure to advise the Maryland Department of Assessments and Taxation that he no longer lives at least six months of the year in an East Baltimore rowhouse that his daughter now occupies rent-free might be the least scandalous matter involving city government at the moment. Yes, he should have known better. And yes, it was entirely appropriate for him to return the $1,095 at stake (even though he’s eligible for a nearly-identical credit that he has not been taking at his nearby condo because he failed to fill out the paperwork on that, too). Get it? There’s no windfall, and he’s suffered a bit of embarrassment. If the “Healthy Holly” scandal had been so modest, Catherine Pugh would still be mayor, and Mr. Young would still be council president.
But not so fast. What the Young tax double-bad did demonstrate is how the tax credit program involved, the Maryland Homestead Tax Credit, continues to be one of the more unwieldy and sometimes unfair property tax benefits ever trotted out in this state. At its heart, the 42-year-old Homestead is a great idea: It limits how much a homeowner’s property tax bill can go up annually. Let’s say a fast-rising real estate market has caused your home to rise 30% in value. Under Homestead (assuming it’s your residence and not an investment property), the assessed value of your property can’t go up more than 10% per year for state tax purposes and often less for local taxes. In Baltimore, for example, the cap is at 4% and thus a tax bill won’t rise more than the capped amount if rates remain steady. So when it’s working correctly, this is enormously helpful, particularly for individuals on fixed incomes such as retirees, who don’t have growing paychecks to cover growing tax bills. Over time, this can save a property owner tens of thousands of dollars. And, in some cases, prevent people from being taxed out of house and home.
That’s the ideal. The reality isn’t always like that. For one thing, landlords do sometimes end up with the benefit as primary homes are converted to rentals by owners and it goes undetected. This isn’t necessarily because the homeowners are scofflaws; they may simply be unfamiliar with how the credit works. Enforcement efforts, such as investigating when home addresses and driver’s license addresses and the like don’t match, are helpful but modest. Conversely, there may be some property owners who are eligible who don’t get the credit because they don’t know about it. If, for example. they have lived in their home more than a dozen years but failed to reapply for the credit beginning in 2007 (when the law was reformed to try to catch investment properties), they could fall into this category. And then there’s the strange business of how identical homes on the same street can have remarkably different tax bills. A house that’s turned over ownership frequently will have a higher assessment, one with a single owner will have a much lower one. The result? Jo Jones pays $8,000 annually in property taxes while Sue Smith pays $2,500 because she has never moved. And that’s perfectly legal. Yet, why is the state rewarding people so much for simply not changing homes?
None of these are new problems, of course. This newspaper has suffered no shortage of articles about elected officials and others who screwed up their Homestead situations in years past. Meanwhile, to the Department of Assessments and Taxation’s credit, there have been efforts to improve outreach (every home buyer gets an application) and make it easier to navigate the Homestead online. Still, the question must be asked: Is the Homestead working properly? Would the $20 billion tax credit be better used to reduce tax rates for everyone and not just slow assessment increases for some? Or, more fundamentally, are there other steps that could help further simplify the whole system so that there is less confusion about the credit, when to apply or when to end it?
That last question is probably the one most worth exploring. Frankly, it’s hard to believe that Homestead will ever be repealed as too many people derive too great a benefit (roughly $200 million per year in lower taxes) from it today. And ending the assessment cap in order to lower rates would disproportionately help the wealthy (owners of the most high-value properties) at the expense of the prototypical Homestead beneficiary, a low-income retiree. Maryland can surely afford to deal with mistakes in application of the tax credit from year to year, but if there are reasonable steps to reduce that number — and perhaps keep Mayor Young on the straight and narrow — they ought to be pursued.