Maryland has two major programs designed to help prevent people from being forced out of their homes because of rising property taxes, and through extensive analysis of state records, The Sun's Jamie Smith Hopkins and Scott Calvert have documented problems with both of them. The pair reported last year that the Homestead Property Tax Credit, which limits the annual increases in homeowners' property tax bills, was fueling massive inequities in how much people were paying and was in some cases providing tens of thousands of dollars in subsidies for wealthy people who didn't need the help. On Sunday, they tackled the Homeowners' Property Tax Credit, which is supposed to provide relief on a sliding scale for homeowners with incomes below $60,000 and limited other assets. The problem with that program is twofold: Many longtime homeowners who are struggling don't know about it, while at the same time, others are using the credit to help them buy homes they might not otherwise be able to afford.
The unintended consequences of the homestead credit are costly to local governments, which forego millions of dollars in taxes as a result. And particularly in Baltimore, with its highest-in-the-state tax rate, they provide a disincentive for young families to move to and remain in the city. But the problems of that program are also difficult to unravel without changing its fundamental nature. That's not true of the homeowners' credit. All that needs to be done is to return the program to its original intent.
When the homeowners' credit was approved in 1975, it was limited to those over age 60, a clear sign that the purpose was to look out for retirees on fixed incomes who were put at risk of losing their houses because of rising property tax bills. The age limit was eventually dropped, but that didn't provide as significant a shift in the philosophical underpinnings of the program as a 2000 bill pushed by the Greater Baltimore Board of Realtors. It allowed people to apply for the credit before they even settled on their homes. At that point it became not just a circuit breaker for existing homeowners but also an incentive for new buyers.
Mr. Calvert and Ms. Smith Hopkins discovered that more than 700 of the 10,000 recipients of the credit in Baltimore City have bought their homes since 2007. In some instances, those homeowners no doubt purchased their homes with every intention of paying full freight on the property tax but became eligible for the homeowners' credit after the loss of a job or other misfortune. But the two reporters also documented cases in which applying for the credit was a key component of the strategy for purchasing a house, and in which it enabled buyers to afford a more expensive property.
The 2000 legislation passed the General Assembly unanimously, and fiscal analysts at the time expected it would have only a marginal impact on the cost of the overall program — adding just $150,000 statewide. The data Ms. Smith Hopkins and Mr. Calvert analyzed, which only includes property in Baltimore, suggests that might have been a significant underestimate. The credits for homes purchased in the last five years in Baltimore alone are costing the state $1.3 million this year, and those houses account for a disproportionate share of the overall program — their credits average more than $1,800, compared to less than $1,300 for homes purchased earlier. It's impossible to say for certain what share of those homeowners took advantage of the law allowing them to apply for the credit before settlement, but when extrapolated to the entire state, it seems likely that the provision is costing more than legislators bargained for.
Maryland is facing a budget gap of more than $1 billion that lawmakers need to resolve before they adjourn in April. As worthwhile as it might be in flush economic times to help lower income Marylanders to buy homes, legislators need to question whether that is something the state can now afford to do. Del. Brian McHale has it right when he suggests that the state should consider limiting the program to those who have owned their homes for a minimum amount of time. Given the lingering effects of the recession, there are plenty of people who qualify under the original intent of the program. The state should be focusing its limited resources on making sure as many of them get help as possible, not on helping people to buy more expensive homes than they otherwise could afford.