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Baltimore’s unfair, oppressive tax system | COMMENTARY

The Sagamore Pendry Baltimore hotel in Fells Point.
The Sagamore Pendry Baltimore hotel in Fells Point. (Sagamore Development)

The Sagamore Pendry hotel on Thames Street is fabulous — as you’d expect, since it is appraised for tax purposes at almost $42 million. But last year its owners, who are certainly among Baltimore’s one-percenters, paid less than $142,000 in taxes on that property thanks to a generous “special credit” of over $848,000.

Meanwhile, on Pennsylvania Avenue in Sandtown-Winchester, an owner-occupied rowhome that is appraised at $65,100 paid property taxes (state and local) of $1,536.36.

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If you’re keeping score, the effective tax rate on the rowhome was 2.36%, which is seven times the 0.34% rate at the Sagamore Pendry.

This is immoral and outrageous. In a city that prides itself on its progressive culture and politics, it is also profoundly regressive. And though it would be nice to call this an isolated slip-up, like an errant water bill, it is common and intentional — and a key to understanding Baltimore’s failing economy and corrupt political culture.

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Even more inequitable examples abound. A $143 million hotel on Aliceanna Street and a $57 million property on South Exeter Street each paid a tax rate of 0.11% last year. By contrast, a $15,000 rowhouse on North Fulton Avenue and another appraised at $36,000 on Cherry Hill Road each paid a rate of 2.1%, over 19 times greater.

Those who excuse this scandalous system argue that without special credits or other breaks, there would be very little investment in Baltimore thanks to its noncompetitive property tax rate, which is more than double that of any other Maryland jurisdiction. True, but beside the main point: removing this barrier to investment just for the few, the wealthy and the politically connected while leaving the little guy to suffer in tax hell is unjust, ineffective and unnecessary.

Yet we’ve been delivering subsidies to favored developers since 1958, when the city condemned and bought the tract that would become Charles Center for $41.2 million (equivalent to $372 million today), poured more money into demolition and infrastructure improvements, then sold it all for $24 million (or $216 million, inflation-adjusted). Over the intervening decades, we’ve liberally used this “buy high, sell low” strategy, Tax Increment Financing (“TIFs”) and similar handouts to support a false narrative of renaissance while residents and businesses fled, opportunities dried up, and poverty spread — with tragic social consequences.

This redevelopment model works well in one respect, however: It comfortably supports a tax-privileged aristocracy with undue political influence. Three-quarters of Baltimoreans may think the city is on the wrong path, but an in-crowd of developers and city officials who cut deals with them see our current tax system as a route to wealth and power. The special credits that slash effective tax rates for the favored few pump up their profits and give them a cost advantage over outsiders or the small fry who haven’t “paid to play.” And inside City Hall, the ability to dole out crucial subsidies is a dependable source of campaign cash and job security.

But this system makes most Baltimoreans poorer — and, in fact, contributes to the region’s racial wealth gap. The majority-Black city’s higher tax rate is capitalized into lower property values. If two homes are identical in every way (including neighborhood amenities, school quality and street safety), one located in the high-tax city must be discounted by 14% to 17% relative to one in low-tax Baltimore County to make their monthly mortgage and tax bills comparable. This lower rate of return on city investment fuels long, ongoing flight of capital, population and jobs that further reduces urban property values, wealth and incomes.

Breaking this vicious cycle requires a fair, competitive property tax rate for all Baltimoreans. Achieving that doesn’t have to mean deep cuts in near-term budgets or services. Amending the city charter to lock in a competitive tax rate in, say, six years (two assessment cycles) would allow time to build a reserve fund with proceeds from asset sales and other economies and added revenue from growth in the tax base as population flight reversed and property values improved. That fund would pay for the rate cut when it arrived.

Of course, bringing tax fairness to Baltimore requires political courage because it takes on the city’s aristocrats and disrupts a system that works well for them and their political minions. Come November, then, it’s up to voters to identify and reward the “disrupters” on this issue — and end an unjust and unsuccessful system that has kept the city from achieving its potential for decades.

Stephen J.K. Walters (email: swalters@mdpolicy.org; Twitter: @SJKWalters) is chief economist at the Maryland Public Policy Institute and the author of “Boom Towns: Restoring the Urban American dream.”

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