Baltimore's property tax in need of a restructuring, not a quick fix
Fells Point: Back from the Brink
The sad reality of any tax program meant to help working and middle-class homeowners is how quickly the original intent can be lost, and the reform program can actually lead to further iniquities. That is the case in the city of Baltimore Maryland where the Homestead Property Tax Credit acts as a tax cap that prevents increases in a property's value from adding to the tax bill the homeowner actually pays. The tax credit is meant to apply to one residence per homeowner, and applies only during the stay of the owner in that house. The reality is far different. Particularly in Baltimore the problem is this: the Homestead Credit has been in place for decades. Therefore, a homeowner who stayed put for those decades pays a fraction of the property tax that a new neighbor would pay.
Some might say that's not so bad because a longtime homeowner is certainly a net plus for the neighborhood and most likely elderly or on a fixed income. Yet in Baltimore where the goal is to attract new families and new stakeholders in neighborhoods, the Homestead Credit does not apply. Therefore, a new family would theoretically pay much more than the longtime neighbor next door. But it, it is not just theory.
A recent report in the Baltimore Sun highlights not only the disparities between new Baltimore residents and longtime ones, but also the opportunity for massive revenue loss to the city, as well as hundreds of error-prone properties receiving the tax credit even though those properties have been rental units for years. In response to this slow-moving mess, respected Baltimore City Delegate Sandy Rosenberg has proposed a novel solution to the tax credit problem: tying the property tax to income, using a sliding scale to create a progressive property tax. UrbanTools applauds the Delegate for trying to fix this long-term problem, yet would suggest further unintended consequences would reverberate down the legislative road.
First , Article 15 of the Declaration of Rights and its statutory descendants call for valuation and taxation to be based upon the capital value of land, improvements on land, and personal property. Second, if the goal of the city of Baltimore is to attract the middle-class and – yes – wealthier homeowners, then pegging property tax to wage levels could well serve to send a message that Baltimore City is off limits to high wage earners (which we know is not the wish of anyone). Third, a similar distortion to that of the Homestead Credit could well occur if a person with a healthy wage moved into a neighborhood that was not particularly desirable. Imagine if this were law in the late 1980s, when the first stirrings of life arose in Fells Point (pictured above). Under the proposal the urban pioneer would pay a higher tax than the surrounding homes simply because of the discrimination based on income.
UrbanTools and many leaders from Baltimore such as current Gov. Martin O'Malley, Delegate Clarence Davis, and many other elected and policy officials have for years called for a simplification of the property tax in Baltimore. That simplification is the land value tax, which would replace the traditional property tax in the city of Baltimore.
The land tax would remove the penalty for reinvestment in construction by exempting buildings from tax. It would also remove much of the need for the Homestead Tax Credit, as past research by UrbanTools and other policy groups have demonstrated time and again that the very most at risk neighborhoods would benefit fiscally from the tax shift, would be implemented in a revenue neutral manner, and would not require more complexity in the tax code because the state constitution requires separate valuation for land and buildings.
Land value tax would meet the reform goals that Delegate Rosenberg and Baltimore city officials desire in order to permanently remove the distortions of the Homestead tax credit
The best example of how the law permitting Baltimore city to enact land value tax is HB 1075 from 2005. Although known as a "local courtesy" bill, it was stymied in committee in March 2005.
Please follow this space for updates on this crucial test for a city fighting to redefine and revitalize itself.