The City of Baltimore finds itself mired in a classic Catch-22. Property taxes in Baltimore City are more than twice as high as any county rate in Maryland. That’s because to balance its budget each year, Baltimore City must levy disproportionately high taxes on its citizenry, which in turn induces more people to leave the City each year. Historically, the result has been to require that additional burdens be placed on an ever-dwindling supply of remaining taxpayers, which in turn turns out another set of Baltimore City residents. Between 2000 and 2005, the number of income tax returns collectively filed by Baltimore City households declined another 4 percent even in the midst of national and local housing booms.
What is needed is a complete and utter divorce from this path. The mayor and City Council should simply make a promise to the people of Baltimore that an irreversible path of tax slashing shall be pursued. Each year, City leaders should guarantee a 2 to 4.5 percent reduction in property taxes per year. Severe penalties for failing to deliver on this promise should be established, including total forfeiture of annual compensation. The only exception would be in the wake of an act of God, for instance a Katrina-like event.
What’s remarkable about this promise is that it can be kept without too much difficulty. A credible promise of tax reduction would bring new residents and investors to Baltimore City even before the current tax rate was reduced substantially. The accompanying new tax base would under most scenarios more than offset the loss in revenues from tax rate reduction. This is even more true given the impending impacts of Base Realignment and Closure on Central Maryland’s economy and the continued outward expansion of the massive Washington metropolitan area. All it takes is a credible mayor and City Council.
Gee, yet another “cut taxes” solution. Actually the solution would be a regional commuter tax, or some other form of taxation that would level the playing field for Baltimore property owners and residents. The city offers to the surrounding counties a true marketing tool, especially in terms of access to cultural institutions, medical institutions, etc. Yet, the amount of money awarded to Baltimore City in support of City institutions and services is not codified, but dependent on the will of the particular county’s politicians.
Do you think that the BRAC people are really going to buy homes in Baltimore City in large numbers? I don’t think so. But they will (especially those transferred to Aberdeen)take advantage of the cultural, medical, and other large city offerings of Baltimore. It makes a transfer more palatable to people if some of the things they are moving away from exist within an hour’s drive or less.
Cutting taxes is not the solution. Viewing Baltimore City as the regional engine it is would be more practical.
The investment we need is an investment in the human beings who are already here, as Galbraith pointed out half a century ago. Tax cuts that result in upward pressure on housing costs for Baltimore residents already in poverty will not be helpful. New York City, for example, has no trouble attracting residents and investors to Manhattan, and the result is that poor people are pushed to neighborhoods further and further out.
If there were a way to ensure that the increasing private investment directly benefited poor people, I’d go along with your audacity. But the core poverty we experience has resisted the indirect effects of the most powerful economy the world has ever known.
We need direct investment in the human beings already here to address this core poverty, and the scale needed requires public sector commitments, not from the city, which is indeed too poor, but from the state and federal governments, which have access to absurdly huge tax bases in historical terms.
As Galbraith said about a much smaller economy, can’t we, as a people, choose to invest in urgent needs for education, health care, housing and the environment, rather than in consumer frills that are so non-urgent it takes an enormous advertising industry to convince us to buy them?
This is an interesting idea. I’d like to see evidence that lowering taxes in large cities that had previously been losing population actually led to a subsequent increase in population and tax revenue.
Many people leave cities like Baltimore for 2 reasons – under-performing schools and crime. Isn’t it possible that if tax cuts are initiated, we would not see an immediate influx (or a slower reduction) of middle- and high-income people that would lead to declining revenue and budget cuts in schools and public safety. It seems possible that we could just as easily see a downward spiral in quality of life and population upon taxes being cut. I follow the economic theory behind Dr. Barsu’s audacious idea, but I’d want to see data to back it up.
Anirban,
You make a valid point. A large number of Baltimore City residents impacted by the increases in property taxes are low-to-moderate wage workers who are third and fourth generation Baltimoreans. These city lovers are excited about Baltimore’s transition into a greener, cleaner, and safer place to live, work, and play. Unfortunately, most of them, in about five to ten years, will be unable to afford living in Baltimore City if the property taxes continue to rise.
There has to be a balance in accountability and more creativity in raising the needed funds to offset the costs of providing vital city services (i.e. public works, public schools, security, parks and recreation) to ALL of the residents in Baltimore.
Why not ask the Mayor and the Baltimore City Council to consider requiring businesses licensed to work in Baltimore with budgets over $250,000 a year and individuals who live in Baltimore with personal incomes over $300,000 to invest in our City? Instead of draining the pockets of low-to-moderate wage workers through property taxes, the Mayor and the Baltimore City Council should create taxes to target the growing number of medium to large business establishments that are doing business in our City. What if the Mayor and the Baltimore City Council established a,
(1) Public School Education Tax for licensed businesses with revenues over $500,000 a year and individuals with personal income over $300,000 a year? (These taxes could help ensure a more equitable distribution of dollars and resources to Baltimore City Public Schools. City Administrators could create a quasi-governmental agency to work with the Baltimore City Public School System and the Maryland State Department of Education to monitor and distribute these funds.)
or
(2) a Infrastructure Tax on licensed transportation, construction, hospitality, and port businesses with revenues of over $270,000 a year? (This tax could help ensure a more equitable distribution of dollars and resources to not only beautify and secure ALL neighborhoods throughout Baltimore, but ensure that the City could address city-wide issues like homelessness and illiteracy? (City administrators could create a quasi-governmental agency to work directly with the Department of Recreation and Parks, the Department of Public Works, and the Department of Labor & Licensing to monitor and distribute these funds.)
or
(3) an Entertainment Tax on professional sports teams (i.e. Orioles, Ravens, and Blasts), Stadiums, and Baltimore Adult Entertainment Establishments (i.e. Scores and Hustler) with revenues over $250,000 a year. The Entertainment Tax might require that $1 from the entry fee and/or ticket sale of each of these establishments fund out-of-school time programs run by nonprofit, community-based organizations in Baltimore City. The City could create a quasi-governmental intermediary agency to monitor and distribute the funds to nonprofit, community-based organizations in Baltimore that run out-of-school time (OST) programs (i.e. after-school, summer camps, Weekend programs)
These are just a few examples of what other cities around the country are doing to ensure their citizens have access to great schools, great neighborhoods, and great City services.
Lynn Pinder
http://www.thetakeactionnetwork.com
I think what Anirban is trying to say is that there will be more people residing in the region (largely through the expansion of the federal government and realignment of the military) in the future and Baltimore City should try to produce incentives, or rather reduce disincentives for them to reside within the city instead of elsewhere. In addition, existing residents need a reason to stop leaving.
High taxes are a disincentive, especially when surrounding municipalities offer substantially lower property tax rates. Take a look at the following tax rates per $100 of assessed value:
Baltimore City – $2.268
Baltimore County – $1.100
This means a $300,000 assessed property would pay $6,804 per year in property taxes in the city and $3,300 in the county (Baltimore County has the highest rate of the city’s surrounding counties). This is a difference of $3,504 or $292 a month. That $6,804 is $567 a month so just imagine what your monthly property taxes would be if you owned a higher assessed house or business property.
To approach $600, $700, $1,000 a month in property tax is quite a burden on a property owner that is middle-class or small business. It really doesn’t take a mansion or a large storefront to get there and beyond.
Therefore, it was disconcerting to see the proposed property tax decreases come to a halt recently. The former mayor wanted taxes to come down eventually to $2.23 and a city council member wanted them to fall to $2.20, which coincidentally is only twice the county’s rate. The current mayor, I believe, recently rescinded a planned 2 cent reduction. It really isn’t the per year reduction that is important since the yearly magnitude is very small but rather the commitment from the city leaders. I hope some of them wisely acknowledge that high relative property tax rates could severely depress real estate transactions (on top of current market conditions) and thus city revenues coming from transfer taxes and higher house prices in coming years.
I’ve lived in the city all my life and have seen the pattern of flight from the city occur in my neighborhood for many years (it usually occurs once children reach school age). But I have also seen a huge amount of residential and business investment downtown and in select neighborhoods across the city.
I’d like to see that investment continue and expand. We all do.
Target taxes, like the commuter and threshold taxes mentioned, while not only politically and administratively difficult, will only drive away the businesses they end up affecting. They are disincentives. Residents and businesses produce jobs. We need their investment.
To attract the largest number of people with the least effort, the tax rate is the best instrument. Setting goals that are pegged to the county’s rate would be a logical move. The first goal would be 200% of the county rate, then 190%, then 175%, and so on.
To make up for year-to-year revenue losses the city should try to maximize the funding available from the federal government regardless of administration, ask for a greater contribution in some form from medium and large non-profits, and encourage residency by city employees possibly by tying it to their benefit levels. I’m sure there are other creative ideas that could work.
In the end, property taxes do matter and they are an important factor for any city resident’s decision to stay or any prospective resident to arrive. They add to the cost of residency. And when the cost of residency exceeds the benefits of residency (cultural and local amenities, proximity to work, etc.), people are going to move to where they will be better off. It’s simple economics.
As a City resident homeowner, I couldn’t agree more!
Baltimore’s problems are, in essence, problems of disinvestment – both residential and commercial. If we lower the property tax – and we should do it in increments over a five-year period – you’ll get a wave of investment that would likely increase tax revenue.
I know this sounds like Voodoo Economics, but it works in this case because you have a class of people who WANT to live and/or do business in the city, if it makes economic sense. Right now, there are two major issues that skew that cost-benefit ratio: high property taxes and awful public transit. I want to fix both.
What we have now in the City is the worst of both worlds – high taxes and worse services.
I doubt that a commuter tax would work, because what that would essentially do is provide even more incentive for both jobs and residents to move to the counties. The City wouldn’t be less screwed, it’d be doubly screwed.
Brain,
You make some great points, too. I wonder, though…in a sense, aren’t property taxes a type of targeted tax? Why is it acceptable to target Baltimore property owners as a revenue generator for the City, but not acceptable to target mid to large sized businesses?
I agree that there are quite a few mid to large sized businesses in Baltimore that provide thousands of jobs to Baltimore residents. Unfortunately, most of these jobs are low-paying and dead-end. They lack adequate benefits such as health insurance and/or paid sick leave to the majority of their workers. Even worse, most of these employers are not education friendly – meaning they fail to offer any type of educational incentive and/or opportunity to their employees. Even worse, many refuse to allow schedule changes that would make it possible for their low-wage workers to enhance their literacy skills.
Given the sad state of most Baltimore residents – who statistically could be considered the working poor as they work two sometimes three jobs to make ends meat at wages that are almost three times lower than neighboring metropolitan districts – I don’t think anyone would disagree with the notion that a lower property tax rate would benefit the majority of residents in Baltimore. However, the argument of a lower property tax rate should not be touted as the “golden nugget” to heal all of the woes of this City. Property taxes alone will not pay for all of the vital City services and supports (i.e. resource filled public schools, well stocked community libraries, beautiful green spaces, smoothly-paved roads) that all residents in this City deserve. A well-thought out, coordinated economic plan that draws revenues from a variety of sources including property taxes would probably serve the citizens of Baltimore more effectively.
To Brian (or Aniban) in the post above, I’d still like to see some actual data showing that when cities plauged by underperforming schools and high crime substantially reduce taxes it results in more people residing and paying taxes in the city.
Most people living in Baltimore City would like to stay here. It’s not just property taxes that are unfair. There’s auto insurance twice the rate of surrounding counties too, even though statistics show most accidents in the city involve people not living in the city. Massachusetts levies commuter taxes on people living in New Hampshire. Someone should look into how they are doing that. Older people nearing retirement will not stay in Baltimore City because the annual taxes are just too high for someone not working. This is forcing many people out as well. I’m with Anniban, but think city officials should look at the commuter issues.
City living is gaining a new popularity, as energy prices rise, and people begin to realize that living in cities with existing infrastructure and housing stock is “greener.” It is also less divisive socially. Demographics are also changing. Retirees are interested in condos near amenities and cultural attractions. More young people today move to the city for its community and vibrancy. A recent trend is young people are even staying longer, after they are married with children. But the city usually loses them around school age. However, even with this renewed interest Baltimore often loses out because of high taxes. $6000 per year is a lot of money for a 1st time homebuyer or a person on a fixed income.
In addition to reducing property taxes modestly each year. I believe a 5-year tax phase in, much like the new construction tax credit, should be extended to all new homebuyers that are owner occupants. The city should also set an ambitious goal of attracting new residents. Say 100,000 additional residents in 10 years, and set policies accordingly. This would be a tremendous boon for the city. Newer residents tend to pay more in taxes, use fewer services, and community creators.
Cities are happy and healthier with greater density. So are the people. The 20th century flight of the middle class has been difficult on cities and its people. The people moving to the city today are not the poor, they are the middle class and wealthy that have a postive impact on the city, this should be encouraged.
Baltimore should not do a commuter tax. The city already loses businesses each year to the surrounding ‘burbs. We should not provide another incentive for businesses to look outside of town. We are just finally attracting a few businesses. I don’t have to go to the ‘burbs just to shop or go to work.
Cate:
Cutting property taxes IS the solution, because the problem is that Baltimore will never be what it should be until its population is closer to 1 million, and that will never happen when prospective residents can pay 1/2 as much in property tax for an newer house in a “better” neighborhood with better schools, with the same mortgage. In the interim, the City has little choice but to keep the high rate and levy absurd assessments on houses that cannot possibly sell at those prices.
There are plenty of people who want what Baltimore has to offer, and have no kids, so needn’t worry about the appalling schools, but few of them that do the math will decide that it’s THAT important to live next to Penn Station or the Inner Harbor, when they can live 3 miles North for less.
There are those who are wealthy enough to live wherever they want regardless of expense, and those are who the City is courting with all the luxury developments around the harbor and elsewhere. Perhaps it is the City’s plan to soak these new residents as they are soaking current residents, long enough to reduce property taxes for everyone.
I, for one, would happily leave now if I could, because even though my property tax increases are capped by the Homesteader’s Credit, my hazard insurance is not, and doubled this year along with my assessment.
Here we go again, those people in the BRC are already complaining how high the taxes in Maryland are. If you don’t believe ask them. Some of them want to live in Pennsy & Delaware where the living is easy on their pocketbooks. No the tax and spend state. Oh, yes has anyone forgot about the proposed billion dollar deficit that the Comptroller is going to annouce. Would you move to this state, much less this city. Pinch me and wake me out of this nightmare on my street. The gentleman has a good idea, but the only problem is did the council people just gave themselves a fat raise immediately after the last election? Do you think they are going to attach anything incentive to their present none performance.
The missing critical thought is understanding that “the property tax” is really two taxes: One on the Improvement or Building Value and one on the Land or site Value.
I absolutely agree with LOWERING the portion of the property TAX THAT FALLS ON IMPROVEMENT VALUE.
But pay for that cut with an INCREASE on the TAX THAT FALLS ON LAND VALUE.
Gradually shifting the property tax off of improvements and on to land would really be an AUDACIOUS IDEA. And it would also be a salubrious one.
Not only is such a tax shift economically sound, it also happens to give most residents a total tax reduction.
Land taxation is also progressive because the distribution of land value is worse than the distribution of income. In a study, “Who owns Baltimore?”, which I prepared in 2006 for the Henry George Foundation of America, I found that the top 10% of land value owners (all corporations) control about 58% of the total taxable land value. The Bottom 10% of those who own any property controlled less than 1% of the total taxable land value.
If you want audacious and a jump start the Baltimore economy, give a property tax credit equal to 10% of the improvement value each year for 10 years so that by year 10, improvements are taxed at all. Make up the difference by increasing the over all property tax rate. (Alternatively, you could use two rates one for land and one for improvements — if the State legislature would allow for this as the city council first requested in the 90s when now Governor O’Malley introduced the city council resolution when he was on the council!)
As I drove around Baltimore last weekend, I was utterly shocked by the beautiful neighborhoods north of the city. I literally could have seen myself moving into one of these homes the next day. However, I was even more shocked when I started looking online at real estate listings and seeing the incredibly high property tax rates. For someone who WANTS to live in Baltimore, these taxes are an utter disgrace. I have never seen such high property taxes in my experience, not in Montgomery County, not in DC. It’s a shame that these taxes are preventing willing and happy people from living in the city.
Lowering property taxes would definitely help. It seems that some are forgetting that the popular neighborhoods around the harbor (Canton, Fells, Fed Hill, etc.) are populated by yuppie renters. Renters, not home owners. A surprisingly large portion of them don’t even work in the city, so when it comes time to buy a house, its off to safer pastures that are closer to work and cost less on a yearly basis.
A decent home in a relatively safe neighborhood will cost at least 185k, rent is about 600-1000 a month in the same area. The tax alone to buy a home like that adds close to $400 a month. Not everyone has the luxury of getting a good loan, nor trusted roommates to make up for that defecit. That additional $200 a month is a bit too much for most to swallow when considering their alternatives.