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Baltimore homestead tax credits: Gross inequality

Our view: While well intentioned, the Homestead Tax Credit has warped Baltimore's real estate market and hinders the mayor's goal of increasing the city's population

6:00 a.m. EST, December 18, 2011

A homeowner should not pay more in property taxes than his two neighbors put together for their nearly identical homes. But that's exactly what Sun reporters Scott Calvert and Jamie Smith Hopkins found in a comprehensive and unprecedented review of Baltimore City's homestead tax break program.

And it's not an isolated incident. A program designed to be a temporary fix for soaring home prices in the 1970s has turned into a leviathan that perpetuates inequality, robs the city of more than $100 million a year in revenue and helps lock Baltimore into a property tax rate that is nearly twice as high as any other jurisdiction in the state.

It is a clear hindrance to Mayor Stephanie Rawlings-Blake's goal of attracting 10,000 new families to the city during the next decade. The credit works by limiting to 4 percent the annual increase in a homeowner's property tax bill. That means people who have owned their homes for decades, during a time when city housing values have more than doubled, may wind up paying just a small fraction of what they would otherwise owe. But new homeowners pay full freight. The same is true in suburban counties, but their lower overall tax rates make it much easier to buy there.

Still, Ms. Rawlings-Blake has no interest in changing the program. Why? Because doing so could have the effect of increasing tax bills for elderly or low-income homeowners and wind up forcing them out of houses they have occupied for decades. The fact that the biggest beneficiaries of the program happen to be some of the city's wealthiest residents is, evidently, just an unfortunate side effect. "I don't think that increasing property taxes on people who have lived here for a long time is going to help us grow," Rawlings-Blake spokesman Ryan O'Doherty told Ms. Smith Hopkins and Mr. Calvert.

But leaving the system in place as-is won't help the city grow either. Combined with the high tax rate, it has the effect of limiting mobility within the city because the tax break resets to zero when a home is sold. A young couple who find that their narrow rowhouse won't do anymore now that they have kids might discover it makes more sense to buy in Parkville than in Hamilton. Empty nesters looking to downsize could wind up paying more taxes on a downtown condo than a Roland Park Victorian. The system doesn't so much help people stay in their homes as it shackles them.

Mr. Calvert and Ms. Smith Hopkins discovered other major problems with the program. It is riddled with errors — mistyped numbers or missed renovations can improperly reduce tax bills by thousands, and as the pair previously reported, hundreds of homes listed by the city as vacant and delinquent are still getting homestead tax breaks. And since the Maryland Constitution requires that property taxes be applied uniformly, it is almost certainly illegal.

The cap was tangentially part of the conversation about property taxes during the last mayoral campaign, and City Councilman Carl Stokes — himself the recipient of an 84 percent discount on his property taxes due to the homestead credit — is advocating for reform. He proposes increasing the cap on annual tax increases to 10 percent — the maximum allowed under state law — and using the money to reduce the overall tax rate. A city property tax commission created by former Mayor Sheila Dixon suggested the same idea in 2007. But the Rawlings-Blake administration has rejected the idea, saying it wouldn't generate enough money to fund a meaningful drop in the property tax rate and would hurt some longtime city residents who would be priced out of their homes.

That is a legitimate concern. But leaving the system in place forever will only increase the inequities and make the problems they cause more difficult to untangle. Mr. Stokes' idea, or some variation on it, could help to gradually restore equity in the system and put Baltimore in a position to do more to reduce property taxes for everyone. It would also be worth considering whether a program could be structured to specifically assist low-income homeowners and those on fixed incomes. The mayor is right to want to prevent people from being forced to sell their homes because of surging property tax bills, but she should work to find a way to do it that doesn't also hand thousands of dollars a year to people who don't need it and hinder her effort to make Baltimore grow again.