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Why Property Tax Reform Matters
Even though the city sets its own tax rate, it matters that state delegates, business leaders, community associations—basically everyone—advocate for slashing and capping real and personal property taxes.
Slashing Baltimore’s tax rates is a transformational change. If appropriately managed, it could raise incomes for residents. It could bring in an estimated $1 billion in new investment within a short period of time. And it would rid Baltimore of 40,000 vacants in under 10 years, creating a much safer city.
The process for slashing the property tax is straightforward.
We must introduce a charter amendment or pass legislation now to automatically lower Baltimore City’s property taxes in three years. Limit budget increases to 1%. Save new revenues from new investment in a special fund. Sell assets from Baltimore City’s $4.4 billion real estate portfolio to make up any difference for revenue shortfalls. (Remember, that as soon as the property tax rate is capped, the value of this portfolio would increase.)
A largely unknown fact is that the $640 million stimulus payment to the city can also be used to offset the reduction in taxes as long as Baltimore’s revenues are higher than in the base year 2019.
But even without the stimulus payment, Baltimore would need to sell only half a billion from its real estate portfolio to support the transition to a competitive tax rate.
Developers would still get the breaks they need through the lower tax rate and higher capitalization rates on the back end. Most importantly, ordinary residents and small businesses would get breaks too. Working class moms and families could become home owners. Those who already own could afford to maintain what they have, pay for child care, or make new investments in the city or in themselves.
BUT WHY DO IT?
Slashing property taxes builds wealth and encourages housing affordability.
In September 2020, I spoke with a single mom who works two jobs and runs a side business for extra income. Her dream is to pay for college for her 16-year-old daughter. She saves the money from her extra jobs for her daughter’s college education.
This mom is lucky enough to own her own home as a single parent. But if her property taxes were lower, the monthly savings and increased value in her home (because high property taxes suppress home values), would allow her to let go of one job, spend more time with family and still reach her goal.
In October 2020, I spoke with a city worker whose family had looked to buy a house in Baltimore City. They could not afford to purchase in their most desirable neighborhoods because the monthly property tax payment placed those homes out of reach. But for the tax payment, they could have lived where they wanted.
The high property taxes mean that single parents struggle to qualify for home ownership. Those who already own a home, don’t have the extra income they need to maintain it. There is an illogical mismatch between the city’s architecture and infrastructure, which is designed for inventory-intensive businesses, and the personal property tax rate of $5.62 per $100.
Moreover, the anti-competitive rate ensures that the present value of the property is always worth less than the present value of the property tax.
This mathematical reality exacerbates the extent to which black communities, in particular, are overlooked for new investment and their existing amenities are undervalued.
Meanwhile developers in wealthier neighborhoods get property tax breaks and other subsidies. The math shows they are making their effective tax rates and overall costs competitive with what those costs would have been in Baltimore County or DC. But the path for getting there is a political wrestle, sometimes rife with corruption.
Meanwhile, it takes a decade to assemble financing for relatively small investments of $20 to $30 million in the neediest neighborhoods. To make capital more available, especially in the lowest income neighborhoods, the opportunity for investment must be more valuable.
Baltimore City’s property tax burden is bleeding families. And its digging a moat around the city that keeps out new investment valuing about $1 billion or more, pending further research.
Slashing property taxes saves city services and does not jeopardize them.
Reliable economic models—from fellow Democratic economists—support that we could successfully slash the property tax rate by 61% to $0.86 per $100.00 to be competitive with Baltimore County and DC. If we do so and fix it at that level through a charter amendment, massive investment would flow into the city, just as it did for Oakland and other come-back cities.
The massive investments would save city services and programs. The population (read: tax base) would immediately begin to grow (yes it would, notwithstanding crime). With the additional revenues from the expanded tax base, the city would suddenly have adequate funding for services and programs.
Right now, the shrinking tax base means that we are barely affording essential programs and services. And the relatively poor level at which those services are performed does not appear to be sustainable.
Slashing property taxes is essential to end vacancies and defeat crime.
Slashing taxes is crucial for eliminating 40,000 vacants in a way that brings communities dignity and wealth, as opposed to more gaps, managed decline, and the crime and desolation that vacancies breed.
At more than twice Baltimore County’s rate and two and half times DC’s rate, high property taxes have fueled a new wave of vacants, crime, disinvestment and flight among families—particularly among Baltimore’s poor families who rent, rather surprisingly. And homeowners are fed up that the taxes they pay don’t result in quality city services.
Make no mistake, these problems are about getting capital to go into the lowest-income communities in the first place. They are not about a homebuyer’s personal credit score or how many people are using the Homeowner’s Tax Credit or even tax credits for commercial projects.
Those individual and project-level incentives are tactical accelerants. Fortunately, if Biden has his way, nearly every accelerant Baltimore could have hoped for should be available to our lowest-income families.
These accelerants help people take advantage of opportunities when they do exist. But the structural issue is that the few opportunities that do exist are not valuable enough to be scaled. As a result, there just isn’t the demand–particularly from lenders and investors–where and when we need it. The result is that the rate at which vacancies increase is higher than the rate at which houses can be demolished or rehabilitated.
Slashing property taxes will create an environment in which crime actually can be defeated — as it did in Boston. In fact, it is precisely because crime is so rampant, that it cannot and will not be defeated without creating more valuable opportunities for investment.
Whether residents know it, the ability to build wealth is the most important issue facing Baltimore’s black community—fair and competitive taxes are fundamental for building wealth.
Many black communities across the United States, have the highest tax rates of any of their neighboring jurisdictions. Black economist, Trevor Logan, did incredible research to show that Black politicians have attempted, since Reconstruction, to use high taxes to force redistributions of wealth and provide services for a needier population because of the legacies of slavery. His research also found, however, that high taxes were a failed mechanism for building wealth among black populations.
Using high taxes to redistribute wealth fails in part because of housing segregation, which remains largely intact in Baltimore City. High taxes can discourage home ownership where the value for services is not present. Fewer than half (47%) of Baltimoreans own property even though the median sales price in Baltimore is less than half the national sales price.
High taxes also make it more difficult for homes purchased in working-class black neighborhoods to hold their value over a ten-year period once adjusted for inflation.
Consider what a home in Baltimore worth $100,000 would be worth for a homeowner if we subtracted the present value of the property tax from the value of the home. In Baltimore, that home is worth -$12,000, but in DC or Baltimore County the same home has a positive net worth.
For homes in working-class black communities that are grappling with gun violence and vacancy and that lack amenities, there isn’t enough market value in the neighborhood to keep the home value from dropping back toward negative territory. Homes in Hampden, Remington, and Bolton Hill, for example, have enough amenities or access to amenities to keep their values afloat or rising.
But homeowners in Sandtown-Winchester and Upton, for example, are not building the wealth that they should be over a ten-year period, once adjusted for inflation.
The wealth gap that results means that not everyone enjoys the basic right to life, liberty and the pursuit of happiness.
Slashing the property tax is a fundamental strategy for championing working moms and families, ensuring financial security for older adults, and laying a stable and long-lasting foundation for black wealth in Baltimore.
By ensuring a fair and competitive playing field, everyone will benefit. And black residents—especially older adults and renters—will disproportionately benefit by finally having a meaningful chance to close the gap and build wealth for their posterity.
 Additional microeconomic analysis is necessary to determine the exact value of new investment that would be generated in a competitive tax environment.
- Action Item #1: Cap the property tax via charter amendment or via state legislative action.
- Action Item #2: Limit budget increases to 1% for the next three years, possibly offering state incentives.
- Action Item #3: Slash the property tax to $0.86 via automatic trigger within three years–span of a single administration.
- Action Item #4: Save any additional revenue resulting from increased investment in an escrow account to help balance the budget during the initial year of the lowered property tax, possibly with state incentives for adherence to savings plan.
- Action Item #5: Sell real estate assets from the City’s $4.4 billion portfolio to cover the anticipated gap, offer technical assistance from State of MD as needed.