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Rawlings-Blake’s property tax cut – a retread?

Analysis: The mayor’s plan to trim 2-cents-a-year off the tax rate resembles the 2005 tax plan by Martin O’Malley.

Above: Gov. Martin O’Malley congratulates Mayor Rawlings-Blake as she kicked off her mayoral campaign last month.

Give Mayor Stephanie Rawlings-Blake credit – she’s a strong believer in recycling.

Her proposal yesterday to shave two cents a year off of Baltimore’s property tax rate for the next nine years is a dead ringer for a plan developed by her political mentor, Baltimore’s former mayor and now Maryland Gov. Martin O’Malley.

In 2005, O’Malley announced the goal of reducing the city’s property tax rate by two cents a year over a five-year period.

Between 2006 and 2008, the tax rate was reduced by that amount, until Mayor Sheila Dixon and then City Council President Rawlings-Blake stopped the process because of the economic downturn.

Yesterday, Rawlings-Blake called for the same two-cent rate of reduction without citing its lineage. The plan was given the stylish name of “20 cents for 2020” by her inner circle headed by Gov. O’Malley’s brother, Peter O’Malley, appointed three months ago as the mayor’s chief of staff, and hyped as the largest drop in property taxes in modern Baltimore history.

In terms of rate of decline, the mayor’s plan is modest. There were bigger tax-cut rates during World War II, the early 1950s and, temporarily, in the mid-1960s. (See chart.)

According to the mayor’s office, an owner-occupied house assessed at $200,000 would see an annual tax reduction of $40 in 2013, growing to $400 by 2020.

This chart by the city Finance Department plots the city's property tax rate and population between 1930 and 2010. Between 1930 and the early 1950s, the tax rate hovered slightly above $1.00 per $100 in assessed value, then climbed sharply between the late 1950s and mid-1970. Baltimore's population peaked in 1950, declined slowly until 1970, then accelerated rapidly between 1970 and 2000. Between 2000 and 2010, the city lost an additional 30,000 residents.

This chart by the city Finance Department plots the city's property tax rate and population between 1930 and 2010. Between 1930 and the early 1950s, the tax rate hovered slightly above $1.00 per $100 in assessed value, then climbed sharply between the late 1950s and mid-1970s. Baltimore's population peaked in 1950, declined slowly until 1970, then dropped rapidly between 1970 and 2000. Between 2000 and 2010, the city lost an additional 30,000 residents. ("Feasibility Study of City Council Bills 11-0668 and 11-0669," Department of Finance, June 10, 2011)

Counting on Gambling Dollars

Approaching the Democratic primary on Sept. 13, Rawlings-Blake has been caught off-guard by the political traction gained by opponents calling for 30-50% reductions in the property tax rate, which at $2.268 per $100 valuation is more than twice that of surrounding counties. Yesterday’s proposal by the mayor would mean, by contrast, a 9% reduction over nine years.

Mayoral candidates Joseph T. “Jody” Landers, state Sen. Catherine Pugh and Otis Rolley say a radical and rapid reduction of the tax rate will spur economic development and create a larger tax base, offsetting the loss of revenues from lower taxes.

Appearing yesterday on WYPR’s “Midday with Dan Rodricks,” Rawlings-Blake accused her opponents of “preying on the vulnerable” and peddling “grandiose fantasy plans.”

Asked by Rodricks if a dramatic tax reduction might create a favorable “buzz” for the city, Rawlings-Blake replied, “A buzz doesn’t pay the bills.” Later in the interview, she said, “I don’t like to make false promises… If I make a recommendation, it’s vetted and it’s real.”

But Rawlings-Blake’s plan hinges on several assumptions that aren’t cast in stone. Her most significant gamble is that a slots casino with 3,750 gaming terminals will materialize in South Baltimore in the near future.

Her plan calls for $14.8 million in gambling revenue to be available to the city within two years, even though the state has just put off soliciting bids for the casino until September and dangerous chemicals have been found at the site south of M&T Bank Stadium.

Another assumption is that the legislature will agree to change state law to enable Baltimore to reduce property taxes to homeowners only, excluding rental and commercial properties from the two-cents-a-year tax reduction.

The idea of preventing low-income renters from enjoying property tax relief may be a tough sell. So, too, leaving out the city’s ailing schools may prove unpopular given that slots revenue by law must go to property tax relief or education. Under Rawlings-Blake’s plan, schools will get only 10% of the slots revenue pie.

Finally, the Rawlings-Blake plan calls for unspecific cuts in city government that would snowball to $18 million-plus a year by 2020. Obviously, she won’t be the mayor required to make such cuts.

Whatever Happened to the Blue Ribbon Tax Report?

For those who describe her plan as “too little, too late,” as did Jody Landers yesterday, the mayor’s gradualist approach will not stem the outflow of residents from the city (bucking a general trend among U.S. cities, Baltimore lost population between 2000 and 2010).

“We need to grow the tax base,” says Landers, who co-chaired the “Mayor’s Blue Ribbon Committee on Taxes and Fees” with City Comptroller Joan M. Pratt in 2007.

On the committee were 26 civic leaders including Constellation CEO Mayo A. Shattuck, M&T Bank executive Atwood Collins III and Goldseker Foundation President Timothy Armbruster.

The group said the city could slash property taxes by 12% in two years – compared to Rawlings-Blake’s 9% reduction over nine years – by adopting a menu of alternative revenue options and other measures.

These included raising the Homestead Tax Credit cap, increasing hotel taxes, placing an “aggressive” tax on vacant properties and removing loopholes from transfer and recordation taxes.

For a long-term solution to Baltimore’s fiscal woes, the committee floated such ideas as a regional sales tax, commuter wage tax, developing new strategies for tax-exempt properties (educational, religious and medical institutions currently make up nearly one-third of Baltimore’s tax base) and getting serious about consolidating and rationalizing city services.

In conclusion, the group recommended the tax rate be cut by 32% to stimulate economic expansion and re-population. “A reduction of this magnitude will ensure that the city’s property tax rate is no more than 50% higher than the average rate of the surrounding counties and will provide a tremendous stimulus to growth and development in the city,” it said.

Commissioned by Mayor Dixon, the 104-page blue ribbon report was completed in December 2007.

It has gathered dust ever since.

NOTE: The Brew will be analyzing the property tax plans of mayoral contenders Jody Landers, Catherine Pugh and Otis Rolley in the near future.

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