The chairman of the City Council’s taxation committee says that chronic errors and miscalculations of tax bills are costing cash-strapped Baltimore at least $30 million a year – and maybe as much as $60 million.
“These are not my numbers. These are numbers given to me by city officials in private conversations,” Stokes said in an interview with The Brew.
He said the officials, whom he declined to identify, were privy to internal information about the clerical and administrative problems that beset the Finance Department, where many of the errors originate.
Acting on this information, Stokes is introducing today two resolutions before the City Council calling for “an immediate and thorough audit” of the Finance Department and an examination of whether a private company could do a better job of collecting property taxes, especially for commercial buildings.
Challenging the Mayor
Property taxes are by far the largest source of local funds for Baltimore government. This year they will generate $755 million in revenues – or 47% of the city’s general fund – according to the city’s fiscal 2014 budget.
The funding level is down 1.7%, or $13 million, from fiscal 2013 and 2.8%, or $21 million, from fiscal 2012.
The trend of declining property tax revenues has long been attributed by city officials to the lingering effects of the 2007 worldwide recession on housing values.
What Stokes is saying, however, is that the city’s failure to properly calculate and collect property taxes is also dragging down revenues.
It’s an analysis that directly challenges Mayor Stephanie Rawlings-Blake’s policy of giving tax breaks, such as PILOTS and TIFs, to Harbor Point, Superblock and other developments to increase commercial construction.
Instead, employee health-care costs and pensions are the chief fiscal culprits, she says.
The mayor’s solution is her 10-year financial plan, introduced last February, to “reform” employee costs – and, in some cases, establish user fees for basic city services such as trash collection – in order to avoid the dire financial future faced by cities like Detroit.
Rawlings-Blake Counters with Press Conference
Stokes’ twin resolutions have spurred Rawlings-Blake to call a press conference today “to highlight new reforms” by her administration “to reduce tax errors ahead of City Council consideration of [the Stokes] resolutions,” according to a media advisory issued by her office yesterday.
The press conference has been arranged for 11:30 this morning, shortly before the City Council sits down for its Monday luncheon where members informally discuss legislation coming before the body at the public session tonight.
Stokes said he was not aware of the mayor’s press conference, but did not feel it was aimed at preempting his call for an audit of the Finance Department.
“This is good,” Stokes said in an interview yesterday. “It’s not a ‘got you’ situation for me. It’s a ‘got you’ situation for the taxpayers of Baltimore. How many times can someone tell you you are not properly assessing properties, and the same thing happens again and again?”
Money “Left on the Table”
Stokes said his inquiries have discovered that most of the undercalculated taxes come from commercial properties that are eligible for various tax reimbursements, such as historic tax credits or “EZ” (Enterprise Zone) tax credits.
Stokes says that developers have come to him and said, “Man, you can’t imagine how much money you’re leaving on the table.”
“In some cases, they’re talking about their own properties,” he continued.
Stokes cited Clipper Mills, an upscale historic residential and commercial development in North Baltimore, as an example of under-assessed properties, based on recent sales. “They are way, way under. The people who own the properties know it and admit it, but it’s not up to them to properly assess themselves.”
Another piece of evidence, he said, was a recent report in The Baltimore Sun that city and state officials had undercharged three large commercial properties over several years. One downtown office tower, owned by Orioles majority owner Peter G. Angelos, was under-billed by $390,000 in property taxes since 2011.
In all, the three properties have cost the city more than $700,000 in errors. “The little guy pays for these errors, and city programs, like rec centers, take the hit,” Stokes said.
Stop Blaming Old Equipment
The Rawlings-Blake administration has hinted that its tax collection reforms will be upgrades to the Finance Department’s “legacy” computer and data processing systems, which will automate the calculation and tracking of tax credits.
Stokes dismissed such changes as inadequate.
“Not all problems can be blamed on old equipment. If management isn’t right – or if personnel are overworked or poorly trained – the data [going] in these fancy computers will be wrong, and so will the data coming out.”
Auditing Finance and Other Agencies
That’s why Stokes is proposing an immediate audit of the Finance Department and serious discussion of whether “privatizing” tax collection could serve the city better.
“Even if we pay a fee for collection, we’ll be getting millions that are now uncollected,” he said.
Last year, Stokes pushed for the yearly audit of city agencies – something that has not been done for at least 25 years.
The mayor’s loyalists defeated the original bill. The Council eventually passed a watered-down version calling for audits of 13 agencies every fourth year beginning in 2014.
Except for a previously agreed-upon review of the Recreation and Parks Department – which has not yet been completed – the schedule for the other 12 audits has not been publicly disclosed by the administration.
“No audits. Chronic tax errors. This is no way you should run city government,” Stokes stated.