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Tax collection errors cost Baltimore $30M or more a year, says Stokes

ANALYSIS: Councilman seeks to audit Finance Department and privatize tax collections. Mayor to address chronic tax errors at press conference today.

carl stokes with david brown

Councilman Carl Stokes, with aide David Brown, at a recent Taxation, Finance and Economic Development Committee hearing.

Photo by: Mark Reutter

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.”

A working session of the Stokes committee reviewing an audit plan for Rec and Parks last January. (Photo by Mark Reutter)

The Stokes committee and several audit activists review a plan to review the books of the Recreation and Parks Department last January. The review is still not complete. (Photo by Mark Reutter)

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.

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  • http://housingpolicywatch.com/ Carol Ott

    This is yet another example of why we need better leadership in Baltimore City — the uncollected and wrongly-assessed tax issue has been in the news for a couple of years, yet nothing has been done. Why the sense of urgency now? And what will be done about it? My guess is we’ll go through a few rounds of righteous indignation in City Hall, and then another bandaid “fix” will be applied.

    Annual audits of our entire city government would be a better, more proactive way to stop the flow of money out of the city’s coffers (and therefore also out of taxpayers’ pockets) — but that would take good governing instead of self-interest and misguided loyalty, something Baltimore hasn’t seen for decades.

  • Matthew Riesner

    Why not work on both the problems that Stokes and SRB have raised as a bigger overall financial reform of the city’s government? Audits, city employee healthcare and pension reform, privatizing tax collections, etc.
    The only reason I see not to do all of this is that some people close to the center of power in this city may end up loosing big and they will have their shady schemes possibly coming to light.

  • trueheart4life

    I’m NOT sure which is tougher to stomach a City Council CHUMP or a City Council PUTZ … Both are worthless and serve as distractions, thus impeding real progress on behalf of the people. Someone should tell Councilman Stokes that he really needs to STOP with the “privatization” talk. If I recall we recently heard that word used by our MayorSRB regarding audits … Have you switched sides sir? Or were you always on her team???.

  • cwals99

    This total is a LOL moment….Baltimore loses as much as a billion dollars a year if you include Federal and state money sent to the city and misappropriated. The amount lost is HUGE which is why we will have to fight to see this done!

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