We Baltimoreans partied as hard as most, and shared in what we now know was a delusion: That we were making so much money in real estate that we could spend, well, as much as we wanted.

Unfortunately, our elected representatives were drinking the same Kool-Aid – especially in Baltimore City.  As we feverishly played the real estate market, transfer and recordation taxes soared; as assessed values inflated, the city reaped a windfall from property tax receipts.

And spent it all.  From fiscal 2005 to ’09, Baltimore’s budget grew 40 percent while inflation was 16 percent.  Just this year (well after most partygoers understood they needed to sober up), Dixon raised city spending 11 percent, to $2.94 billion.  That’s more than $4,600 per city dweller – 40 percent more per resident than Baltimore County.

But now, of course, this government spending bubble must also burst.  From July 2007 to July of this year, transfer and recordation tax revenues fell 48 and 51 percent, respectively.  Nationwide, real home prices are down 28 percent from their peak, but local officials are counting on “reassessment lag” (the fact that homeowners can be stuck with bubble-era tax appraisals for up to three years, until their neighborhood comes up for reassessment) to keep property tax receipts from plummeting.  But the worsening recession will surely cut piggyback income tax receipts.

Given this post-party depression, conventional wisdom says that the city must cut spending, increase taxes or do both.  Each poses major problems for pols who don’t want their approval ratings to be Bushian.  Cut city payrolls and they’ll infuriate the all-powerful public employees’ unions; cut services and/or raise taxes and they’ll alienate voters, drive residents out, and further erode the tax base, creating even more budget problems down the line.

What to do?  Broaden the tax base.  Now.

Here’s how:  GUARANTEE a permanent property tax cut to 1 percent, better than the county’s 1.1 percent rate, to take effect in three years (i.e., after one reassessment cycle).

Do NOT just “promise” such a cut.  Former Mayor Martin O’Malley “promised” symbolic cuts years ago, and Mayor Dixon has already reneged.  To overcome investor skepticism about future promises, then, we need a binding charter amendment that would require a public referendum ever to alter.

What would happen?  An investment boom.

Not a bubble this time — a real boom.  Developers would rush to buy tracts in anticipation of the friendlier tax environment; homes and offices would start to go up even without the need for special abatements and subsidies.  Homeowners would rehab properties even away from the waterfront; now tax delinquent properties would again have value.

The city would repopulate, and new residents would deliver piggyback income tax receipts as well as replenish those tanking transfer and recordation tax accounts.  By broadening its tax base, the city would weather the current storm.  And if it exercised appropriate fiscal discipline (OK, that’s the hard part) it could build a fund to cope with any dip in property tax receipts once the rate cut took effect.

Doubt it?  Consider the history of another bayside city, San Francisco, which was losing population faster and suffering higher crime than B-More back in the late ’70s.  Then, thanks to a statewide tax revolt, Frisco’s property tax rate was forced down 57 percent in a single year.

Disaster was forecast, but instead – and in the teeth of a stagflationary gale – the city revived.  In just four fiscal years, its inflation-adjusted tax receipts were actually 66 percent above the pre-revolt level.

We can buck the current macroeconomic trend; we can join San Francisco as a prosperous, “superstar” city.  Or, we can just keep doing things the same old way we always have.

Steve Walters teaches economics at Loyola College.  Louis Miserendino teaches social studies at Calvert Hall College.