As tax assessments balloon and budgets tighten, many of the fixed-income seniors who built Baltimore cannot absorb tax increases from rising home assessments.
The issue also affects professionals, whose incomes may not have risen in tandem with skyrocketing home values.
The crisis
Demographic and economic changes fuel the problem. Fifty years ago, our population reached nearly 1 million, with many of those residents in well-paying manufacturing jobs.
The population has since shrunk to 630,000, with many residents working low-paying service jobs.
The result is slow-growing tax receipts, forcing the city to rely heavily on the property tax to cover the rising costs of health care, energy and retirement obligations.
Baltimore?s 2007 operating budget is $2.016 billion; well above one-third comes from property taxes.
However, Baltimore City property taxes are too high in a world where we must actively compete for residents and companies.
Baltimore City?s property tax rate is $2.288 of every $100 of assessed value. Worse yet, the personal property tax rate of $5.72 of every $100 is a heavy burden on existing businesses and a large deterrent for those considering Baltimore.
While Baltimore County?s property tax rate is 1.115 percent per $100 of assessed value and the personal property tax rate of 2.78 percent of $100 assessed value, and Anne Arundel County?s property tax rate is .931 percent per $100 of assessed value, with a personal property tax rate of $2.327 percent of $100 of assessed value, Baltimore will continue to be unattractive to future businesses.
Currently, two remedies exist for seniors and professionals:
» Baltimore City offers the Homestead Tax Credit. It ensures that an assessment does not increase by more than 4 percent in one year.
In fiscal 2007, this will cost Baltimore $39.5 million.
» The Homeowners Tax Credit allows none of the first $8,000 of income to be taxed, shrinking the tax bill for recipients by an average $241.
In fiscal 2006, the State of Maryland assisted 46,000 property owners, 80 percent of whom were seniors.
The Homeowners Tax Credit does not cost the Baltimore City any dollars as it is funded by the state of Maryland.
Soft Assessment Solution
The soft assessment solution calls for lowering the real property tax rate while increasing the 4 percent assessment cap rise in the Homestead Tax Credit to 10 percent.
The lower property tax rate would give near-term relief while increasing the competitive position of the city.
Because the personal property tax that businesses pay in Baltimore is the real property tax multiplied by 2.5, a reduction in one will lead to a reduction in the other, leading to more investment in Baltimore and more money for Baltimore residents.
The idea does not just benefit individuals and businesses: it directly benefits the city.
Because soft assessments would allow the city to collect taxes at a quicker rate, it would make credit rating agencies happy, possibly allowing the city to borrow money at lower interest rates.
The final step of the soft assessment solution is to allow homeowners to request a lower assessment based on their income.
The reason this is necessary is that someone earning $50,000 per year who purchased a $150,000 home anticipated paying taxes that reflected the sale value.
But the home may appreciate by as much as $100,000 in three years.
If a homeowner shares his or her salary with the state, he or she could ensure his or her assessment does not reach higher than $180,000 in this scenario.
This guarantee would ensure progressive taxation for young professionals, attract new professionals, and most importantly, protect seniors with declining incomes.
The soft assessment solution must be adopted as a new tax policy to protect our homeowners, grow our tax base and ensure that city tax revenues rise.
This will allow Baltimore to grow. Ten years from now we might even be able to reduce taxes more.
That?s an idea worth fighting for.
Mike Mitchell is the executive director of Chesapeake Habitat for Humanity and a Democratic candidate for the Maryland House of Delegates from Baltimore?s 46th District. He can be reached at [email protected].
