Property tax cap turns out to be a lopsided break Upscale homeowners benefit most, while others gain far less or nothing

December 27, 1992|By Marina Sarris | Marina Sarris,Staff Writer

When Marylanders rebelled against rising propert assessments in 1989, they told horror stories of working people and retired couples being taxed out of their homes.

Maryland lawmakers listened. In the election year of 1990, they passed a law limiting the increase in property taxes people have to pay because of higher assessments.

As it turns out, however, the major beneficiaries are well-to-do homeowners, not their working-class neighbors, according to a recent study of Baltimore County's 4 percent limit on assessment increases.

Tax benefits flow heavily to the owners of large houses in upscale areas such as Ruxton and Hereford. The average homeowner in the working- and middle-class neighborhoods of Dundalk, Overlea and Halethorpe receives a tax credit so small that it would barely cover the cost of taking the family out to dinner -- if the restaurant weren't too expensive. Twenty percent of the county's homeowners get nothing at all.

Data supplied by the county budget office reveal that 60 percent of the tax benefits from the cap flow to just one-third of the county's homeowners. Most of those people live in areas where the average house is worth more than $130,000, including Owings Mills, Pikesville, Prettyboy, Maryland Line, Hereford, Lutherville, Cockeysville, Towson and Jacksonville.

In areas such as Dundalk and Halethorpe -- where the average home costs less than $90,000 and household incomes are smaller -- homeowners receive credits a third to a half as large as their neighbors in Towson.

"The rich guy saves a bundle, and the little guy is the one getting hurt," charged state Del. Michael H. Weir, a retired masonry contractor who represents the Essex area.

The assessment cap

The 1990 Homestead Tax Credit law requires the 23 counties and Baltimore to limit, or "cap," the amount of assessment increase on which homeowners can be taxed to 10 percent a year. It allows local officials to set the cap even lower. The cap applies to owner-occupied homes only.

In a county with a 10 percent cap, the owner of a home whose assessment rises from $100,000 to $120,000 in one year would be taxed as though the house were worth only $110,000. On his tax the difference shows up as a tax credit.

Baltimore and Anne Arundel counties and Baltimore City have set 4 percent caps, while Charles, Howard, Kent and Prince George's counties have adopted 5 percent caps. Talbot County set a zero percent cap, which means a resident's tax bill will remain unchanged if the tax rate stays the same.

The lower the cap, the greater the number of credits handed out and the higher their amount. "The 4 percent cap is unrealistic, even in poor times," said Delegate Weir, a Democrat.

Unlikely allies

The Democratic delegate has unlikely allies in Anne Arundel County. Tax rebels there are threatening to challenge in court a 4 percent cap adopted Monday. Should they succeed, assessment caps across Maryland could be in jeopardy.

Robert C. Schaeffer, leader of Anne Arundel's tax revolt, argued that the 4 percent cap benefits only well-to-do owners whose homes rise in value faster than others. While their taxes are held artificially low, he complained, the taxes of more moderately priced homes would be barely affected.

For ammunition, he need look no further than a 1990 opinion by Attorney General J. Joseph Curran Jr. That opinion said the assessment tax credit program violates a state constitutional requirement for uniformity in assessments and taxation.

But politicians in Baltimore County, where anti-tax sentiment swept Republicans into power in 1990, say the assessment cap is too popular to abolish.

The cap has broad support from doctors and steel workers alike, they say, because it makes their tax bills predictable from year to year.

"The 4 percent cap is just as important to my constituents in $50,000 or $60,000 houses as it is to the guy in a $250,000 house," said Del. E. Farrell Maddox, a retired police officer who also represents Essex.

"If people got a 6 percent increase in assessments next year, they'd blow us all out of office," said Mr. Maddox, a Democrat.

Caps aren't new

Actually, homeowners have had protection from large tax increases based strictly on rising assessments since the late 1970s, when rising real estate values provided local governments with great infusions of cash through the back door. Politicians could count on more money each year without having to vote for politically unpopular increases in the tax rate.

With real estate inflation outpacing the growth in their personal income, many taxpayers began to resent higher tax bills. Lawmakers first passed "circuit breaker" legislation to protect low-income and elderly homeowners, then put a 15 percent cap on all assessment-based tax increases.

The state cap later was lowered to 10 percent, and in recent

years, taxpayers groups have clamored for more reductions.

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