High taxes not likely to help city keep its `customer' base

April 25, 2004|By JAY HANCOCK

BALTIMORE is raising taxes, seeking the kind of revenue shot dreamt of by sales outfits everywhere.

But what makes Mayor Martin O'Malley believe he'll score with price increases when U.S. Cellular, General Motors, Gateway and numerous other merchants have come to grief?

Baltimore at its economic core is a vendor of municipal services, subject to the same laws of competition, supply and demand as any company. At a time when consumers respond to price increases like an Atkins dieter being offered a Twinkie, the risks from O'Malley's gambit aren't simply political.

Demand for product Baltimore has been, shall we say, elastic. The city lost more than a tenth of its residents and jobs in the 1990s.

It ranked 99th out of 100 big U.S. cities in 1990s population percentage gained or lost, according to CEOs for Cities, a group O'Malley belongs to. Only St. Louis was worse. At this rate, by 2020, Baltimore would have a populace and economy the size of Toledo's now.

All around, Baltimore's rivals sell essentially the same thing at lower prices.

The counties of Anne Arundel (except Annapolis) and Howard (outside Columbia) might be the Wal-Mart of Central Maryland jurisdictions, serving middle-class customers in high volume at (relatively!) low cost. Their combined income- and property-tax rates are lowest in the area.

Carroll and Harford counties might be Kmart, doing less volume at slightly higher prices. Baltimore County's tax rates are similar to Carroll's and Harford's, but with more customers: Target?

In Baltimore City, the prices are Nordstrom. The merchandise isn't.

True, the city offers an unmatchable set of charms: culture, heritage, savvy, architecture, salt water, diversity, cuisine and youth. But at some price everything except Haagen-Dazs and heroin gets too expensive; the higher Baltimore taxes go, the more people will trade down for Linthicum or Towson or Fallston.

Late last week, O'Malley was considering $40 million in tax increases that would amount to more than $100 a year for a typical Baltimore household -- a $42 annual tax on cell phones, a 4 percent energy tax and a doubling of the recording tax on property transfers. Not much in the grand scheme, but O'Malley's customers -- maybe we should call them "guests," as Target does -- are getting uppity.

Baltimore's property tax is twice that of satellite counties. The Census Bureau ranked Baltimore 21st out of more than 200 big cities in city taxes collected per resident.

Counting all taxes, including state and federal, home-renters fare worse in Baltimore than in all but seven of 51 big cities analyzed by Runzheimer International. For homeowners, Baltimore was mid-pack, beating 24 other cities, Runzheimer says.

The best comparative study on big-city tax pain, experts say, is compiled by the District of Columbia, whose managers understand the importance of sizing up the competition. D.C. analysts created hypothetical families and placed them in the largest city in each of the 50 states, plus Washington.

Baltimore performs miserably. For a family of four with household income of $50,000, Baltimore is fourth-highest in state and city taxes, exceeded only by Philadelphia, Newark and Bridgeport, Conn.

For a family of four earning $75,000 or $100,000, we're fifth-highest. And a Baltimore family of four making $150,000 pays $17,682 in state and local taxes, more than twice what the same household pays in Houston and more than in all but six other cities.

Only for very low-income residents is Baltimore tax-competitive with national peers. A Baltimore family of four making $25,000 pays $1,776 in state and local tax, ranking the city ahead of 23 others.

But Baltimore's solvency depends on middle and upper classes, not the poor. The city scores well against regional rivals in per-capita tax take: $1,037 in property and income taxes per resident vs. $1,800 for Howard County, for example, according to a 2002 state study. But that's only because Baltimore is home to so many low-income families who pay little tax, putting a disproportionate burden on the well-off.

This is not to say that the city's budget hole should be ignored, that services should be cut or that there's any easy fix. Only that Baltimore taxpayers are already pinched, that they have choices and that raising prices isn't usually the first thing vendors try when they're losing market share.

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