Tax break hits home in city

Urban Chronicle

Credit: A program to promote homeownership increasingly benefits wealthy residents.

Urban Chronicle

August 05, 2004|By Eric Siegel | Eric Siegel,SUN STAFF

IF YOU THINK big-time developers are the only ones getting property tax breaks in Baltimore, think again.

Some wealthy homeowners are doing quite nicely as well.

Their advantages come in large part courtesy of the clumsily named newly constructed dwelling tax credit.

As the city's annual property tax bills come due -- the initial deadline for discounted payment was Friday, and the final date for paying at least half the bill without penalty is Sept. 30 -- this nearly decade-old program all but cries out for review.

Established in the mid-1990s to stimulate building and to encourage middle-class homeownership during a time of wholesale flight from the city, the credit offers a five-year property tax break on new residences or gut rehabs of vacant city-owned buildings.

The break begins at 50 percent of the property tax in the first year, and decreases by 10 percent a year after that until the owner pays in the sixth year the same taxes as the rest of us.

Among the current beneficiaries of the break, and the amount of their credit, according to the city's Department of Finance: the owner of a new $900,000 Canton rowhouse, $10,476; the owner of a new $780,000 Federal Hill rowhouse, $9,042; and the owner of a new $620,000 Fells Point rowhouse, $7,137. And that's just in the first year of the tax break.

The names and addresses of the recipients of this government largess are omitted to protect the innocent, which they are. They didn't create the break; they're just taking advantage of it.

Overall, as of late last month, 673 city homeowners were receiving tax credits worth $1,216,405 for new homes -- an average of $1,807 each, according to Finance Department figures. More than 140 owners of these newly built homes received credits worth more than $2,328 -- an amount equal to the total annual tax bill on a house worth $100,000.

In the first couple of years of the program, the average credit was less than $700.

The trend is not lost on finance officials. In a report on the program contained in this year's budget, the department noted that the average income of those taking advantage of the program was $80,000, up $10,000 from the previous year.

"This average income trend reflects, in part, the substantial income of certain program participants who are utilizing the program in their purchase of high-cost homes frequently in waterfront developments and communities," the report said.

To be fair, not every homeowner receiving the credit is wealthy enough to pay for a waterfront view. Among the list of recipients are several owners of modestly priced Nehemiah Homes in West Baltimore.

Nor is it the most expensive property tax-credit program for homeowners that the city operates. That honor goes to the 4 percent annual limit on assessment increases, which will cost the city about $17.6 million in revenue this year, but which nonetheless fulfills its intended purpose in insulating current homeowners from rapidly escalating taxes.

Even if the program is increasingly used by the rich, Mayor Martin O'Malley's spokeswoman, Raquel Guillory, said it should not be viewed in isolation, but as one of a number of incentives to encourage homeownership among all income levels.

If loss of revenue and fairness are the issues, the city would be better off raising the assessment limit instead of tampering with the new construction tax credit, argues Joseph T. "Jody" Landers III, executive director of the Greater Baltimore Board of Realtors. With the construction tax credit, the city is losing property tax revenue for a few years, but is benefiting from higher income tax revenue that comes from attracting and retaining residents who can afford expensive new houses.

"I think it's achieving exactly what you want it to achieve," Landers said.

The Finance Department reached a different conclusion. In a survey of more than 800 recipients over the last five years, two out of three said they didn't know about the credit before they bought their home. Of those who knew about it, 15 percent said it made no difference in their decision to buy.

"If there is any net benefit of the credit, it is likely insignificant," the report concluded.

That conclusion has not been lost on City Councilman Keiffer J. Mitchell Jr., chairman of the city's tax committee, who plans to call a hearing on the tax in the fall. "That's something we definitely need to take a look at," he said.

The tax break may not need to be scrapped but merely modified, maybe by excluding some neighborhoods that don't need a boost in development, or by limiting the amount of the credit.

One thing seems fairly evident: Those who can afford to buy houses worth several hundred thousand dollars probably don't need tax breaks worth tens of thousands of dollars to pay for them.

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