City documents show intent of benefits tax credit

But in oversight, many might have overpaid charges

April 02, 2008|By John Fritze | John Fritze,Sun reporter

Baltimore officials had always intended to apply a popular tax credit to the levies charged by special benefits districts, according to documents drafted when the City Council created the first residential district in 1994.

But for years, Baltimore has not included the homestead tax credit when it calculated benefits district charges - an oversight that might have caused thousands of homeowners in Bolton Hill, Charles Village and other neighborhoods to overpay.

"I certainly think that they should have been obeying the law," said Stephen J. Gewirtz, an outspoken critic of the Charles Village district who also sits on that district's board. "It'd be nice to have them obey it now."

An early draft of the 1994 proposal to create the Charles Village Community Benefits District - the city's first residential benefits district - was changed by the City Council to make clear that the credit, which limits annual property tax increases to 4 percent, would apply, according to documents in the city's archives.

Mayor Sheila Dixon's administration is crafting a response to the issue and has not answered questions about how much might have been overpaid and whether residents will receive a rebate. None of the officials involved in that review responded to requests for comment yesterday.

At issue are two special benefits districts - the Charles Village district and the Midtown Community Benefits District - which levy a tax in addition to the city's property tax to pay for extra services, such as increased garbage collection.

Although the city has applied the homestead credit to the regular property tax rate that pays for city services such as police and fire protection, it did not apply the credit to a separate surtax charged in the benefits districts.

Discussion over whether that credit should have been applied began this year when City Councilwoman Mary Pat Clarke introduced legislation that would have required the city to apply the credit to the Charles Village surtax in the future.

City opinion

Last week, in response to that bill, the city law department released an opinion stating that the legislation was appropriate because it clarified what the law already called for: that the homestead credit should apply to the benefits district charges.

But later last week, the law department pulled the opinion after questions from The Sun about whether that meant the tax had been incorrectly calculated in the past.

After the city dropped the opinion, City Solicitor George A. Nilson said he was investigating the possibility that when the code mentions "credits," it is referring to credits for overpayment - not traditional tax credits.

But, documents from the time show, the word "credits" was specifically added to the bill in the City Council to ensure that the homestead credit was applied.

1994 memo

In a memorandum dated June 15, 1994, the Finance Department's Bureau of Budget and Management Research wrote that the initial proposal introduced in the council made "no specific reference to tax credits which apply to the regular property tax," and that the new wording would fix that problem.

The memo specifically mentions the homestead credit.

Though it is unclear how much residents might have been overcharged, homeowners would have paid too much in any year in which their assessment rose by more than 4 percent. Because the tax rate is so small, it is possible that many homeowners did not notice the difference.

Although the tax bills are calculated by the city - not the districts - the problem likely began years ago, long before Dixon took office.

The Charles Village district, which covers a 100-block area including the neighborhoods of Charles Village, Abell and Harwood, expects to collect about $546,000 from the surtax in the next fiscal year, 24 percent more than in the current fiscal year.

The Midtown district - which was created through an ordinance that was virtually identical to the one for the Charles Village district, including the use of the word "credit" - includes Bolton Hill, Mount Vernon, Charles North and Madison Park. It expects to receive about $897,000 from its surtax this year.

Clarke said her main goal is to make sure that the credit is applied in the future.

"Constituents in the Charles Village benefits district are being hit so hard with reassessments that they want to apply the cap to the surtax," she said.

john.fritze@baltsun.com

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