Dixon to halt 2-cent tax cut

Revenue shortfall pushes city to forgo property tax break

Sun exclusive

April 23, 2008|By John Fritze | John Fritze,Sun reporter

Blaming a weak economy and shaky revenues, Mayor Sheila Dixon is abandoning a long-standing plan to cut 2 cents this year from Baltimore's highest-in-the-state property tax rate.

The annual cut - which has been made each of the past three years - was supposed to knock 10 cents off the tax rate over a five-year period. The reductions have become a primary means to provide tax relief to city property owners.

Baltimore's property tax rate is by far the highest in Maryland - more than twice Baltimore County's - and a broad spectrum of city officials have acknowledged that the tax may be stifling growth and threatening homeowners on fixed incomes.

As recently as last month, Dixon planned to go forward with the cut - it was included in her budget proposal for the fiscal year that begins July 1.

But a spokesman for Dixon said that the city now expects to receive far less revenue than anticipated for the proposed $2.92 billion budget. The best way to close that gap, he said, is to forgo the tax break.

"This is not a position that the mayor or the finance director or anyone else in the city wants to be in," said the spokesman, Sterling Clifford. "It's at a point where one commitment meets another in the reality of a declining economy and housing market."

In 2005, then-Mayor Martin O'Malley announced the five-year reduction plan, and Dixon continued it in her first budget. Dixon, who was City Council president at the time, was cautious about the proposal, arguing that the city would have to "assess it every year."

The prospects for a return of the 2-cent cut next year were unclear.

Keith Losoya, a community liaison for the Baltimore TEA Party, a nonprofit whose acronym stands for Tax Education and Action, said the city should have been more frugal with surplus money it collected in recent years so that taxpayers could still have received a break when times turned tough.

"Politicians run on property tax relief and tax cuts, and it doesn't happen. How are we supposed to feel about these promises?" said Losoya, who ran for the state Senate in 2006. "It doesn't do anything to improve the level of trust."

Had the tax break gone forward, it would have reduced the rate from $2.268 per $100 of assessed value to $2.248 per $100 - an annual savings of about $60 on a home assessed at $300,000. The cumulative savings on that same property over five years would have been $900.

Clifford said it would have cost the city $5.4 million to make the 2-cent reduction.

Elected leaders outside the administration were briefed on the decision last week. Comptroller Joan M. Pratt, one of five members on the Board of Estimates, which must approve the budget, said she will reluctantly support the decision.

"I'm not happy about it, but the revenue just doesn't support it at this time," Pratt said. "The citizens deserve it, but I just think they would rather have a continuation of city services than to have a 2-cent reduction in property taxes."

A spokesman for City Council President Stephanie C. Rawlings-Blake, who also votes on the board, said the president is reviewing the proposal.

"It's always a delicate balance between the revenue needs of the city and the tax burden of its citizens," the spokesman, Shaun Adamec, said in a statement.

The three other members of the board include Dixon and two of her appointees, an arrangement that usually ensures the mayor's proposals are enacted.

Clifford said the city's projected income tax revenue had dropped in the past several weeks from $263.7 million to $262 million. An anticipated reduction in recordation and transfer tax revenue deepened, dropping expectations from that revenue source from $65 million to $63 million. Property taxes are still projected at $681.3 million - about a 10 percent increase over the current budget.

Property taxes became an issue in last year's mayoral election when Dixon's leading opponent, then-City Councilman Keiffer J. Mitchell Jr., attempted to offer rate reductions greater than 2 cents. The proposal was squashed, but Dixon created a task force to look into long-term solutions.

That task force offered more than a dozen recommendations last year, including raising the 4 percent Homestead Tax Credit cap on assessments, increasing the income tax rate and using new commercial transfer tax revenue to offset property taxes. None of the proposals has advanced.

"What we would prefer to be doing is making deeper and more permanent cuts to the city property tax rate," Clifford said.

City Councilman Bernard C. "Jack" Young, chair of the council's budget committee, said he will support the decision to relinquish the tax cut in exchange for maintaining city services.

"I'm a little disappointed that we can't have the reduction," Young said. "But if we're going to fund programs for youth in this city to keep them out of trouble, we're going to have to bite the bullet."

john.fritze@baltsun.com

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