Rawlings-Blake property tax cut: A good start but not the final word on tax reform

July 20, 2011

Mayor Stephanie Rawlings-Blake's proposal to cut 20 cents off of Baltimore's property tax rate for owner-occupied homes by 2020 is a good idea for what to do with the city's projected revenue from slot machine gambling. Whether it is sufficient to spark a revival of Baltimore's housing market and a reversal of decades of population loss is a much more difficult question.

What the mayor wants to do is to dedicate 90 percent of the proceeds the city expects to get from a slots parlor to property tax cuts for homeowners. By combining that with a steady diet of spending cuts, she says she can accomplish a meaningful rate reduction without jeopardizing city services. It is a far cry from the cut-it-and-they-will-come ideas being floated by her mayoral challengers, at least three of whom are proposing ideas to more quickly and radically reduce the city's property tax rate. But it would provide much more impact than the idea of splitting slots revenue between tax reduction and school construction, and applying that tax reduction to everyone — owner-occupants, speculators and absentee landlords alike. Ms. Rawlings-Blake estimates that focusing the slots money this way would effectively double the savings for homeowners.

Baltimore's property tax rate, more than twice that of any other jurisdiction in the state, is unquestionably a drag on investment in the city. It needs to come down in general, and not just for homeowners — commercial investment, which leads to job creation, is held back by the tax rate, and rental housing, an important consideration in a city with a high poverty rate, is made more expensive by the high taxes. But it makes sense to target the limited funds slots will produce to homeowners. The city's best hope is for families and individuals to buy and improve undervalued properties and, bit by bit, turn around neighborhoods. Cutting the rate by 20 cents for homeowners makes the economics of such a proposition at least somewhat more feasible.

Baltimore also has tremendous needs for school construction and renovation, and diverting slots money from that cause doesn't come without a cost. However, the share of gambling revenues that could have gone to schools would have been miniscule in the context of a $2.8 billion problem. The reason the schools are in such bad shape is that the city's finances are chronically strained. If property tax reduction can help put the city on more sound footing, it would likely be more beneficial to the cause of school renovations in the long run than a few million in annual slots revenue.

There are obstacles to the mayor's plan. It would require state legislation for Baltimore to be able to target tax relief to homeowners before others, and the legal mechanism to do so would require careful consideration. The spending cuts Ms. Rawlings-Blake is counting on — just $3.8 million in each of the next four years, but ramping up to nearly $19 million by 2020 — are not specified. And with the state in the midst of a second attempt at soliciting bids for Baltimore's slots parlor, there's certainly no guarantee that the $14.8 million in gambling revenue the plan assumes two years from now will actually materialize. But on the whole, it is a conservative approach to property tax reduction, more a reordering of priorities than the quest for a new taxation paradigm being proposed by the mayor's opponents.

But will a 20-cent cut make more than a marginal difference in the calculations of families deciding where to live and make an investment in their futures? The goal of property tax reduction should be to create a virtuous cycle in which lower taxes encourage more people to move to the city, which would expand the property tax base and allow for further reduction of the rates. But is 20 cents over eight years enough to start that ball rolling?

Those who are pushing for the city to lower its tax rate to match or beat the rate in Baltimore County certainly don't think so. Baltimore's rate is now $2.268 per $100 in assessed value; Baltimore County's is $1.10. Even if Ms. Rawlings-Blake's proposal works as advertised, the city's rate would still be 1.88 times the rate in the county.

The mayor's critics decry her plan as a continuation of the gradualist approach to property tax reduction begun when Martin O'Malley was mayor and continued briefly under the Sheila Dixon administration. The idea then was to cut 10 cents per $100 in assessed value from the rate, in 2-cent increments over five years. It was abandoned midway through, and it certainly did nothing to stem the city's population loss, which slowed but didn't stop during the last decade.

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