A state lawmaker who helps set tax policy is calling for an overhaul of Maryland's property tax cap law, after a Baltimore Sun investigation documented how the costly program has resulted in homeowners across Baltimore paying vastly different amounts for similarly valued houses.
Del. Samuel I. "Sandy" Rosenberg says he will begin crafting legislation Monday to cap property tax increases based on homeowners' incomes, substantially changing an entrenched system now based only on the time people have lived in their homes. As it exists today, the Homestead Property Tax Credit allows wealthier residents who have owned their homes for years to pay just a fraction of their annual tax bill.
Rosenberg, vice chairman of the House Ways and Means Committee, said Sunday he would seek a sliding scale that would create higher caps for owners in higher income brackets — similar to the federal income tax system.
While that wouldn't erase the disparities caused by the homestead credit, he said, it would link owners' tax bills to their ability to pay. And he said it would mean more money for the cash-strapped city government, which this year alone is missing out on $120 million in property taxes because of the homestead credit.
"People are not going to have faith in a system that is unfair," the Baltimore Democrat said, adding: "Are neighbors paying the same? If they're not, there has to be a justification for it. If one is wealthier than the other, that is a justification. That is a progressive system."
Mayor Stephanie Rawlings-Blake signaled on Sunday that she is open to having the law modified.
"Mayor Rawlings-Blake looks forward to seeing the details of Del. Rosenberg's proposed state legislation and could support an update to state law to address some of the unintended consequences of the decades-old state homestead tax credit program," spokesman Ryan O'Doherty said in a statement.
Rosenberg's proposal would face some hurdles. Robert E. Young, director of the state Department of Assessments and Taxation, said a sliding scale would make the homestead credit much harder to administer. It would turn a one-time application process into an annual affair involving hundreds of thousands of properties. About one million Maryland homeowners received the credit last year, he said.
"With those kinds of numbers, you might have to have maybe as many as 50 people to process that statewide," Young said. And that's assuming only a basic check, he said.
Rosenberg said it's too early to get into details, noting that he needed to consult with policy staffers. But he wants to jump-start the process so lawmakers can take up the issue during the annual General Assembly session that begins next month.
"I think it's pretty certain I will wind up introducing a bill," he said. "You've got fairness issues, you have fraud issues and you have enforcement issues."
The Sun's investigation, published Sunday, found that hundreds of outsized property tax breaks in the city were caused by typographical errors, unnoticed property improvements and people receiving credits they weren't eligible for under the tax law. Seventeen owners improperly received credits on three or four houses, the investigation found, and hundreds more are getting two credits.
A person or a married couple qualifies for just one credit — on their principal residence.
The homestead credit limits how much a home's taxable value can rise from one year to the next. In Baltimore the cap is 4 percent. The statewide cap is 10 percent, although many counties have adopted lower ceilings. The credit became highly valuable to homeowners during the last decade's real estate boom, and many still see benefits even with the recent drop in home values.
The program's supporters, including Rawlings-Blake, say it gives city residents an incentive to stay in their homes rather than sell because of rising tax bills. Critics say it discourages newcomers from moving to Baltimore. The cap is lifted when a home is sold, meaning a buyer does not inherit the discounted rate paid by the former owner and must pay the full property tax rate.
Begun in the late 1970s as a temporary measure to shield homeowners from the tax impact of spiking home values, the homestead program has morphed into a huge subsidy. Today the program lops off at least 50 percent of the annual tax bills for more than 13,000 city homes, The Sun found.
About 98,000 homes in the city get some reduction in their tax bills because of the credit, while about 25,000 owner-occupied homes see no benefit.
Baltimore economist Anirban Basu said a more "fundamental problem" with the city's property-tax structure is that its rate is easily the highest in Maryland: $2.268 per $100 of assessed value.
With a lower rate "we would not require Band-Aid type solutions like the homestead tax credit," said Basu, chief executive of Sage Policy Group, an economic consulting firm.