Doing what's fair on the historic tax credit

Our view: Baltimore should do as much as possible to hold innocent homeowners harmless for the state's miscalculation of a tax credit

August 05, 2013

As a general rule, Baltimore City can't afford to give people bigger tax breaks than they deserve. The city is perennially strapped for cash, and as an analysis commissioned by Mayor Stephanie Rawlings-Blake shows, it will have to make significant cuts in spending during the next decade if it is to remain solvent. But the case of the 315 homeowners who have been getting bigger historic property tax credits than they qualified for merits an exception.

The credit is meant to encourage people to buy and fix up historic properties, and it has been a particularly effective tool in revitalizing some Baltimore neighborhoods. It provides an exemption from taxation for a period of 10 years on the value of the improvements made to a historic property — though not on the base value of the home or on the home's appreciation in value after the renovations are made. But in more than 300 cases, the state Department of Assessments and Taxation, which until recently handled the calculations for this program, made errors in how it applied the break that resulted in lower payments for the homeowners and less tax revenue for the city. In more than 200 others, it erred in the other direction.

City officials believe they do not have a strong legal case to go after back taxes, as they routinely do when property owners claim homestead property tax credits for homes they do not occupy. In those cases, the error, whether committed willfully or out of ignorance, is considered to be the responsibility of the property owner. With the historic credits, though, the mistake was made by state officials, and the homeowners could not have realistically known that they should have been paying more.

The city would, however, be well within its rights to charge these homeowners the correct rate from this point forward, and in fact has proceeded to do so despite assurances from some officials that they would like to help. The city sent postcards to the affected homeowners informing them of the issue shortly before sending this year's property tax bills. In some cases, the difference was relatively minor. In other cases, it multiplied the tax bill several-fold.

Now some members of the City Council and other officials are demanding that the city hold these homeowners harmless and seek the money instead from the state. That latter idea may be easier said than accomplished; state officials say the city is at least partly to blame for the miscalculations, and Gov. Martin O'Malley has not jumped to get involved in the issue. But there is good reason for Mayor Rawlings-Blake and the council to step in and help these homeowners regardless.

For some, the historic tax credit the state told them (in writing) that they qualified for made the difference between a home being affordable or not. They decided to buy and arranged their finances based on what they had every reason to assume would be a reliable promise about how much they would owe.

Legally speaking, that may not be the city's problem. But in the context of Baltimore's broader goals, it certainly is. Mayor Rawlings-Blake has made it her signature goal to attract 10,000 more families to Baltimore over the next decade, and stories about people who made that choice feeling betrayed by faceless bureaucrats do not help. Forgiving the value of these erroneous credits will cost perhaps a few hundred thousand dollars a year, which amounts to very little in the context of the $750 million Baltimore expects to collect annually in property taxes. If the city can persuade the state to pay for the errors, all the better, but its primary concern needs to be taking care of residents who now feel whipsawed by forces beyond their control.

That means holding the affected homeowners harmless in as much as possible, which may require legislation. But it also means making a much greater effort than the city has done so far to explain to them what happened and how it's being addressed. A postcard with the main phone number for the finance department doesn't cut it. The value of showing that the city will take care of those who choose to live and invest here is much greater than the cost.

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