Wanted: A billionaire ‘backstop’ for a Baltimore property tax cut
I am pretty sure I heard China
Boak Terrell suggest that Bill and Melinda Gates, Michael Bloomberg or Mark Zuckerberg spot Baltimore a few billion dollars so that city officials can cut the property tax rate in half to generate more investment and spur an influx of new residents over the next 10 years.
I was sitting behind Terrell, and I might not have heard everything she said. But I’m pretty sure I heard the part about a big loan from a billionaire. And after last Wednesday’s panel discussion — entitled “Sharing Visions For A Better Baltimore,” sponsored by Baltimore Community Lending — she confirmed it.
Terrell, an attorney, is CEO of American Communities Trust, the community development organization that, among other things, has been raising funds to complete the Baltimore Food Hub project. Her big idea (and that’s what I asked for, as panel moderator) is to have a benefactor provide $1 billion annually, about a third of the city’s operating budget, to maintain essential services while Baltimore property owners get a major cut in taxes. Slicing the city’s property tax rate by 50% instantly — and not by only 20% by 2023, as under the current plan — would make Baltimore more attractive almost overnight to potential new residents and developers. Lowering the taxes would spark more interest in the Baltimore market and the city, and tax revenues would grow. The gap funding from the billionaire benefactor would soon no longer be needed, and the city could pay back the loan over time.
While various credits put the average property tax rate for an owner-occupied home at $2.07 per $100 of assessed value, the city’s overall property tax rate of $2.248 per $100 of assessed value is still about twice that of surrounding counties. By contrast, the rate in the District of Columbia for residential property is 85 cents per $100 of assessed value.
“Cut the property taxes back to be even with D.C.’s property tax rate,” Terrell suggests. “To do this, we would need a long-term subsidy and loan of some sort, so that city services don’t fail. Some academics suggest that it would be sufficient to cut services back to a ‘maintenance of service’ level, but as a resident, I wonder whether we are not already just maintaining.”
Before we go any further, a nod to others who have suggested bold action on taxes to move Baltimore into the fast lane, among them Steve H. Hanke, professor of applied economics at the Johns Hopkins University, and Stephen J.K. Walters, professor emeritus of economics at Loyola University Maryland. In March, in a Washington Post op-ed based on an article the professors co-authored for The Journal of Applied Corporate Finance, Walters and Hanke suggested that Baltimore cap its tax rate, effective in three years. That, they suggested, could spur investment, even before the cap takes effect.
“To allow the city to maintain levels of public services while delivering a competitive property tax rate, it should adopt a binding tax cap that will take effect at least one full reassessment cycle in the future,” they wrote. “As new investment arrives, property values would improve, and the city would begin to repopulate. New residents would deliver more local income tax revenue, and the city’s tax base would expand. The added receipts could then be set aside in a ‘lock box’ to close any budget gap when the cap takes effect.”
For insurance, Hanke and Walters suggest that Maryland Gov. Larry Hogan get into the act: “If he were to announce a willingness to backstop the tax cap plan with some state financing, should the lock box be a little light, the city could begin a long-overdue turnaround.”
The idea has appeal, but it’s doubtful, given his track record, that Hogan would bring that kind of help to the city.
So back to China Boak Terrell and having a billionaire play “backstop” for a tax cut. Laurene Powell Jobs is worth $21 billion. MacKenzie Bezos’ divorce settlement of $36 billion made her the world’s thirdrichest woman, according to Forbes. Zuckerberg’s net worth is north of $70 billion. Maybe they’d like to transform a struggling American city by spotting it a billion annually to cover city services in the first years of the property tax cut.
Why would they do it? To make an investment that achieves significant social and economic change — in this case, giving a city of great potential but stubborn problems an epic lift.
“This is akin to getting the type of cash infusion that the war-torn cities of Europe received after World War II,” says Terrell. “It would require long-term policy commitments. I think strict enforcement against vacant [houses] would be necessary to discourage folks from buying investment properties because of the cheap property taxes and then waiting to develop. I think we would need to explore a near-zero percent tax rate for residential and commercial properties for those neighborhoods that have been and remain historically dis-invested so that those neighborhoods remain in the first wave of where money flocks.”
Investment in the long-neglected Baltimore neighborhoods, east and west of downtown, would be the most effective strategy against the chronic crime problem, Terrell says. “Otherwise,” she quickly adds, “we are all Sisyphus when we decline dramatic action on vacants and property taxes, but dramatically change police chiefs and law enforcement strategies each year.”
So, there it is. Bill? Melinda? MacKenzie? Mark? Laurene? Anybody up for meeting? I’ll bring donuts.