The City That Breeds » Politics » Realistic solutions for Baltimore City’s budget crisis – part 2

Realistic solutions for Baltimore City’s budget crisis – part 2

May 13th, 2010 | 12 Comments

Now that the complaints regarding Baltimore City’s budget horrors are behind us, I’d like to explore some of the very realistic, very awesome and totally doable strategies that can be implemented almost immediately (as immediately as government can function), and will serve to aid in the patching of our enormous deficit, while paving the way for a semblance of hope for growth in our city’s future.

Baltimore Housing on Steroids

Recently appointed councilman Carl Stokes voiced his opinions on how the city should begin turning to non-profit organizations like Johns Hopkins and making them pay for dedicated services, a shakedown which I already complained about, but he also voiced a desire to cut the city’s property tax in half in the next ten years – a plan I think is utterly appropriate and could actually work, if done in the right way.

And by that I mean, the current tax incentives and programs for buying a home in Baltimore should be promotionally juiced up with meth. The first time homebuyer program, which currently offers cash incentives toward closing costs and down payments for qualifying individuals to purchase homes within city lines, currently has an 80% median income limit per individual ($44,800 for one person, and so on), let’s bump up the limit but lower the cash amount from $5,000 to $3,000 – effectively allowing more people to apply, qualify and populate homes, while potentially keeping the total amount spent on incentives the same (alternatively, offer scaled incentives for individuals at the upper end of the median income limit). A similar incentive exists for city employees who buy a home within city limits, I say extend that incentive to anyone working within the city, at a reduced amount.

This initial cash incentive should be coupled with a comprehensive boost to the current home ownership tax incentives. Here’s a very thorough and well thought out example of how the program could be boosted:

	Current Benefit	BOOOOOOST!
Newly Constructed Dwelling	Owner occupies new construction. 50% credit in first year to 10% in fifth year. Applies to building permits issued after October 1, 1994. Owner must apply for credit within 90 days of closing and title transfer.	Owner occupies new construction. 50% credit for ten years. Applies to building permits issued after October 1, 1990. Owner must apply for credit within 120 days of closing and title transfer.
Rehabilitated Vacant Dwelling	5 year reduction in assessment increase due to rehab. 100% credit in first year to 20% in the fifth year. Encourages rehab of vacant property. Up to four (4) dwelling unit property. Vacant and abandoned for one year.	5 year reduction in assessment increase due to rehab 100% credit in first year to 50% reduction in the tenth year. Up to four (4) dwelling unit property. Vacant and abandoned for nine months.

Now if Stokes and his plan could actually happen, this would mean that those who take advantage of the beefed up incentives early on will have been saving 50% on their property taxes for ten whole years (“reverse grandfathered?”), whereas other residents will have their taxes lowered depending on the success or failure of the program. Hell, if Baltimore’s April 2010 housing sales were up 36% due to a federal tax credit, imagine what something like this could do for housing sales across the area.

Reduce the Local Income Tax (promotionally)

Since imposing a commuter tax on out of town employees is out of the question, why not add extra fruit to the basket of incentives by offering perks for new and returning residents to the city, in the form of reduced or eliminated local income tax. The current rate of 0.305% could be promotionally (for say, two years) lowered to 0.1% for new residents or folks returning to the city after say, 5 years. Buying a home instead of renting? You pay no local income tax for the first two years. This would add additional incentive to get people into the city, paying taxes – at a slightly reduced rate, but still better than nothing – while spending money in local establishments. A win-win.

A Statewide Bottle Deposit

Since a beverage tax increase aimed at Baltimore City alone is completely ridiculous, just implement a 5 cent bottle deposit on all glass bottles, statewide, like so many other states have done in the past and be done with it. People will bitch and moan much like they did (as I did) with the smoking ban, but at the end of the day the streets in the city will be that much cleaner, some revenue might come out of it, and given any level of personal responsibility your average family wouldn’t have to feel any pinch.

…I just threw this one in here to make three. At any rate, as I said before in a previous post:

…if the city’s government is truly interested in rebuilding the tax base and opening the window to lower property taxes for everyone, it is a hell of a lot better to get started NOW with those that are legitimately interested in living in the city…

Yeah. Let’s add “plugging this horrific budget deficit problem once and for all” to that sentence somewhere.

by Evan The Mayor

Filed under: Politics · Tags: city council, development, taxes

ppankl

deposit on bottles! deposit on bottles! I MISS IT. gimme my 10 cent deposit again!
http://www.baltimoresun.com/midnightsun Sam Sessa

This makes too much sense to pass.
http://lmergner.blogspot.com Luke

Two questions: (1) These are suggestings for increasing economic growth or the taxable base of the city. They are not directed at what is presumably the problem now: a shortfall in the fiscal budget. In fact, your suggestions take the opposite approach by increasing spending now in favor of potential growth later. Admittedly this is much saner than the shenanigans you cited in the previous post. (2) Some states and municpalities have laws that require a balanced budget. Is that the case in Baltimore? We’re in the worst economic recession since the Great Depression; I’m not surprised that there are problems with revenue. But why can’t the city issue some bonds and ride this out?

http://citythatbreeds.com Evan

Actually only the first suggestion involves spending money, which is something they already offer anyway. If the amount is the issue then that’s one thing, but the other two tax related ideas would result in nearly immediate revenue. Albeit slightly less than if people were moving in on their own at current tax rates, but that’s not the point. More bodies in the city, more spending in the city, more (than now) taxes paid, more revenue.

Baltimore does require a balanced budget, as does the state. Honestly though at this point I don’t think they can fix it without a massive bailout from area businesses and residents unless they have the balls to further slash public services.

Then again, there’s no earthly reason they couldn’t still implement some of the other taxes and fees and whatever else in concert with these ideas too, and sunset the BS taxes later on (yeah right).

http://lmergner.blogspot.com Luke

I must misunderstand the economics of income taxes: if you lower or eliminate the income tax doesn’t that exascerbate the deficit at least in the short term (I suppose we’d be talking about the 2011 fiscal year)? This isn’t a version of the Laffer curve myth, is it?

As you say, I don’t see a balanced budget happening without a massive “bailout”–which simply passes the burden to the state and country. Not ideal. Obviously the answer is have some kind of sustainable tax base in the city, although I doubt that’s been possible for decades. Now, Baltimore’s problems are part of the bigger economy. Attracting new residents will be more difficult now, since in addition to all the reasons that they never moved in before, we have an underperforming mortgage market, lower overall spending (and less inclination to risk), much higher unemployment (8.5% in MD, 12.5% here in CA). All of this argues against large demographic shifts magically fixing our budget problems.

http://citythatbreeds.com Evan

We’ve already witnessed the stimulating effect that a soon-to-expire federal tax credit has on Baltimore area home sales, I think a reinvigorated incentive program would continue the trend and make a huge impact within a year or two.

When the housing bubble was in effect we ran budget surpluses for a few years straight when houses were selling for the wrong reasons, if they start selling again with any kind of robustness for the RIGHT reasons – like this sort of program – it could easily pull us out of the water.

As for the local income tax credit or really any of these credits in general, it’s just added incentive to get new warm bodies living in the city. They may not pay their 0.305% income to the city’s general fund for a little while, but they’ll certainly spend their money at local grocery stores, restaurants, and entertainment venues, which helps the city almost just as much.

http://lmergner.blogspot.com Luke

I think my previous comment came across a bit snarky. It wasn’t meant to be. I feel a bit out of the loop with municiple economics; and you guys have a better idea of the problems and options.
http://www.facebook.com/group.php?gid=180044287445&ref=ts MCG

We could have closed the budget gap by several million dollars had Stephanie Rawlings-Blake not flip-flopped on her position about taxing vacant, uninhabitable, and abandoned properties at a higher tax rate. She supported it when she was president of the City Council, but some people at Baltimore Housing and perhaps some slumlords with deep pockets convinced her to oppose it as mayor.
http://lmergner.blogspot.com Luke

Evidently the mayor’s office counciled another MD city against a similar proposal because it could negatively affect property owners who, through no fault of their own, had a legitimate funding/rehab process delayed.
http://www.facebook.com/group.php?gid=180044287445&ref=ts MCG

Luke,

My proposal included language that would have granted waivers to property owners who were in situations like the one you described.
http://lmergner.blogspot.com Luke

Ah, well, I should have included the link where I read the story. I never said I thought it was a good reason not to tax slumlords. By the way, I wonder as a matter of policy how you would monitor/enforce the difference between legitimate delays and slum-mongering.

I also tried to google scholar some of the social science on (1) municiple budgets and (2) measuring government performance. I’m not a scholar of local government or bureacracy. City budgets seem to have a few older works; and performance metrics is a hot new topic in social science. Too little on one hand; too much on the other. Another empirical question, which I haven’t seen addressed in connection to Baltimore, is how the city compares to others based on history, demographics, finances, etc. Not only might we learn something about effective policy, I think it might help deepen our conversation about what’s really “wrong” in Baltimore.

Maybe I should write this up in a post.
Mike

i like the sound of the taxation on vacant properties. There are so many derelict properties on my old street in the city. it’s sad. i just wonder how efficient the enforcement would be actually protect the legit exceptions, and not have shady flippers work the system. something tells me the properties will just constantly change hands or something, and never get taxed correctly.