Frank DeFilippo: A Munificent Gesture in a Pauper’s Will

city at night, Baltimore

A pair of academics have been thumping their tubs for years to advance the illusory prescription for Baltimore’s woes that calls for capping the city’s property tax with the state making up the lost revenue.

They’ve presented variations on that tattered theme many times over, kind of a shell-game in which less is supposed to be more, when it’s actually woefully less. The economics professors are Steve H. Hanke, of Johns Hopkins University, and Stephen J.K. Walters, of Loyola University, both in Baltimore. Both are Ph.D.’s (piled higher and deeper).

Most recently, their pie-in-the-sky proposition appeared a couple of Sundays ago on The Washington Post’s Local Opinions page. In their latest rendition of supply-side baloney, the professors suggest that Baltimore should cap property taxes the way Prince George’s County did with TRIM, and that Gov. Larry Hogan (R) should pick up the tab and be a hero in the same fashion they say his father was as Prince George’s County executive in the 1970s.

Their ideological view is the Republican orthodoxy that tax cuts cure a host of ills – crime, lack of jobs, crime, depressed housing values, crime, loss of population, drugs, failing schools, gingivitis, fallen arches and whatever else ails a decaying municipality that H.L. Mencken described as “the ruins of a once great medieval city.”

It’s the same voodoo formulation that supply-siders Arthur Laffer and Stephen Moore, President Trump’s nominee to the Federal Reserve, foisted on Gov. Sam Brownback (R) of Kansas. Brownback’s tax cuts, with the promise of new riches, almost bankrupted the state and forced major cuts to education and support-system programs. The state’s legislature eventually repealed the cuts and reinstated the taxes.

And even President Reagan, whose administration popularized supply-side economics, if in name only, raised taxes 11 times as president and as governor of California. President Trump is following the same supply-side playbook, and it’s beginning to backfire, as many economists predicted.

Here’s the professors’ “nut” paragraph: “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. 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 “lockbox” to close any budget gap when the cap takes effect.”

Frank!
Frank A. DeFilippo

And here comes the cropper: “If [Hogan] were to announce a willingness to backstop the tax cap plan with some state financing, should the lockbox be a little light, the city could begin a long-overdue turnaround – just like the one his dad oversaw in Prince George’s County 40 years ago.”

If only.

Note the repeated use of the conditional verb “would” and all the other ifs, ands, or buts that prop up the promissory flow of riches from a theoretical tax cap and the thoroughly discredited supply-side sleight-of-hand. They even acknowledge, for crying out loud, that revenues might be “a little light.”

Let’s demolish, right up front, the predicate for this fanciful resuscitation program. Persuading Hogan to backstop a decrease in Baltimore property taxes is as likely as convincing President Trump to abandon his wall. The Hogans, father and son, were residents of Prince George’s County when it was largely agricultural and needed to juice its real estate portfolio.

Besides, supporting TRIM in the 1970s was political mojo. Since then, it’s been a disaster. Hogan’s father, also Larry, or the more proper Lawrence, campaigned for county executive in 1978 on an anti-tax platform. He was the last Republican executive elected in Prince George’s. (Hogan Sr. lost his primary race for governor in 1974 and was defeated overwhelmingly in 1982 in a race for the U.S. Senate against Paul Sarbanes.)

Much of PeeGee’s growth, and new wealth, resulted from the gentrification of neighboring Washington, D.C., which squeezed many of the capital’s residents out to the adjoining suburban county, and lately in a southerly pattern to Charles County. Prince George’s zoning practices had always been questionable, and, at one point, several officials ended up in prison.

Hogan, the governor, has no stake in Baltimore, nor would it be considered heroic to ask the rest of Maryland to foot the bill for Baltimore’s property taxes. The city is viewed as a wasteland by much of the state. Such an attempt would get Hogan a loud Bronx cheer and a flip of the bird.

TRIM, the onerous Prince George’s tax cap officially known as Tax Reform Initiated by Marylanders, was modeled on California’s Proposition 13, which over the years proved to be a deception and a cynical con job. On the surface, Prop 13 was a property tax cap, all right, but beneath the veneer it was a massive tax break for real estate barons and commercial property owners.

It’s PeeGee companion piece, TRIM, did little more than handcuff future county executives who tried many times over nearly 40 years to nullify, or get around it, often with nuisance taxes, and even a court fight. TRIM froze the dollar amount, not the property tax rate.

Since its introduction, TRIM has been whittled down to a number of exceptions. As late as 2016, for example, County Executive Rushern Baker, under a 2012 TRIM modification, was permitted to raise taxes for education. TRIM now has many exit signs.

Prince George’s, along with Anne Arundel, the other tax-capped county, regularly appeared before the General Assembly, tambourines in hand, as supplicants for funds they lacked because of tax limits. Often the tab was passed to the rest of the state’s taxpayers. Finally, they were told there would be no new funding until they eliminated the tax caps and raised revenue of their own.

A case in point was PeeGee’s quest for a new hospital. The county was repeatedly denied state funding until Senate President Thomas V. Mike Miller (D-Calvert) needed local votes to win his cherished casino. He was willing to trade state funding for a hospital as leverage for what is now National Harbor, on the Prince George’s bank of the Potomac River.

Baltimore is slowly reducing its property taxes, a nickel at a time, with the promise of more to come from Mayor Catherine Pugh (D). But Baltimore’s tax base is a city of thirds – one-third of its residents pay all of their taxes, one-third pay some of their taxes and one-third pay no taxes. Many properties are included in the state’s Homeowner’s Tax Credit Program, under which property taxes are tied to income. So a tax cap is a mirage.

There are three more layers to Baltimore that are often overlooked: Those who could afford to leave are already gone; those who can’t afford to leave are stuck; and those who populate the housing clusters around the water and in the half dozen Zip codes that support the city couldn’t give a fig. And many parents who can’t afford private schools head for the suburbs when their kids come of age.

Even worse, Baltimore has a problem that’s unique to municipalities but virtually unheard of in the counties – it is populated by groups of tax-exempt non-profits.

Stand at the center of the city, roughly at the intersection of Charles and Baltimore Streets, and measure a mile or so in all of the four directions, north, east, south and west, and fully 45 percent of the properties within that square mile are tax exempt – churches, schools, hospitals, colleges, nursing homes and charitable organizations, to name a few examples. Add to the inventory the estimated 17,000 abandoned houses.

Baltimore’s future growth and repopulation have little to do with property taxes. When Jeffrey Bezos, Amazon’s CEO and the world’s richest man, came courting, he wasn’t concerned about property taxes. What he saw was a lawless and leaderless city with a thin talent pool and a diminishing population – not a very enticing tableaux for a corporate headquarters and 50,000 waiting managerial cubicles.

What corporate location scouts primarily consider are not taxes but such quality of life features as schools, colleges and universities, housing, medical facilities, recreational facilities and cultural activities, to name a few on their Q-factor check list.

So sorry guys, your proposal is little more than a munificent gesture in a pauper’s will. Find another way to Make Baltimore Great Again.

Hans Mayer, former secretary of economic and community development and executive director of the Maryland Economic Development Corporation, was interviewed for this column.

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