Baltimore shows how not to fight divestment

One of Baltimore’s favorite girls, novelist Laura Lippmann, said her town “suffers from nostalgia” which “keeps us from being honest about what really happened here.” And when we talk about our city tragic decline, we are often in denial of what happened. Although Baltimore has adopted progressive policies for generations – creating a public housing authority before many other cities, electing only Democrats for more than half a century, and raising property taxes 19 times between 1950 and 1975 – the city’s political and opinion leaders have almost invariably point has a the story of iniquity ”in attributing responsibility for one’s failures. This omits other contributors to the city’s loss of population, homicide rate and failing schools, such as an unfavorable tax environment.

Baltimore’s latest idea to deal with its resident theft problem makes the same mistake. Presiding over a city with more than 16,000 vacant structures, city officials are proposing a revival inspired by nostalgia for the 1970s era “dollar housesprogram. At the time, the city was selling abandoned properties for a dollar to buyers who promised to repair them and live there for a while. The fondly remembered program is often credited with starting a Renaissance, but it is an illusion: less than 200 houses were actually sold as part of the program, which did little to stem the city’s 13% population loss during that decade.

Responding to vacancies can help solve the problems of a city, but Baltimore had better tackle a root cause of property abandonment: all those post-war tax hikes.

Baltimore has a unique political geography. It is completely surrounded by a separate jurisdiction, Baltimore County, with a property tax rate equal to half that of the city. City dwellers are therefore never more than a few kilometers from a superior investment environment. For every $ 100,000 invested in city property, the annual principal, interest, and tax bill of a 30-year mortgage at 4% interest is $ 8,084. That’s 17 percent more than a similar investment in the county. Unless the city’s properties no longer offer amenities or receive improved services in return, the investment dollars – and with them, people and jobs – will roll out of the city and flow into the county.

The harmful effects of this divestment and this leak do not appear overnight. As any homeowner or owner knows, buildings degrade slowly but inevitably. They require regular injections of capital (new roofs, improved kitchens) to maintain their value. Since the returns on these expenses are lower in high tax environments like Baltimore, they will be made with less frequency or not at all. Slow and steady degradation will afflict these areas; substandard structures can eventually become uninhabitable and abandoned, reducing property values ​​and affecting the quality of life throughout an entire neighborhood.

Meanwhile, conscientious homeowners who invest fall victim to an unfavorable wealth effect. If you owned a $ 100,000 home in Baltimore County ten years ago, you could sell it for $ 200,000 today (according to the Cas-Shiller house price index). Anyone considering buying an identical home in the city, however, would be liable for these higher tax payments, which would be factored into their price. To match the county’s monthly property mortgage bill, the same house in town could sell for only about $ 170,000. Indeed, the town owner has paid a “wealth tax” of $ 30,000 over the past decade. This is a problem for a city trying to retain existing residents and attract new ones and, in a 62% black city, a major obstacle to progress against the racial wealth gap.

Baltimore elected officials have known for decades that the city’s tax rate repels investment. As a result, they granted special tax breaks and subsidies to induce a redevelopment. Virtually all major projects in Baltimore in recent years have received such breaks. Resurrecting the dollar house program, to which cash grants from the federal spending bonanza could be added for the lucky qualifiers, is just the latest variation.

But census data clearly shows that special breaks are not enough to stem the tide of divestment. And they are wickedly unfair. Thanks to these subsidies, the effective tax rate on the income of a multimillionaire luxurious hotel may be a small fraction of that taken from an elderly widow’s modest townhouse.

If they want to spark a wave of large-scale organic investment, cities that suffer from divestment and leakage simply need to reduce their property taxes at competitive levels. Being competitive in the pursuit of mobile capital is not an option but a necessity. And one a well-planned and progressive tax reform program should not do violence to short-term municipal budgets and services.

“A place doesn’t have to be perfect to be loved,” says Lippman, the novelist, “and I love this city and I love it better to see its flaws.” Many Baltimoreans share this sentiment. But until we correct the political loophole at the heart of the city’s economic woes, fewer of us will love it each year.

Photo by BRENDAN SMIALOWSKI / AFP via Getty Images

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About Robert Valdivia

Robert Valdivia

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