Radical Tax Cut Proposal Would Spell Disaster for Baltimore

A recently unveiled plan to slash Baltimore City’s property tax rate would likely cost upward of $400 million per year, force deep cuts to education and other services, and make the city a less attractive place to live.

The proposal would cut the city’s property tax rate by 44% over six years, from 2.248% to 1.250% of assessed value. Mathematically, there is no way around it: The cost of this plan would be astronomical.

Based on current property values, the plan would cost about $443 million in lost revenue once fully phased in. This is more than the city’s entire contribution to Baltimore City Public Schools. Given likely property value growth trends, the future cost will be even greater.

Not only will the lower rate lead to less revenue, research shows that establishing maximum property tax rates (rate cap) leads to revenue shortfalls, most often forcing cuts in school spending. This is due to the connection between the property tax base, school finance systems, and the quality of schools. If the schools are underfunded and therefore underperforming, it can lead to fewer people choosing to live in that district and therefore negatively affect the tax base. Based on the experiences of school districts in states that have capped property taxes, additional cuts will further restrict revenue for schools, impacting education quality, and limit growth.

Proponents are muddying the waters, claiming that the tax cut would unleash enough economic growth to offset the cost of the proposal, resulting in increased revenue. This is a fantasy, plain and simple.

Even if the city’s population increased by 50% and the major tax bases doubled – a wildly unrealistic scenario – the tax cut would still force a 15% cut to general fund city services per capita. In the real world, the required cut could be 20% or more.

Why are the campaign’s claims so absurd? Let’s dig into the numbers:

• The impact on housing and commercial real estate prices would be modest. A family with a $250,000 home might see its monthly mortgage payment decline by 12%, assuming no change in property values. A change of this magnitude would likely not attract tens or hundreds of thousands of people into the city, the sort of impact necessary to make proponents’ numbers add up.
• Any increase in property values would drive housing costs upward. Rising property values are an important part of proponents’ arguments, but this would put homeownership further out of reach for new buyers and shrink savings for current homeowners. For example, if home values increased by 25%, a homebuyer’s monthly payment might increase by about 8%, even factoring in the tax cut. As a result, Baltimore would become a less attractive place to buy a home.
• New residents need city services, too. Proponents’ claims rest on a large increase in population resulting from the tax cut. But a larger population would mean higher costs for schools, sanitation, road maintenance, and other services.
• State funding for Baltimore City Schools would fall. Several sources of state funding, such as the educational effort adjustment and the guaranteed tax base (parts of the Blueprint education funding formula) depend on strong local support for public schools. If the city cuts education funding – an inevitable result of losing hundreds of millions in revenue – state funding would also fall, harming students further.
• Service cuts would dim Baltimore’s economic prospects. Under any remotely realistic set of assumptions, the tax cut plan would make city services worse – fewer and less experienced teachers, further cuts to recycling collection, bumpier roads, and so on. That’s not the kind of place people want to live in. Ultimately, the tax cut would sap power from Baltimore’s economic engine, which would shrink the tax base and further reduce revenues.

By undermining the foundations of Baltimore communities, the tax cut plan would further entrench racial injustice. This is little surprise, as the nation’s first constitutional property tax limit was the work of white politicians in Alabama working to unwind Reconstruction reforms. The city would have little choice but to slash funding for public schools, undermining the promise of the Blueprint for Maryland’s Future and leaving one of our state’s two majority-Black school systems as one of its most deeply underfunded. The plan would likely force deep cuts to other investments such as housing ($46 million in general fund investments, fiscal year 2023) and public health ($47 million) that are essential for Black Baltimoreans and other Baltimore residents of color. Simply put, the campaign’s lip service to equity is hollow.

There are better ways to make Baltimore City more affordable and more vibrant:

• Strengthen housing investments. The most straightforward way to make life in Baltimore more affordable is to invest in affordable housing. This could include funding development of new housing as well as strengthening assistance to renters with low incomes. We could double Baltimore’s general fund housing investments for roughly one-tenth the cost of the tax cut plan.
• Expand the city’s guaranteed income pilot program. Mayor Scott announced the Baltimore Young Families Success Fund earlier this year, providing $1,000 monthly payments to 200 young parents across the city. Expanding this program would strengthen families’ economic security and boost children’s long-term wellbeing.
• Create local tax credits for working families. Baltimore can strengthen working families’ economic security by creating a local match to the state Earned Income Tax Credit, a step Montgomery County has already taken. The city could also create a local Child Tax Credit similar to the federal credit under the American Rescue Plan.
• Strengthen protections for low-income homeowners. Baltimore already spends more than $100 million per year on property tax credits, but most of these are not well targeted to the families with the greatest needs. We should expand the Supplemental Homeowners Tax Credit, which targets assistance to homeowners who live on low incomes.
• Create a renter’s tax credit. Renters are more likely to be people of color, typically have lower income, and are more likely to face unaffordable housing costs than homeowners. A local renter’s tax credit would offset property taxes passed through by landlords.

MDCEP Research Assistant Musaab Ibrahim contributed to this analysis