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Amid city budget shortfalls, real estate revenue bucks trend

But Horseshoe Casino income lags

The city of Baltimore’s budget director is projecting a $14.8 million budget deficit, but he said he’s encouraged by growth in revenues generated from property, transfer and recordation taxes.

Andrew Kleine said that boosts in those revenue streams have come from increased activity in both commercial and residential real estate markets despite prices remaining below pre-recession levels in the current and previous fiscal years.

“We’ve seen a number of large-dollar transactions, the apartment conversions and those kind of projects, and we’re especially conservative in budgeting transfer and recordation, because it’s a highly variable source of revenue, and we don’t want to rely on it too heavily to cover ongoing operating costs,” Kleine said.

In fiscal year 2014, transfer taxes were up $9 million and recordation tax revenue, which comes from refinancing as well as property sale, were up by about $11 million from the prior year.

“There’s a significant impact of large dollar transactions, we saw quite a few of those in fiscal ‘14 … over the course of fiscal ‘14 a lot of the story was big-dollar transactions downtown, office buildings, apartment conversions, those kinds of projects,” Kleine said.

Although the city is projecting a net revenue surplus in fiscal year 2015 of $17.7 million, largely from property tax surplus, the City Charter forbids using funds from property taxes for supplemental appropriations, creating the $14.8 expenditure deficit. The projected deficit is being driven in large part by an $18.6 million deficit in the police department caused by overtime expenses as well as an unbudgeted $8 million contract with the police union.

“On one hand we have an almost $3 million surplus … but because we can’t use that property tax to deal with the expenditure deficit our options are limited,” Kleine said.

There are also some reason for concern because anticipated revenues from Horseshoe Casino are falling short of projections through the first quarter of fiscal year 2015. As a result the city is projecting it will collect $6.1 million less than what it had anticipated receiving in the fiscal year 2015 budget.

The casino pays city about $3.2 million in property tax and a ground lease payment based on 3 percent of the casino’s gross receipts. The city initially projected it would receive $14 million form the ground lease; it now anticipates it will collect $8 million.

“The first three months of revenue have been disappointing. When we did this projection we didn’t have a lot of data. The casino hadn’t been open very long,”Kleine said. “Even … two months later it’s still on track to be well below what the state had projected.”

About Adam Bednar

Adam Bednar covers real estate and development for The Daily Record.