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Baltimore budget chief cautions council on raising taxes

Terrell Askew, a member of the Remington Housing Workgroup, speaks during a rally outside City Hall on Thursday. Backers of a proposal showed support for the Fund the Trust Act prior to the bill's first hearing. (Adam Bednar)

Terrell Askew, a member of the Remington Housing Workgroup, speaks during a rally outside City Hall on Thursday. Backers of a proposal showed support for the Fund the Trust Act prior to the bill’s first hearing. (Adam Bednar)

A Baltimore City Council bill raising taxes to pay for the Affordable Housing Trust Fund may create negative consequences for city finances, the budget director warns.

The Fund the Trust Act received its first committee hearing on Thursday at City Hall. The bill is expected to provide $13 million for the fund annually by increasing transfer fees 0.6 percent and recordation fees .15 percent on high-end transactions.

“It does make it much more expensive to do business in Baltimore,” Budget Director Bob Cenname said during the hearing.

During his appearance before the Taxation, Finance and Economic Development Committee, Cenname described the revenue stream from the proposed tax increases as “highly volatile.”

In recent years the recordation and transfer taxes produced on average $90 million for the general fund. But the yield from the fees swings wildly with the real estate market.

The highest dollar figure produced by taxes was $117 million in 2006. In 2011, at the bottom of the local housing market post-2008 financial meltdown, revenues totaled $41 million.

In fiscal year 2017, 23,855 properties in the Baltimore were subject to those taxes. Under the legislation, which applies to properties selling for $1 million or more, only 295 transactions would’ve paid the increased taxes.

But if 5 percent of those properties didn’t trade because of tax increases, Cenname said, it would cost the general fund $2 million. There’s also concerns about tax competitiveness, he said, because city taxes are so much higher than surrounding areas.

Research reviewed by the Budget Department also raised concerns about slowing the real estate market and reducing income tax revenue by convincing residents to live elsewhere.

In the event of an economic downturn, the new taxes, Cenname argued, would hinder budget flexibility. That means if the real estate market slows, the city would have to make cuts in expenditures to keep finances balanced.

There was also an amendment proposed for the bill grandfathering in certain development projects. The amendment would make projects that already have acquired permits exempt from the tax increase.

Councilman Eric Costello voiced support for that amendment. It’s unfair to developers, he argued, who believed their financing was in order, to add fees at the last minute.

“It is unfair to them to say … ‘Oh, by the way, we’re going back and tacking something extra on,” Costello said.

Donald C. Fry , Greater Baltimore Committee president and CEO, supported the legislation’s goals in his written testimony. His support, however, is predicated on the adoption of amendments grandfathering in projects with permits, and attaching a sunset clause to the tax increases.

The committee later approved an amendment to exempt some projects from the higher tax and a provision to apply a seven-year sunset provision under which the higher taxes would expire.

Fry criticized the process for reviewing the bill, citing the legislative deal between Mayor Catherine Pugh’s administration and housing activists that was announced before the hearing.

“While the GBC supports efforts to increase affordable housing, it is important to note that the legislative process by which this legislation has proceeded lacks transparency, openness, and fails to meet acceptable standards of a fair process,” Fry wrote. “The passage of any legislation in this fashion should be a concern to individuals who live in or conduct business with the City of Baltimore.”

Activists who rallied outside City Hall prior to the hearing, on the other hand, hailed the bill as a historic.

Destiny Watford, a Curtis Bay resident and organizer with Workers United, has played a leading role in securing the deal to subsidize the Affordable Housing Trust Fund. (Adam Bednar)

Destiny Watford, a Curtis Bay resident and organizer with Workers United, has played a leading role in securing the deal to subsidize the Affordable Housing Trust Fund. (Adam Bednar)

“Today is a historic moment for us. It’s a game changer. It’s a new wave rolling into town. What I want to emphasize though, and make sure we all understand and recognize, is this fight is just beginning,” said Destiny Watford, a Curtis Bay resident who helped lead the campaign to secure funding.

Affordable housing advocates have sought to subsidized the trust fund for years. Baltimore voters, with about 83 percent of ballots cast in favor, approved a charter amendment to create the fund.

But there was no dedicated revenue stream. Since then, activists tried to secure funding by backing tax increases or demanding general obligation debt. So far all those efforts failed.

Councilman John Bullock, with support from activists, introduced the Fund the Trust Act in April. But when the legislation failed to receive a committee hearing, advocates started applying pressure on the Pugh administration.

They launched a ballot initiative to place a charter amendment on November’s ballot. That amendment would’ve dedicated 5 cents for every $100 of assessed property value in the city to the trust fund.

Activists gathered 15,000 signatures by early August, and were prepared to put the amendment before voters. Because charter amendments usually pass once they go before city voters, it forced Pugh to cut a deal.

If the ballot initiative passed it could’ve severely limited the city’s financial flexibility as well as restricted executive power to fund priorities.

In August, days ahead of the deadline to place a charter amendment on the ballot, a deal was announced.

Pugh backed passing the bill subsidizing the trust fund but with reduced tax increases. The city promised to make up the difference with general obligation debt, or through additional legislation. In return activists dropped the charter amendment.


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