(UPDATED, 9:15 p.m.) — The Baltimore City Council took a major step toward subsidizing the city’s Affordable Housing Trust Fund.
The council, on Monday evening, approved moving the so-called Fund the Trust Act to a final vote. The legislation raises city transfer and recordation taxes on the sale of certain residential and commercial properties.
Baltimore legislators passed the amended bill on its second reader. That sets the stage for the council to approve the legislation on third reader, and send it to Mayor Catherine Pugh to sign. Bills clearing second reader generally pass the council.
The Fund the Trust Act is expected to provide $13 million for the fund annually by increasing transfer fees 0.6 percent and recordation fees 0.15 percent on residential and commercial property transactions of $1 million or more.
City voters overwhelmingly approved the creation of an Affordable Housing Trust Fund in 2016. But the trust fund never had a funding mechanism attached. Activists have fought for the last two years to secure revenue for the fund.
A coalition of organizations, including United Workers, Baltimore Housing Roundtable and Housing for All, announced Monday they were rallying before the hearing, and urged the bill be passed with amendments modified or stripped. The Taxation, Finance and Economic Development Committee recommended the bill’s approval with amendments last month.
Those amendments included a grandfather clause exempting owner-occupied residential properties from paying the increased taxes until Jan. 1, 2021. It also excuses construction loans on projects from tax increases as long as a building permit is obtained prior to the legislation taking effect at the start of next year.
The amendment was modified prior to Monday’s vote, and stipulates developers who obtain building permits by the start of next year must close on loans in six months. The original bill introduced this spring exempted owner-occupied properties from the tax increase.
Advocates said they wanted the grandfather clause altered. The amendment as originally proposed, activists argued, created a loophole for developers to continually renew building permits and avoid paying into the fund.
But emails provided Monday by City Council President Bernard C. “Jack” Young’s office showed a deal was in place on Friday between activists and the council limiting the window to close loans to six months.
Councilman John Bullock, the bill’s lead sponsor, said Monday afternoon he didn’t believe the original grandfather clause could’ve been used in that manner.
“Theoretically (it could happen), but I don’t see that as a primary concern,” Bullock said. “The other piece of the language to assuage that concern there has to be an affidavit provided… that they’re going to comply with the time period (to close loans).”
Councilman Eric Costello supported the grandfather clause during the committee hearing last month. It’s unfair to developers, he argued, to add fees on projects when builders thought their financing was in order.
“It is unfair to them to say … ‘Oh, by the way, we’re going back and tacking something extra on,” Costello said during the earlier hearing.
Activists also objected to a proposed sunset provision eliminating the tax increases in seven years if the council didn’t vote to keep the boosted fees. On Monday the council voted to reject that amendment.
Costello was the lone vote against removing the timetable. The sunset amendment was supported by organizations, such as the Greater Baltimore Committee.
The council will have the ability to review reports on the tax collection, Bullock said, and future councils have the ability to address any future problems.
“The council does have the ability to rescind it or at least repeal it,” he said.
Pugh has already pledged to support the legislation if it passes the council, part of an agreement her administration made with activists to avoid putting a referendum dedicating 5 cents of every $100 of assessed property value in the city to the fund before voters.
As part of the deal activists agreed to reduce the tax increase originally proposed in the bill. To offset the drop in expected revenue Pugh vowed to contribute $2 million to the fund through an Ordinance of Estimates or via additional legislation starting in 2020. That amount will be increase to $7 million annually by 2023.
Developers, building groups, and commercial real estate interests opposed the tax increase. Baltimore already has the highest transfer and recordation taxes in the state.
During the committee hearing last month, Budget Director Bob Cenname warned the legislation may have negative consequences for city finances and businesses. He described the revenue stream from the proposed tax increases as “highly volatile.”
“It does make it much more expensive to do business in Baltimore,” Cenname said during the hearing.