In 2010 property assessments decreased all over Maryland . One third of home owners should be receiving new 2011 assessments in the mail this week or next. These assessments should follow the decreasing trend that was first noticed in 2010. This is temporary good news for long time landlords and other non-homeowner occupants who are not protected by homestead tax credits. In Baltimore the 2010 assessments decreased by 5.5%. There is a very slim chance that in 2011 the city may be faced with a situation where they will have to RAISE property taxes to make up for a decrease in assessments. It is highly likely that such a situation will occur in 2012. We could have avoided this nightmare scenario if we understood and implemented the constant yield tax rate in 2010. Most likely it is still possible to avoid this scenario if we implement the constant yield tax rate in 2011.
“The Constant Yield Tax Rate is simply a property tax rate that, when applied to new assessments, will result in the taxing authority receiving the same revenue in the coming taxable year that was produced in the prior taxable year.”
For at least the last 6 years the city of Baltimore has used a property tax rate that is higher than the constant yield tax rate and thus produced a larger amount of property tax revenue for the city. If the city were to actually manage itself correctly then we would have lower property tax rates every year. When Baltimore sees the potential for more revenue at the expense of the property tax payer they suck up the money and create new programs to fund (while still hardly maintaining the older programs). If we do not stop this madness this year then property tax payers will end up paying far more for it than they ever imagined in 2012. Below are some easy to follow numbers that I came up with in 2009 that help explain my scenario. These numbers are not exact but they show the direction that I feel we are going in because of decreased property values and the popping of the real estate bubble.
Let’s say that in year 1 Baltimore collected $100,000 in property tax revenue. In year 2, one third of the assessments decreased by 5.5%, but because of past housing bubbles two thirds of the assessments are being phased in from the past and are still rising. In order for the city to collect $100,000 in year 2 the city would use a constant yield tax rate (CYTR) that was lower than the current property tax rate. The city chooses not to use the CYTR. They stick with the old rate and they collect $105,000 in property tax revenue in year 2.
In year 3 the next third of properties gets reassessed. Assessments drop on these properties, but one third of the properties’ assessments are being phased in from the past and are still going up because of past housing bubbles. In order for the city to collect $105,000 in year 3 (like it did in year 2) the city would use a slightly lower CYTR than the current property tax rare. The city opts to keep the current tax rate and it collects $107,000 in property tax revenue.
In year 4 the final third of properties gets reassessed. Assessments drop on these properties. Phased in assessments are no longer significantly increasing anywhere. Over the last 3 years an incredible amount of houses have lost assessed value. If the current property tax rate is used, only $100,000 in property tax revenue is generated. In order for the city to collect the $107,000 it collected last year it must use a CYTR that is HIGHER THAN THE CURRENT PROPERTY TAX RATE! Property tax rates are increased in order to hit the CYTR requirement. Welcome to 2012! Had the city used the CYTR in year 2 it never would end up in this situation. This is why we must cut government programs, fire government workers, and lower the property tax rate to the CYTR in 2011. If we manage our expenses correctly now, then lower assessment will not be a major issue in the future.
Adam is the most recognizable face of the recent resurgence in Reservoir Hill. He has appeared on many national and local radio shows, in several news publications, and at numerous events discussing his innovative urban redevelopment ideas and his unique lifestyle. Adam is a successful entrepreneur, community activist, and a local political guru who ran for city council in 2007. He is the founder and director of the TechBalt.com Buy a Block Project and BaltimoreHourly.com. His fearless local political commentary has rocked the local blog scene for most of this decade and he plans to take it to the next level in the next decade here on Charm City Current.