Tuesday, August 30, 2016

Professor Walter's deadly jump

Salto mortale, a dangerous and daring jump with possibly lethal outcome

Mr. Walter is a conservative economist at Loyola College and occasionally he gets to write columns on the SUN's opinion page in which he takes economic salti mortali, scary, possibly deadly jumps. Take Monday's column in which Mr Walter writes this:
Cutting the city's property tax rate in half would, indeed, cut receipts by about $400 million this year. The contemplated $1.2 billion in city, state and federal subsidies for Mr. Plank's project alone would cover three years of such losses.
But, of course, with a competitive tax rate the city would not only be attractive to Mr. Plank but to untold numbers of others who would like to invest in Baltimore but lack political muscle to win the concessions that would make this worthwhile.
It is well known that conservative economists never see a tax that they wouldn't like to cut and in the case of City property taxes, who would not agree, cutting it would be nice. It is sky high and many bright minds have tried to approach the conundrum on how to reverse the deadly spiral that a shrinking pool of residents has to cough up ever more taxes to pay for keeping the City open, a cost that is not shrinking  proportionally with the sinking revenue. This city has almost saved itself to death already with so many departments decimated to a point where they are only shadows of their former past. Naturally, services shrink in the process as well, not exactly a recipe to attract more residents.
Baltimore City budget: 32% from property taxes

As I said, many bright minds have put all kinds of studies together to address the problem and all agreed that the city has to somehow bring the taxes down to attract new residents. But nobody came up with Mr. Walter's brilliant idea of just not giving Kevin Plank the TIF and cut the property tax rate in half instead.

I wonder why this is? Could it have to do with the fact that the TIF money (or the tax credits he lumps in to get to the needed amount) isn't real money and can't be used for anything until it is drawn from a bond which is secured by the very value and income that the TIF pays for, Port Covington's infrastructure? In other words, if Sagamore doesn't build a thing, there is no bond or any other source to use to make up for the $400 million loss per year that would result from a property tax cut of 50%.
Graphic from Professor Walter's 2011 article "How to make Baltimore
a superstar city"

If Mr. Walter thinks he could find an entity that would issue bonds on his premise that cutting the property tax rate in half would pay not only for itself in three years but also pay back the bond, if he really believes that he lives in a parallel universe. Mr Walter assures that this is what happened  in San Francisco. How did that City do it? With the help of the State of California which basically made a local tax a State affair and made up for the initial losses. having the State effectively preempting a local tax is, in fact, usually an anathema among conservatives. (See also the California Policy Institute's paper).
Proposition 13 and AB 8 generated two important outcomes. First, the property tax is no longer a local tax. Proposition 13 sets the rate and base; AB 8—a state law—allocates who gets the receipts. The amount of property tax received by a local agency is a function of its relative share of property tax levied prior to Proposition 13. For example, a city that previously had a relatively high tax rate receives a larger share of the fixed countywide 1 percent property tax rate. Aside from annexation or incorporation, the only way that local governments can affect property tax receipts is through economic development, and even in these cases, they receive only a portion of the revenues (Public Policy Institute of California)
It turns out that Mr Walter's story that increased attractiveness and economic activity made up for the entire shortfall in SF's budget leaves out that \Prop 13 was statewide initiative and involved a broad set of revised formulas and mechanisms to make up for the urban budget shortfall.

Mr Walter has peddled his idea of the big tax cut before in his Policy Papers under the title How Baltimore to Make Baltimore a  Superstar City. (The 2011 Maryland Journal). Somehow all of the leaders in State and City and even the current Republican Governor have not seen Walter's suggestion as compelling enough to try. Maybe it is because California Proposition 13 today isn't seen as the thing that brought only good results. Already in 2009 TIME attributed the California budget crisis to Prop 13.
at the root of California's [budget] misery lies Proposition 13, the antitax measure that ignited the Reagan Revolution and the conservative era. In Washington, the Reagan-Bush era is over. But in California, the conservative legacy lives on. (TIME)
It is astounding, though, that Walter pulls his silver bullet out again to argue against the TIF for the Sagamore project currently under consideration. One would think that Kevin Plank would be a conservative economist's special friend and that his project is precisely the type of investment Walter promotes, namely more residents who help carry the tax burden.

The TIF is not to provide Mr Plank with tax relief as Walter makes us believe, it has never been seen as such. Instead, the TIF pays (half) of what has been a matter of public domain for a long time: Infrastructure. Infrastructure that will make pretty worthless railyards valuable development land. A self paying proposition in which an investment is leveraged to receive income that before wasn't there. The very thing that economists always promote. And a thing, if properly negotiated, could actually allow the City to bring its property tax rate down.

What do I know? I am just an architect. I just hope that finally somebody takes up his his silver bullet and applies it so we don't have to take the much recycled stories of 1978 as evidence any longer. Gary, Detroit, anybody?

Klaus Philipsen, FAIA

Summary of 2015 City Budget

Below an excerpt of Walter's story about three cities, Baltimore, Boston and San Francisco which I often use to show that, indeed, Boston and San Francisco were in dire straits once as well and that, indeed, it is possible to fill a city back up and eliminate vacant and abandoned houses. 

Overlooked in the standard story line is a remarkable real-world plot twist, however: some cities have coped with flight, suburbanization, and deindustrialization much better than others. Indeed, cities like Boston and San Francisco — each of which shares with Charm City a bayside setting, an industrial past, and a present that is politically progressive — have made such dramatic turnarounds that today they enjoy status as “superstar cities.” Their periods of decline are so far in the past that comparing Baltimore to them is often considered unfair. (San Francisco, after all, enjoys the advantage of nicer weather, and Boston has, well, awful weather, but… there must be something. A superior baseball team?) In fact, by most measures Baltimore was actually doing better — or, more accurately, less badly — than both Boston and San Francisco in the decades immediately following WWII. From 1950 to 1975, Baltimore lost 10 percent of its residents, but (weather and other conditions notwithstanding) San Francisco’s population fell 14 percent and Boston’s 21 percent. From 1947 to 1972, the number of manufacturing jobs declined by 25 percent in Baltimore, but 28 percent in San Francisco and 42 percent in Boston. Not surprisingly, crime flourished in all three cities as they depopulated and their economies struggled. — Yet as of 1975 the overall crime rate in San Francisco (where Hollywood used to film gritty cop dramas like “Dirty Harry”) was actually 19 percent higher than Baltimore’s, and Boston’s was a staggering 53 percent higher. Then, miraculously, things got better in the other two bay cities. ( pg 36 of the 2011 paper)