The legislation that Baltimore City Council members passed and sent to Mayor Catherine Pugh’s desk in October was supposed to allocate around $13 million to the city’s new Affordable Housing Trust Fund by raising taxes on certain real estate transactions.
But it appears an error in the bill text has significantly reduced the actual sum that those tax changes would bring in for the trust. It comes down to several words.
As explained in a letter sent out last week by Public Justice Center attorney Matt Hill, who represented affordable housing advocates in deliberations on the bill, there were a couple “major technical errors” in the text that went unnoticed.
Essentially, instead of raising taxes on transfers and records in real estate transactions of more than $1 million, the law actually kept those rates the same. As a result, the trust would really only receive 2 to 3 percent of the $13 million that advocates and officials are expecting, Hill said.
Here’s what happened: The bill was supposed to tax the total value of real estate in deals exceeding $1 million, but as written it only takes a small percentage out of taxes generated by the sale, or from the “amount collected” from taxes instead of the entire amount of the real estate transaction. As an example, on a $1 million deal, the trust would receive merely $90 from transfer taxes, instead of $6,000 as intended.
Josh Greenfeld, formerly vice president of government affairs for the Maryland Building Industry Association trade group, which opposed the bill, notified Baltimore City Finance Director Henry Raymond of the error in a letter dated Dec. 14, 2018.
As he explained, the current transfer tax on real estate deals is 1.5 percent, and the recordation tax is 1 percent. The new law was supposed to raise the transfer tax rate on a deal for any property worth $1 million or more to 2.1 percent, and the recordation tax rate to 1.15 percent.
Mayor Catherine Pugh said in a statement in December that she would sign the bill into law “to provide Baltimoreans with affordable housing options and move individuals and families out of poverty and into stable housing.” However, legislative records indicate her office has recalled the legislation.
City Solicitor Andre Davis, head of Baltimore’s Law Department, which reviewed the bill, wrote in an email Thursday that he does not know how the errors went unnoticed.
However, “the process to amend the law has been initiated,” he said.
Hill said Thursday that the effect of those two words–“amount collected”–would be “incredibly colossal and devastating” for the Affordable Housing Trust if not fixed. However, he said, he’s spoken with the mayor’s office, Councilman John Bullock, who introduced the bill, and Department of Housing and Community Development Commissioner Michael Braverman about amending the legislation because the need for the money has “never been more urgent.”
He said Bullock plans to introduce a “corrective bill” with the intended wording at one of the council’s next two full meetings, meaning it’ll be either Jan. 14 or 28.
Bullock has not responded to emails or a voicemail requesting comment.
Pugh’s spokesman James Bentley II said Friday that a new bill will be introduced “to further clarify our legislative intent on the implementation of the yield tax.”
“We are working with the Council and legislative reference and we fully intend to correct this error to ensure that the Affordable Housing Trust Fund is funded at the levels originally agreed upon,” he said. He added that Pugh’s administration has created the Neighborhood Impact Investment Fund to help spur development in underserved neighborhoods, reduce poverty and “facilitate housing stability.”
Odette Ramos, executive director of the Community Development Network and leader of the Housing for All coalition, said Thursday of the errors, “I’m glad they surfaced now rather than two years from now, when we don’t have any money because it was worded improperly.”
She said she’s not sure who’s responsible for it, but noted the city’s Law Department and DHCD helped to draft the bill, with input from advocates.
Davis, for his part, wrote in an email to Baltimore Fishbowl that the “Law Department reviews bills and proposed resolutions; generally we don’t write them.” Kevin Nash, a spokesman for DHCD, said “it’s really a legislative drafting issue” and referred us to to the Law Department.
Ryan Flanigan, a 2017 Open Society Institute fellow who’s created the Remington Community Land Trust to secure housing for low-income residents facing displacement, lamented the delay in delivering funds for the Affordable Housing Trust.
“We fought hard for the city to put skin in the game and make sure it was funding these kinds of projects,” he said. “Every day that money is not in the trust fund, we are having a harder time financing our project. This was money designed for housing very poor people, and that’s the hardest money to get.”
Voters in 2016 approved the formation of the Affordable Housing Trust via ballot referendum, creating a means of building, rehabbing and preserving over 4,100 affordable housing units across the city over the next decade. But since funding wasn’t part of the deal, activists launched a petition drive to put a referendum on the 2018 ballot to allocate five cents of every $100 in assessed property value in the city to the trust. As a compromise that ended the petition drive, officials devised the aforementioned tax increases for property transfers and recordations.
Mayor Pugh has also committed to allocating millions more from bond sales and general revenues, bringing the total amount in funding to $20 million by 2023.
This story has been updated.
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