Prince George’s County is one of the richest majority-black counties in the country, with a median household income 37 percent above the nation’s and a poverty rate 30 percent below it. Because Prince George’s sits next to the District, however, its prosperity is often credited entirely to the economic engine that is the federal government.
But that somewhat patronizing assumption hides an interesting story and a key lesson. In the 1970s, even as federal agencies multiplied and government employment rose, Prince George’s was headed downhill. While its neighbors grew rapidly, Prince George’s population shrank by 32,000 between 1972 and 1979. From 1969 to 1979, its poverty rate ticked upward by 0.6 percentage points while contiguous Charles and Howard counties’ rates fell 3.5 and 1.3 percentage points, respectively.
While pundits blamed the usual suspects — notably racism and white flight — some county leaders saw a problem they could fix immediately and completely. As the county’s population soared in the 1960s, its property tax rate had climbed to a noncompetitive level; it ranked second-highest in the state, behind only Baltimore City’s. So, in 1978, a pair of Democrats, emulating California’s Proposition 13, put a tax cap referendum on the ballot, admitting that “the property tax is running people out of their homes.”
Their “Tax Reform Initiative by Marylanders” — Trim — was embraced by the Republican candidate for county executive, Lawrence J. Hogan Sr., who four years earlier had earned renown as the sole Republican member of the House Judiciary Committee to vote for all three articles of impeachment against Richard M. Nixon. His 22-year-old son, Lawrence Jr., would get his first taste of politics as a volunteer in that 1978 race, in which the senior Hogan was the only one of 60 Republicans on the ballot to win office in a county in which 75 percent of voters were Democrats.
Trim also won in a landslide.
Coping with the budgetary discipline required by Trim occupied Hogan throughout his term. He made it work: Flight ended immediately. Prince George’s population rose for the next two decades. By 1989, the county’s poverty rate had fallen by one-quarter and was 2.3 percentage points below Maryland’s average.
It turns out that tax rates matter.
Fast-forward to the present day, and the younger Hogan has begun his second term as Maryland’s governor — just the second Republican governor in the past half-century in this deep-blue state. With an approval rating consistently near 70 percent, he has a reputation as a pragmatic centrist. Like his father, he has taken a principled stand against a Republican president of whom he disapproves. And he is getting buzz as a presidential candidate, either in 2020 or beyond.
To enhance that status and build his legacy as a transformative leader, he might also consider doing for Maryland’s most troubled jurisdiction what his dad did for Prince George’s County. Baltimore City surpassed Prince George’s excesses by imposing 19 property tax increases in 25 years (1950 to 1975). But its leaders never opted for a restorative, Trim-like tax cap despite Baltimore City’s massive flight of population and jobs, spiraling crime and stubborn poverty.
Instead of pursuing a competitive property tax rate that would benefit residents and businesses, Baltimore has instead doled out special tax breaks to select developers. But, as its decades-long decline shows, inducing new investment on a few hundred acres here and there is not enough to revitalize a decaying city of 81 square miles. Furthermore, it is not fair. A few developers enjoy large tax breaks while the vast majority of residents suffer under punishingly high property tax rates.
There is a better way, as we detailed in a special issue of the Journal of Applied Corporate Finance. To allow the city to maintain levels of public services while delivering a competitive property tax rate, it should adopt a binding tax cap that will take effect at least one full reassessment cycle in the future. As new investment arrives, property values would improve, and the city would begin to repopulate. New residents would deliver more local income tax revenue, and the city’s tax base would expand. The added receipts could then be set aside in a “lockbox” to close any budget gap when the cap takes effect.
As Prince George’s demonstrated, a competitive property tax rate is a necessary condition for growth and broad-based prosperity. Baltimore’s leaders have ignored this fact far too long. Hogan could be the force who transforms the city. If he were to announce a willingness to backstop the tax cap plan with some state financing, should the lockbox be a little light, the city could begin a long-overdue turnaround — just like the one his dad oversaw in Prince George’s County 40 years ago.