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Ground Rents and the U.S. Constitution

Posted by Jim Walsh on Wednesday, September 29, 2010

The Baltimore Sun reminds its readers in today’s edition that ground rents that are not registered with the State of Maryland will soon be extinguished. Ground rent owners must register in person by Wednesday, 9/29/10, or postmark their application before Thursday, 9/30/10.

As the Sun reports: “Ground rent dates to Colonial times in Maryland and was used by rowhouse developers in the 20th century as a way to make purchases more affordable. But a Sun series in 2006 found that a handful of investors seized hundreds of homes over unpaid bills, reselling them and legally keeping the proceeds. Some of the homeowners said they never received the bills. Intent on reform, the General Assembly passed laws that prohibited such ‘ejectments,’ barred new ground rents and required registration of existing ones.”

Technically, the holder of the ground rent actually owns the property, and leased the property (in perpetuity) to the occupants commonly thought of as the owners of the property for what now seems to be a nominal amount. The typical ground rent in the Baltimore area calls for payments of less than $100 per year payable in semi-annual installments. If the semi-annual rent was not paid, the ground rent owner could go through a legal process to eject the “tenants”, which made the ground rent safe because it operated as a kind of “super mortgage”, being even ahead of the “tenants'” mortgage lender. The typical ground rent could be redeemed at a 6% capitalization rate, i.e., the tenant of a $90/year ground rent could get rid of it by paying the ground rent owner $1,500 ($90/6%).

I personally have never been a big fan of ground rents. A number of my clients own one or a handful of ground rents. Although they offer an attractive yield in today’s market, they are a pain to deal with. Unless the homeowner was willing to redeem the ground rent, the only way to get rid of them was to sell them to investors who would buy them at a substantial discount (maybe $750 for our sample ground rent). A handful of investors bought up hundreds or even thousands of ground rents in the Baltimore area, and brought the full force of contract law down on some delinquent homeowners, charging excessive fees for ground rent payments that were somewhat late, and ultimately even regaining outright ownership of some properties when the “tenant” did not cure the defect in the mandated time.

The General Assembly responded to the Sun’s series by passing legislation that (1) prohibited the creation of new ground rents, (2) eliminated completely the ground rent owner’s right to a eject a delinquent tenant, and (3) required that all existing ground rents in Maryland be registered in a central registry by 9/30/10 or be forever extinguished. I don’t dispute that there were abuses that should have been addressed, but as in often the case the politicians in Annapolis over-reacted. I see no problem with the prohibition against new ground rents, but I do have a problem with the General Assembly completely taking away the ground rent owners’ ability to enforce their rights.

As I recall, there is this inconvenient thing called the U.S. constitution that prohibits any state from passing any “Law impairing the Obligation of Contracts” (Article I, section 10), which is exactly what Maryland has done. In addition, the Fifth Amendment (among its other prohibitions) provides that no person shall be deprived of “life, liberty, or property, without due process of law; nor shall private property be taken for public use without just compensation.” It sure looks to me that the Maryland General Assembly has taken away property from ground rent owners without any trial or compensation. For the owner of a single ground rent that might be worth only $750 to begin with, it doesn’t make sense to spend tens of thousands of dollar to fight this fight on principle. And the ground rent owners who own enough ground rents to make such a fight worthwhile are the unsympathetic characters whose abuses were exposed by the Sun. It looks like another bite at our Constitutional rights.

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Posted in Jim Walsh, Maryland, The US Constitution | 2 Comments »

Where did Maryland’s Millionaires Go?

Posted by David Keelan on Tuesday, May 26, 2009

Millionaires Go Missing
The Wall Street Journal Reports

Maryland’s fleeced taxpayers fight back

Here’s a two-minute drill in soak-the-rich economics:

Maryland couldn’t balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy. Politicians in Annapolis created a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. Governor Martin O’Malley, a dedicated class warrior, declared that these richest 0.3% of filers were “willing and able to pay their fair share.” The Baltimore Sun predicted the rich would “grin and bear it.”

One year later, nobody’s grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller’s office concedes is a “substantial decline.” On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year — even at higher rates.

No doubt the majority of that loss in millionaire filings results from the recession. However, this is one reason that depending on the rich to finance government is so ill-advised: Progressive tax rates create mountains of cash during good times that vanish during recessions. For evidence, consult California, New York and New Jersey (see here).

The Maryland state revenue office says it’s “way too early” to tell how many millionaires moved out of the state when the tax rates rose. But no one disputes that some rich filers did leave. It’s easier than the redistributionists think. Christopher Summers, president of the Maryland Public Policy Institute, notes: “Marylanders with high incomes typically own second homes in tax friendlier states like Florida, Delaware, South Carolina and Virginia. So it’s easy for them to change their residency.”

All of this means that the burden of paying for bloated government in Annapolis will fall on the middle class. Thanks to the futility of soaking the rich, these working families will now pay Mr. O’Malley’s “fair share.”

Posted in Democrats, General, Maryland, O'Malley | 1 Comment »

Annapolis proposes a tax cut?

Posted by Ed C on Saturday, March 21, 2009

[Update] – Well it looks like I messed this one up. I misinterpreted the statement about the $60 million hit. This is just another confirmation that the state and county income tax revenues are going to be way down this year. Thanks to Warren Miller for the clarification. Ed C.

Original is below the fold if you really want to see how far off I was on this one.
Read the rest of this entry »

Posted in Ed C, General Assembly, Maryland, Taxes | Leave a Comment »

$1.7 B MD Structural deficit replaced with $2 B shortfall?

Posted by Ed C on Sunday, January 25, 2009

Gov. O’Malley has released his 2010 budget (2010 Maryland Budget Highlights) that increases state spending by at least $709 million dollars.   We were told in 2007 that Maryland had a $1.7 billion structural deficit that would be fixed by increasing taxes and having slot machines.  Now, we are told that we face a $2 billion dollar deficit, even after making painful cuts

Just as our families face the very real challenge of doing more with less, so too must those of us in government.  By necessity, the budget we are presenting today is unprecedentedly lean. It closes our projected $2 billion shortfall for fiscal year 2010 at a time when we’ve already enacted $2.2 billion in painful spending reductions. In addition, it eliminates hundreds of State positions on top of the 1,500 jobs we’ve already eliminated.

Spending reductions? From the same report  (in millions):

  • 2008   29,569
  • 2009  30,853
  • 2010  31,562 (proposed)

So where is the 2.2 billion in reductions?  Spending from 2009 to 2010 is proposed to increase by $709 million and $1,993 million since 2008.

According to the Spending Affordability Committee 2008 Interim Report released in December, the state of Maryland had 81,582 positions in 2008 and this was reduced to 81,247 positions in 2009.  A reduction of 335 positions (0.41%).  But wait:

Despite the decline in the number of authorized positions, the committee notes that, exclusive of higher education, there are currently more than 3,340 vacant Executive Branch positions, approximately 523 of which are funded, in the 2009 budget.  The higher number of funded vacant positions suggests that many additional workforce needs may be addressed through full utilization and reallocation of existing resources.

Are the “hundreds” of positions Gov. O’Malley claims will be eliminated really just not filling these 543 funded positions? The SAC recommends a position cap of 80,247, which if my math is correct would still enable the state to add 2340 employees.

Adding 2K+ employees is not a cut.  Adding more than $700 million in spending is not a reduction.

If you have ever wondered how we’ve gotten into this mess, a  good history of the State budget system and the Spending Affordability Committee was released by the Cecilia Januszkiewicz and the Free State Foundation in December, Structural Solutions for Maryland’s Structural Deficit: Pathways to Reform, but this may be a topic for a future post.

Posted in Budget, Ed C, Maryland, O'Malley | Leave a Comment »

Where did Maryland spend our money?

Posted by Ed C on Tuesday, January 20, 2009

In 2008, the state of Maryland paid vendors in the 21045 area code – $46,892,252.67. And it took just a few seconds to find out thanks to the Maryland Funding Accountability & Transparency web site.

The site launched Jan 8th, and now you can see by agency, vendor or zip code where the state of Maryland is spending your money.

The Maryland Funding Accountability and Transparency Act of 2008, was sponsored by Del. Warren Miller (R-Howard County) (detail here)

Posted in Budget, Ed C, Maryland | Leave a Comment »

2009 State Business Tax Climate – MD sinking like a rock?

Posted by Ed C on Monday, October 13, 2008

Remember when Gov. O’Malley said that he wanted to raise taxes to make Maryland more “competitive” with our neighboring states?  The Tax Foundation has released its annual comparison of the Business Tax Climate (Which States Are Best for Business?  2009 State Business Tax Climate Index – Six Edition).  The summary is here and the full report (pdf) is available here.

How did Maryland fare this year?

Maryland ranks 45th overall, a drastic drop from its 24th rank last year. Maryland lawmakers achieved this remarkable feat by raising most of the state’s major taxes for FY 2009. They raised the corporate income tax rate to 8.25% from 7%, the sales tax rate to 6% from 5%, and the cigarette excise tax to $2.00 from $1.00 per pack. They also created four new income tax brackets, raising taxes on filers earning more than $150,000 per year. Maryland’s top personal income tax rate is now 6.25% (up from 4.75%); that’s on top of a weighted average local option rate of 2.98%. Maryland now has by far the worst personal income tax in the country, with a significantly lower score than second-place California.

How large was this change compared to other states? A histogram generated from the change from 2008 to 2009 in Table 1 shows how Maryland stands out from the crowd this year.

2008 - 2009 Rank Change Histogram

2008 - 2009 Rank Change Histogram

The ten worst business tax climate state ranks are:

  • 41. Minnesota
  • 42. Nebraska
  • 43. Vermont
  • 44. Iowa
  • 45. Maryland
  • 46. Rhode Island
  • 47. Ohio
  • 48. California
  • 49. New York
  • 50. New Jersey.

As for our neighbors?  Delaware ranks 10th, Virgina 15th, and Pennsylvania 28th.

Posted in Ed C, Maryland, Taxes | 5 Comments »

MD Democrats Running Scared?

Posted by Ed C on Tuesday, September 16, 2008

Are Maryland Democrats running scared?  The latest Gonzales poll (08/29 – 09/05) had Obama/Biden up by +14, but this poll completed just as Republican convention in St. Paul finished and McCain/Palin started surging in national polls.

On Sunday we installed a few 4’x8′ signs around Howard County.  One of the signs was located at Montgomery Rd (103) and New Cut Rd in Ellicott City.  Here’s how the sign looked as we finished:

And I say was because as of Monday morning, this is what was left.

As we were installing the sign we received a lot of support from passing motorists and even had people stop to ask where they could get individual yard signs (Contact the Howard County Republican Party)

Are Obama supporters running scared?  Or, is their idea of political discourse limited to law-breaking instead of competing in an open and honest manner?

Posted in Democrats, Ed C, Maryland | 23 Comments »

One step away from increased transparency in Maryland Gov. spending.

Posted by Ed C on Sunday, April 6, 2008

The Maryland Funding Accountability and Transparency Act of 2008, sponsored by Del. Warren Miller (R-Howard County) appears to be one signature away from being enacted. On March 17, 2008 the House passed the bill 137-0 and on April 1, 2008 the Maryland Senate passed the bill 47-0.

From the Baltimore Sun, Bipartisanship Pays (Ulman wants to move on building repairs)

This year, Miller had 47 co-sponsors in the House, including two Democratic committee chairs, plus Howard Democratic Dels. Elizabeth Bobo, Frank S. Turner, Guy Guzzone and Steven J. DeBoy. Public interest groups also endorsed the idea, and the bill passed the House with a unanimous vote March 17.


But, on March 28, Senate Budget and Tax Committee Chairman Ulysses Currie said he would not bring Miller’s bill up for a vote because of a concern over the $250,000 price tag. Then, without explanation, Currie changed his mind, and his committee voted unanimously Monday to approve it.

Greg Fox used this bill to propose provide the same transparency for Howard County government spending that will go into effect July 2010.

The measure inspired Greg Fox, the County Council’s lone Republican member, to introduce a local ordinance to provide the same information on county spending. The bill was unanimously approved last month after Fox worked with the Ulman administration to delay the availability of the information until July 1, 2010, to fit better into technology director Ira Levy’s work replacing county finance software.

These will be great tools to enable citizens to see how our money is being spend by our elected officials.

Posted in Ed C, General Assembly, Maryland | Leave a Comment »

Stop It – You’re Killing Me

Posted by Jim Walsh on Monday, March 31, 2008

Oh those Maryland Democrats, they make me laugh harder than Jim Carey, Robin Williams and Leslie Nielsen combined.

A couple of weeks ago, while trying to justify large raises for top bureaucrats, Gov. O’Malley compared Maryland state government to a large publicly-traded corporation that needed expertise in a variety of fields.  The publicly-traded corporation most comparable to Maryland would have to be Enron.  Then last week – stop me if you’ve heard this one – MOM announced that the settlement hammered out with BGE was the best that could be obtained because the costs of energy were going up and the state was powerless (no pun intended) to stop it.  I could just hear his smirk over the radio as he recalled what he said during the 2006 campaign.

And yesterday I’m reading a pompous article in the Baltimore Sun & Fish-Wrapper about the effectiveness of the liquor lobby and about how evil those people are:  “‘It’s enormously frustrating,’ Del. William A. Bronrott, a Montgomery County Democrat who supports raising alcohol taxes, said of the industry’s power. ‘We’re talking pure greed versus the public interest.'”  Is this guy as funny as he intends to be? Isn’t it pure greed on the state’s part to grab as much revenue as it can from whatever source doesn’t squawk loud enough (e.g., the IT industry)? I guess letting people keep some of their own money isn’t really in the public interest.  As long as the state gets the money he doesn’t see the irony of his statement.  It really must be fun to live in your own fantasy world where the normal rules of economics don’t apply, and the MSM nods in agreement.

Posted in Democrats, Jim Walsh, Maryland, O'Malley | 2 Comments »

Technology Tax

Posted by David Keelan on Tuesday, March 11, 2008

I don’t think I had to go to grad school to learn how regressive taxes can be to the economy.  One of the models we used last semester measured the effect of taxes on supply and demand.  Granted it was only a model (much more reliable than some of the climate change models – do you hear me Dr. Manns) but the point was that when misapplied taxes are growth killers.

That is why I think it is odd that while heading into recession (a growth killer of its own) Martin O’Malley needed to raise taxes.  Did the state of the current economy creep up on us?  No it didn’t.  We saw this coming – but instead of digging in and slashing spending it was decided that the best way to tackle an economic slow down was to take more money out of the economy.  If we are hurting now why not pile it on!

In economic terms Government spending is called an investment in the economy.  Many people will take that little piece of knowledge and try to beat fiscal conservatives over the head with it.  They want to twist that little piece of news into good news.  What they don’t want to hear is that private investment in the economy is much better and sustainable than Government spending.  In addition, there is less danger to freedom if Government is not permitted to grow.  That is what true conservatives really care about.

We are already seeing a decline in sales tax revenue because of the double whammy of higher taxes and the economy.  What kind of revenue increase do you think Annapolis is going to realize in new technology taxes?  They can only project that information.  They also projected that they will realize less jobs in this sector, which means smaller pay rolls, and lower income and sales taxes.  How do you think they balance those kinds of decisions?  These are smart people.  They know that the industry will suffer negative consequences and that this is a wealth redistribution scheme.  Do you think they cared about these technology workers and employees, and the companies (and those employees) who buy from them?  No, they felt it was an acceptable risk.

We are talking about the well being of real people.  Supporters of these taxes say it is for the greater good!  Sorry, I don’t buy it.  It is a money grab.  The business people have it and O’Malley wants to redistribute it among HIS priorities.

Today technology is not an option for a lot of companies, but there is a lot of discretionary spending in technology.  There are lots of substitute available in the market (just look on eBay).  Buyers can decide to postpone buying decisions – and according to game theory they likely will postpone buying decisions.  With the current economic environment and these taxes they are going to see a drastic slow down in technology spending.

Will the technology sector recover?  Eventually.  It usually does but it lags the rest of the economy.  The point is this.  Martin O’Malley just made the recession a lot worse for a lot of little guys in the technology business whether they work for Cisco, SAP, or are the owner of Tom’s LanWarehouse.

In the mean time he is doling out $600,000 pay raises.  Does anyone else find that to be ironic?  Do you really think Martin O’Malley cares?  He is a nice person, but he really is not thinking about these employees and small business people he is thinking about all the spending promises he made.

I voted for Ehrlich.

Maryland Computer Services Sales Tax hearings in Annapolis

Meetup: http://taxreform.meetup.com/27/calendar/7472261
Facebook: http://www.facebook.com/event.php?eid=11240944457
Follow us on Twitter @TCMMdBio

When: March 12, 9:00 AM

Where: Lawyer’s Mall Annapolis, MD (directly in front of the State House and next to the Governor’s Mansion)

Why: This new tax, which takes effect July 2008, will put many Maryland businesses at a severe disadvantage. Small businesses — the least able to sidestep the tax — will be particularly affected.  This tax will hurt the welfare of industries beyond the Tech sector and will also drive some businesses out of state! Imposing a 6% sales tax on computer services like computer facilities management, network maintenance and custom programming is bad policy.

RSVP: Brian Levine BLevine@techcouncilmd.com, Facebook or Meetup.

—–

Please mark your calendar to SPEND THE MORNING IN ANNAPOLIS Wednesday, March 12. The rally will crescendo just before 10 a.m. as legislators walk past the rally to their floor sessions in the State House.

Later that afternoon, Tech Council of Maryland staff and volunteer leaders will testify in hearings on the six percent Computer Services Sales Tax issue in both the House and the Senate. If you care about this issue, please mark March 12 on your calendars. We will need a huge business presence in Annapolis for the hearings.

Fight Tech Tax Coalition members include Tech Council of Md, the Maryland Chamber of Commerce, the Greater Baltimore Tech Council, the Charles County Tech Council, Montgomery County Chamber and Howard County Chamber. Thank-you for your support!

Posted in Budget, General Assembly, Maryland | 1 Comment »