Legislators weigh new tax plans in light of deregulation Residents would gain from 2 of 3 proposals


August 19, 1998|By Sean Somerville | Sean Somerville,SUN STAFF

State lawmakers began to tackle yesterday the potentially volatile task of reallocating utility taxes as the state deregulates the power industry.

In their third meeting on the matter, members of the House Ways and Means Committee and the Senate Budget and Taxation Committee looked at skeletal versions of approaches to reforming public-service company franchise and property taxes.

At stake is the way the taxes paid by residential, commercial and industrial power users will change in July 2000 when the state will allow customers to chose their electricity providers. To meet that deadline, the General Assembly must approve a new tax structure during its next session.

"It is probably not possible to do an absolutely neutral plan" that will not shift the tax burden, said Sen. Barbara A. Hoffman, a Baltimore Democrat who chairs the joint session of the two committees.

"There's got to be some benefit to consumers to undergo the rigors of deregulation."

She also warned lawmakers to consider how the lines are blurring among utilities and that in the future a power company could also offer telephone service. "We need to think about whatever we devise being good for the whole spectrum of utilities," she said.

Michael Yarborough, a policy analyst for the state Department of Legislative Services's Office of Policy Analysis, told the panel that without changes in tax law, Maryland would lose revenue and power-generating companies would be at a disadvantage in the march toward deregulation.

Ideally, he said, reform should not affect the amount of revenue received by the state and the counties, which currently reap $196 million from electric utilities -- about 5.8 percent of property taxes.

Yarborough also said reform must present a level playing field for competing utilities and that it must minimize the shifting of taxes among utilities and electricity customers.

"Obviously it is a concern -- what we're going to do to people's bills," Yarborough said.

But three versions of franchise tax reform examined yesterday by the two committees would shift burdens sharply -- two in favor of residential consumers and one in favor of industrial users.

Replace current tax

One proposal would replace the current 2 percent PSC tax on a utility's gross receipts with a rate of $0.00135 for every kilowatt hour. That would decrease residents' taxes by 15.1 percent, from $35 million to $29.7 million, and commercial taxes by 2.6 percent from $28.3 million to $27.6 million. But it would increase the taxes paid by industry by 56.2 percent, from $11.6 million to $18.1 million.

Giving different rates to different groups would eliminate those changes, but leave large users, such as Bethlehem Steel Corp., with increases as high as 70 percent.

A second proposal, which would set a different kilowatt hour tax rate for each existing utility, would result in a similar reduction for residents, a slight decrease in commercial rates and a 50 percent increase for industrial users.

A third plan would retain a gross receipts tax on transmission and distribution of power but exclude generation. Under a 5.1865 percent rate, residents would pay 18 percent more while the commercial share would fall 10.7 percent and the industrial rate would drop 38.2 percent.

Addressing property taxes paid by utilities, Yarborough said the state should consider the disparity between businesses, which receive discounts on property taxes, and utilities, which pay full freight.

But property tax relief could be expensive. Extending manufacturers' 40 percent assessment on real property to utilities would cost the state $3.7 million and counties $46.7 million, Yarborough said.

Lawmakers will hold another hearing on the issue next month.

'To level playing field'

"Everyone has the same goal," said Thomas Saquella, president of the Maryland Retailers Association. "And that is to level the playing field. I think it's do-able."

State Sen. Donald F. Munson, a Republican from Washington County, said he wants to make sure the restructuring doesn't shift costs to the western part of the state, where large manufacturers buy much of their electrical power from Allegheny Energy Inc. of Hagerstown.

"We've got to come up with a scheme that's not going to permit that to happen," he said after the meeting.

Baltimore County is keeping an eye on $20 million it gets in property taxes from utilities -- mostly Baltimore Gas & Electric Co. -- and on $15 million in revenue from a local energy tax.

"Why are we doing this electrical restructuring?" Patrick Roddy, an assistant county attorney for Baltimore County, said after the meeting. "We don't know if it's needed or not."

Pub Date: 8/19/98

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