Counties fear tax cut for utilities

Deregulation plans could increase burden on public, businesses

Plant levy might shrink

Group recommends sharing cost statewide to protect localities

March 07, 1999|By Gady A. Epstein | Gady A. Epstein,SUN STAFF

Anne Arundel County might lose almost $5 million a year, or the salaries of about 120 teachers, so that Baltimore Gas and Electric Co. can get a $30 million tax cut. Calvert County could lose more than $3 million a year, enough to pay the county's police force, to afford BGE the same privilege.

Baltimore County's tab for the utility giant's tax reduction would be small by comparison, maybe $1.5 million a year.

Those counties and others could lose millions because, in a war as big as utility deregulation, there are many battles, each with winners and losers.

As Maryland legislators debate how to introduce competition to the electric power industry, they are poised to rewrite the arcane algebra of utility taxes. The state's major utilities look to be the winners, and the few counties with the largest power plants seem likely to come out losers.

"If the counties lose that money, one of two things is going to happen: People's property taxes will go up or their services will be cut," said Murray Levy, president of the Charles County commissioners. The commissioners think their county would lose at least $1.5 million a year under one tax-cut proposal.

"That's an unintended consequence of electric deregulation that people aren't aware of," Levy said.

Virtually everyone agrees that rewriting the electricity tax code is an essential part of deregulation. The state's monopolistic utilities have never had to worry about their taxes because tax costs have been passed on to customers, who have had no choice but to pay.

But once customers are allowed to choose power companies, taxes will matter greatly to utilities.

As a result, two powerful legislators introduced complex legislation last month that would restructure some taxes while cutting, by 60 percent, the local property taxes utilities pay on their power generators. By the time the tax cut would take full effect in 2005, utilities would be saving an estimated $54 million a year, and counties with power plants would pay the most for it.

"The counties have grown too reliant on property taxes paid by the electric utilities," argues bill sponsor state Sen. Barbara A. Hoffman, a Baltimore County Democrat and chairwoman of the Senate Budget and Taxation Committee. "They could always tighten their belts a little."

`A heavy hit for us'

Of the 11 local governments in counties with power plants, four would be hit hardest, with potential combined losses of more than $15 million a year. Anne Arundel, Calvert, Charles and Prince George's counties each could lose 1 percent to 2 percent of their total property-tax revenues by 2005.

"That's a heavy hit for us," said Anne Arundel County Executive Janet S. Owens, who promised during last year's campaign not to raise income taxes and who must contend with a voter-imposed ceiling on property-tax growth. "We're limited in terms of what we can do. I've been looking everywhere for every penny that I can find."

Spreading the costs

The utilities argue that they, too, are looking for every penny, or even fraction of a penny, that they can find. BGE stands to save as much as $30 million a year in property taxes, which would allow the company to charge perhaps 0.15 cent less per kilowatt-hour of electricity. That would be just enough, BGE says, to allow it to compete better with out-of-state utilities for big customers.

"People will shop for less than that" in savings, said Ed Stoltz, BGE's tax director.

Stoltz noted that county governments also will be able to shop for electricity under deregulation, potentially saving hundreds of thousands -- even millions -- of dollars on their power bills.

Still, county governments hope to reap savings from deregulation without losing millions more in taxes. The Maryland Association of Counties has proposed an alternative: protect the counties with power plants by spreading the cost of the property-tax cut among all Maryland electricity customers.

Businesses oppose sharing that cost. So do utilities, which argue that MACo's idea, even if it was a good one, doesn't work well when the numbers are broken down.

Change in spending

The counties with power plants hope to work out a compromise with businesses, utilities and legislators, and they have support from Gov. Parris N. Glendening, who says local governments need money for education and other services.

But local officials are bracing for at least some tax cut to accompany deregulation. They figure this is just the beginning, as utilities look to lower their cost of business.

"They'll be back, and they'll want more tax cuts," said Charles County's Levy, who is president of MACo. "This is big money."

Like Hoffman and Del. Sheila E. Hixson, the Montgomery County Democrat who sponsored the House version of the tax bill, the power companies think that with deregulation approaching, the counties should wean themselves off utility tax collections anyway.

"I think they need to think about getting revenue from someone other than a utility that can't simply pass on those costs any longer," Stoltz said. He points out that counties already give other businesses property-tax breaks.

"Anne Arundel is providing a manufacturing exemption to plants right next door to my Brandon Shores power plant," he said. "Why isn't anyone writing about the hardship that's causing the residents of Anne Arundel County?"

Pub Date: 3/07/99

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