Income tax rise of 20% sought

Mayor also reported seeking energy levy on nonprofits in city

Council hears budget plan

April 26, 2001|By Neal Thompson and Gady A. Epstein | Neal Thompson and Gady A. Epstein,SUN STAFF

To fill the gaping holes in his budget, Mayor Martin O'Malley is proposing a 20 percent increase in the city's income tax and a first-ever energy tax on nonprofit entities in the city, a move that would affect churches, schools, hospitals and, especially, the Johns Hopkins University and its health system.

If approved by the City Council, the plan would expand the 8 percent energy tax that is now levied only on commercial businesses. Nonprofits are exempt from that tax, as are manufacturing firms and residents.

O'Malley has mentioned in recent weeks that he'd use a combination of layoffs and tax increases to balance his budget. But his comments to council members during a briefing Tuesday night marked the first time he has discussed in detail his plan to increase taxes.

According to council members, O'Malley told them the energy tax would generate more than $4 million for next year's budget, and raising the income tax - from 2.5 percent to 3 percent, virtually the maximum allowed under state law - would raise roughly $11 million next year, and between $23 million and $25 million the next year.

The legislation for each of the tax proposals is expected to be submitted to the City Council by Monday, in time to be formally introduced at the council meeting that night.

O'Malley said through a spokesman that he would not comment on the proposal because the legislation was still being worked on. "In light of that, he really doesn't have any comment," said Tony White, the mayor's press secretary.

O'Malley told the council that he expects to cut more than 500 jobs in all, but that many of those positions are already vacant and that as of now, a total of 377 people are likely to be laid off. The mayor also discussed some details of his plan to privatize the city's custodial, maintenance and security jobs in an effort to cut about $2.2 million from the budget.

A number of council members, including President Sheila Dixon, said they planned to support the mayor's tax increases but want to minimize layoffs.

"The worst possible scenario is layoffs, in my mind, reduction of city services," said 3rd District Councilman Robert W. Curran, a Northeast Baltimore Democrat. "We need to try to avoid as many layoffs as we possibly can."

Councilman Keiffer J. Mitchell Jr., a Democrat from West Baltimore's 4th District, said he might go a step further to try to save some jobs: He suggested to O'Malley and other council members Tuesday night that perhaps council members and the administration's deputy mayors and department heads should all take a 10 percent pay cut.

"I'm looking for it not to be [just] a token, symbolic gesture," Mitchell said. "The mayor was silent on it. ... The council people kind of looked at me ready to sharpen their knives, so I'm not sure I would be very popular with my colleagues for that, but we're asking people to tighten their belts, and we should do the same thing."

Dixon said yesterday that she is concerned that higher taxes - and possible reductions in services, such as curbside recycling - would come at a time of encouraging signs of growth and economic development downtown.

"What effect will [taxes] have on stagnating the growth that we're just now seeing?" Dixon asked.

Councilwoman Lois Garey, a Democrat from Southeast Baltimore's 1st District, said her office is already receiving e-mail from nonprofits - particularly churches - concerned about the energy tax.

"I do feel that nonprofits have to somehow start paying part of their share. We need the nonprofits, particularly the nonprofits that are big, to help," Garey said. "But we may need to find a way to shield the small ones, the churches."

Peter Berns, executive director of the Maryland Association of Non-Profit Organizations, called the proposed energy tax on nonprofits "counterproductive."

He said nonprofit employment in Baltimore has grown from 65,544 jobs in 1989 to 74,508 jobs in 1999. And a 1996 economic-impact study found that the city's nonprofits generated $5.4 billion in economic activity, he said.

Excluding churches, there are about 2,500 organizations in the city with tax-exempt status from the Internal Revenue Service. Berns said those groups, which provide valuable social services, such as drug treatment, have already been hurt by high energy costs this winter.

"In a sense, this is really going to add insult to injury," Berns said. "It's going to complicate the ability of the nonprofits to serve the community. The fact of the matter is, this is going to hurt the helpers."

Berns also said he was surprised that O'Malley floated the tax idea because, when O'Malley was a councilman, he helped defeat previous efforts to impose an energy tax on nonprofits.

Officials at the Johns Hopkins University - the largest employer and the largest tax-exempt nonprofit in the city - said they received no warning of O'Malley's tax plan and were unsure yesterday how much it would cost them.

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