City joins pursuit of nonprofits

Usually tax exempt, groups may face 8% energy levy

April 27, 2001|By Alice Lukens and Neal Thompson | Alice Lukens and Neal Thompson,SUN STAFF

Mayor Martin O'Malley's proposed expansion of Baltimore's energy tax to cover nonprofit groups follows a national trend of getting historically tax-exempt institutions to pay for the city services they use.

Nonprofit groups have been exempt from paying most taxes on the theory that they provide important services that government would otherwise have to pay for. But while they provide education, feed the hungry and step in when misfortune strikes, they also use city services - police patrols, snow removal, trash pickup - without paying for them.

As a result, more cities are devising ways to tap the nonprofit sector with taxes and user fees.

"This one doesn't sound like it's totally out of line with what's happening across the country," said Evelyn Brody, an associate professor at the Chicago-Kent College of Law and an expert on property tax exemptions.

O'Malley is recommending a first-ever energy tax on nonprofit entities in Baltimore to bridge gaps in his proposed budget for next year. If approved by the City Council, the plan would expand the 8 percent energy tax that businesses pay.

Other cities have struggled with similar issues, particularly ones that, like Baltimore, are home to large universities.

Harvard University has been paying Cambridge, Mass., since the 1920s, Brody said, and Cornell University pays significant fees to Ithaca, N.Y. Northwestern University is battling the city of Evanston, Ill., in court over a proposal to tax university employees, she said.

"The issue isn't going to go away," she said. "Both sides are wearing white hats."

In Baltimore, getting nonprofit groups - particularly the Johns Hopkins University and health system - to pay more for city services they use has long been a goal of some officials.

If the energy bill is passed, Hopkins would end up paying much of the $4 million that the city expects to raise from expanding the tax, because it is by far the largest nonprofit entity in the city.

Hopkins' officials said yesterday that their annual energy bills are about $50 million, although some of that is spent at facilities based outside Baltimore. The bulk of that cost is electricity; about $10 million of it is natural gas and coal.

In 1997, when the city considered but abandoned plans for a 2 percent energy tax on nonprofit groups, Hopkins officials estimated the cost to be $600,000 a year.

Yesterday, Hopkins spokesman Dennis O'Shea said it was unclear how much O'Malley's plan would cost because the university had not seen the specifics of the mayor's proposal.

"It snuck up on us," O'Shea said. "We're getting more information and will study it."

O'Malley's office has refused to discuss the details of the proposal - it includes an income tax increase for Baltimore residents - which the mayor presented to City Council members at a closed meeting Tuesday.

"Due to the fact that the proposals have not been formalized, comment will be deferred until the budget is finalized," said Tony White, a spokesman for O'Malley.

Legislation for 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.

In 1997, when then-Mayor Kurt L. Schmoke proposed an expansion of the energy tax, he was swamped with opposition. His plan called for an 8 percent tax on manufacturers (which are now exempt), a 4 percent tax on residents and a 2 percent tax on nonprofit groups.

That proposal was killed by the chairman of the City Council Finance Committee - then-Councilman Martin O'Malley.

Baltimore is the only city in Maryland that imposes an energy tax on its businesses. That tax was enacted in the 1940s, and last year it raised $12.6 million, according to a report by the Maryland Association of Counties.

Allegany, Anne Arundel, Baltimore, Garrett, Montgomery, Prince George's and St. Mary's counties also impose taxes on different types of energy used by businesses.

Nonprofit leaders expressed particular concern yesterday about the impact of the proposed tax on smaller institutions that often operate on a shoestring budget.

"It would certainly be an extreme hardship on a good number of churches," said Martha Young, director of the Central Maryland Ecumenical Council. "It would cause some of the smaller ones to go out of business."

Larry E. Walton, president of United Way of Central Maryland, said he can see both sides of the energy tax issue.

"In one sense I can appreciate the mayor's problems," Walton said. "At the same time, those of us that are in the nonprofit community obviously don't want to spend any of our money on anything that takes away from client services."

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