Baltimore nonprofits may face energy tax

O'Malley ponders 8% levy to shrink budget shortfall

March 27, 2004|By Tom Pelton | Tom Pelton,SUN STAFF

Scrambling to fill a hole that could be as much as $40 million in his budget for the year starting July 1, Mayor Martin O'Malley said he's considering taxing nonprofit organizations to help prevent cuts in basic city services.

The Johns Hopkins University, the University of Maryland Medical System and other organizations strongly oppose paying an 8 percent local energy tax such as the mayor proposed three years ago because they say it will cut into their ability to educate students and help the poor.

But O'Malley, whose administration has suggested that the city might have to eliminate more than 500 jobs to make up for cuts in state revenue and a slumping economy, said he has few alternatives but to resurrect the idea.

"We didn't have to raise revenues last year. But now we're at a point where we are cutting into basic services here," said O'Malley.

The mayor said he is also looking at other possibilities, including imposing a cell phone tax; increasing the local income tax; and raising the cap on growth in the property tax assessment of homes. O'Malley said he is not seriously considering raising the real estate tax rate or cutting the trash collection schedule from twice a week to once a week.

Peter Berns, executive director of the Maryland Association of Nonprofit Organizations, was among several leaders of nonprofit groups who said they strongly oppose being taxed.

"That's a very counterproductive idea, because it would hurt the helpers," Berns said. "You have all kinds of nonprofit organizations that provide essential services for the citizens of Baltimore City, and any tax on them is going to lead to a direct cut in services to the citizens."

In 2001, O'Malley proposed an 8 percent tax on energy consumption by churches, hospitals, universities and other nonprofit organizations and met with fierce opposition - especially from small neighborhood churches.

O'Malley backed away from the tax when Hopkins and the other local universities and hospitals offered a total of $20 million over four years as a payment in lieu of taxes.

That agreement will expire June 30, 2005. O'Malley said he is thinking about extending the payments and taking some kind of action that could help the city financially during the fiscal year starting on July 1.

This could mean imposing the energy tax or asking nonprofit organizations that didn't sign the 2001 agreement to start making payments in lieu of taxes starting on July 1, city officials said.

This category of organizations would include nonprofits such as the Annie E. Casey Foundation, Catholic Charities and Lutheran World Relief.

"We are looking at all of the factors, including payments in lieu of taxes" for nonprofits, said O'Malley. "I had hoped that [the 2001 agreement] would be the sort of thing that would bridge us to a much healthier revenue structure. But I don't think any of us foresaw Sept. 11, the Bush recession, and all of the Ehrlich cuts. But that's the unfortunate vortex that we're in."

Although city officials are still calculating the amount of money they could raise from nonprofits, it's clear that the funds will make up only a small portion of the $20 million to $40 million that O'Malley needs to fill the gap in his budget. So the mayor will likely have to turn to other fees, revenue enhancements and cuts, officials said.

In O'Malley's first four years, he has laid off employees every year, closed five fire stations, shuttered neighborhood service centers, and privatized cleaning and security guard services. The city now has roughly 3,500 employees in areas other than public safety, compared with about 9,500 in 1980.

Dennis O'Shea, spokesman for the Johns Hopkins University, said the city claimed in 2001 that it needed about $10 million from the university over four years to "get past what was described to us as an extraordinary, short-term budget situation."

Hopkins agreed to the temporary help but opposes extending the agreement or instituting any kind of permanent tax.

"It's a zero-sum game," O'Shea said. "Tax away the money that hospitals, charities, schools and churches use to do good, and you tax away the good that they do."

Robert Chrencik, chief financial officer of the University of Maryland Medical System, said local hospitals are already contributing enough.

"We are not a flush institution in terms of profitability, so this kind of payment really matters to us," Chrencik said.

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