City Council expense funds questioned

Each member gets $5,000 a year without oversight, can keep unused money

Violations of tax law possible

Grand jury investigating the 19 officials' finances

March 28, 2004|By Tom Pelton, Doug Donovan and Laura Vozzella | Tom Pelton, Doug Donovan and Laura Vozzella,SUN STAFF

As part of their months-long investigation into the Baltimore City Council, federal prosecutors are examining an unusual expense account system that pays council members $5,000 a year with no oversight and permits them to pocket money they don't spend on city business.

The expense accounts, which cost taxpayers almost $100,000 a year, have been used by the council for at least 20 years, with few taking notice. But in recent months, the accounts have drawn the attention of U.S. Attorney Thomas M. DiBiagio, whose office began a grand jury investigation of the 19 council members' finances in September.

DiBiagio won a guilty plea this month from former Baltimore Police Commissioner Edward T. Norris, who violated tax laws by failing to report as income money from an off-the-books city expense account he used for personal luxuries.

Now DiBiagio is looking at the council's handling of the largely unregulated expense accounts, according to a federal subpoena, council members and their attorneys.

In addition to attracting the scrutiny of prosecutors, the council's expense accounts are raising the eyebrows of groups that monitor government spending and the fiscal watchdogs of the city and state.

"I've never heard of such a system," said Mike Taylor, past president of the National Association of Local Government Auditors. "To me, it doesn't make good business sense. Just saying, `What you don't spend you can keep for yourself' seems kind of odd."

Each council member gets a $1,250 check every three months to cover incidental expenses. City documents say the money can be spent on "travel, transportation, gifts, entertainment, etc.," but the city sets no other guidelines and does not require members to show receipts to city financial officials.

Those checks are in addition to the $48,000 annual salary of each member and the approximately $80,000 a year each gets for office operations.

That money that goes for staff, phone bills and other items, and is kept in a city account, according to traditional budget procedures.

Unlike their counterparts in New York City, Chicago and several other cities, Baltimore council members are not required to submit receipts before they are reimbursed for business expenses. Instead, they receive quarterly cash advances and sign annual forms swearing that they used the money for business expenses.

If a council member reports spending less than the $5,000, the city does not require repayment but reports the difference to the Internal Revenue Service as income.

System defended

Council members defend the expense account system as a long-standing practice and say they spend the money only on legitimate council business, although some said they do not keep records.

"I don't have anything to hide," said City Council President Sheila Dixon, who as head of the legislative body receives an $80,000-a-year salary, more than $500,000 a year to run her office and a $7,000 expense account. "These perks are perks that everyone has gotten over the years."

Council members declined The Sun's request that they disclose receipts and records of how they spent the money, saying they were following the advice of their attorneys.

The Maryland attorney general's office said those documents are public records, but city Solicitor Thurman W. Zollicoffer Jr. said he won't force council members to reveal them because they might want to assert their Fifth Amendment right to not incriminate themselves.

"I am not going to step on anyone's rights during a criminal investigation," he said.

Last year, two council members - Nicholas C. D'Adamo Jr. and Keiffer J. Mitchell Jr. - reported less than $5,000 in business expenses. The city reported the unused portion as income to the IRS. Both logged their expenses to the penny, D'Adamo listing $2,832.45 and Mitchell reporting $1,257.22.

"My parents always said two people you never want working against you are the IRS or the FBI," D'Adamo said.

Six council members reported exactly $5,000 in business expenses, and eight reported more than that. Three council members, Kwame Osayaba Abayomi, Edward L. Reisinger and Agnes Welch, received the money but did not fill out a required section of the form asking how much they spent, instead checking a box saying it was more than $5,000.

The IRS requires expense money to be reported as taxable income if employees do not provide their employers with receipts or a detailed accounting of how they spend the money, said Jim DuPree, a spokesman for the IRS in Maryland.

"If you don't report how you spend the money to your employer, then it should show up on your W-2 forms as taxable income," said DuPree, who was speaking generally and declined to comment directly on Baltimore's handling of expense accounts.

Four accountants interviewed by The Sun said the city's system appears to violate federal tax laws. They said all council members should be paying taxes on the entire $5,000 because they don't explain to the city or the IRS how they use the money.

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