Council expense account altered

Largely unregulated fund replaced

receipts needed to reimburse, mayor says

`Doing away with any ambiguity'

New process considered to be in compliance with federal tax laws

April 01, 2004|By Tom Pelton | Tom Pelton,SUN STAFF

Mayor Martin O'Malley said last night that he would eliminate the City Council's unusual, nearly $100,000-a-year expense account system, replacing it with a process that complies with federal tax laws.

"We're doing away with any ambiguity about whether this is supplemental income for the council," O'Malley said. "It is being switched to a reimbursable system, as it's generally done in the private sector."

The new system, which will take effect today, will require the 19 council members to follow the same process to be reimbursed for expenses that other city employees, and most other city and county councils, must follow.

Under the revised system, council members will have to submit receipts to Council President Sheila Dixon's office for review and approval before they are reimbursed for those considered legitimate business expenses, O'Malley said.

Most council members will be able to be reimbursed for up to $5,000 a year. But the money will be kept in a city account -- not the members' personal checking accounts, as it often was done in the past -- and members will no longer be allowed to pocket money they don't need for business, O'Malley said.

The old system was secretly created by the city in 1968 as a way to slip extra cash to the council without requiring members to face public scrutiny, said a Sun article from April 1970.

Articles at that time said council members were advised to "keep it quiet" when they picked up the quarterly checks, which grew over the years from $750 a year to $5,000.

The members were to use the money to cover incidental business expenses. Some deposited it into personal checking accounts without keeping records or paying taxes on it, council members told The Sun.

These checks were on top of their annual salaries, $48,000 last year, and the more than $80,000 that each received from the city last year to cover the expenses of his or her office.

The accounts have been the subject of debate within City Hall since Sunday, when The Sun reported that the city's handling of them might be in violation of federal tax laws, and that U.S. Attorney Thomas M. DiBiagio is investigating.

Councilmen Nicholas C. D'Adamo Jr. and Kenneth N. Harris Sr. said yesterday that they did not oppose eliminating the accounts. "There is no reason we shouldn't turn in receipts to get reimbursed," said D'Adamo.

"I'm totally open to it," said Harris. "Whether everyone has to turn in receipts prior to getting the money, that's fine."

During a news conference yesterday morning in City Hall, Dixon suggested that she wanted the council to keep receiving the money but start reporting it to the Internal Revenue Service as income.

"What we discussed yesterday is to classify it as income," Dixon said. She then walked out of the news conference, refusing to take questions.

Dixon's suggestion posed two problems, city officials said.

If the council kept the expense accounts, and the city started reporting the money to the IRS as income, council membersmight have to vote to grant themselves $5,000 annual raises, from $48,000 to $53,000 a year, City Solicitor Thurman W. Zollicoffer Jr. said. And the city's charter prohibits a sitting council from raising its own salary.

Later in the day, after discussions within City Hall, Dixon agreed to the elimination, O'Malley said. She did not return a call seeking comment last night.

The Sun has sent Maryland Public Information Act requests to all council members asking for records showing what they have done with their expense-account money.

Dixon received her request Aug. 6. The other council members were sent requests Feb. 7.

Although the act requires a written response within 30 days, Dixon has not provided a written response or the documents almost eight months later.

Caprece Jackson-Garrett, spokeswoman for Dixon, said the delay for the first month was in part because Dixon was running in the Democratic primary Sept. 9. "It was the middle of a campaign," said Jackson-Garrett. "There was a lot going on."

Two days after the election, federal prosecutors started sending subpoenas to council members as part of a broad investigation into their financial and political dealings.

After the inquiry began, Zollicoffer said he would not force Dixon or other council members to release the documents because they might want to invoke their Fifth Amendment right not to incriminate themselves.

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