Budget blues

April 26, 2004

WHEN BALTIMORE City budget chief Edward J. Gallagher tells you the city can no longer "do more with less," he means it. The ever-circumspect Mr. Gallagher isn't one to cry wolf. Without the package of tax and fee increases proposed by Mayor Martin O'Malley, Mr. Gallagher would be hard pressed to close a $40 million budget gap unless the city cuts services. Looking at the numbers, we tend to agree.

To those who feel any tax hike is destructive to the city, the alternative is: laying off 126 police, once-a-week trash collections, no more recycling, and closing four fire stations on a daily rotating basis. No one wants to raise taxes - that only steps up the drumbeat of people leaving the city. Baltimoreans already suffer the highest property tax rate in the state. Tough economic times and a shrinking city population demand a leaner government.

But Baltimore has scaled back: Since about 1990, the city's work force, excluding police and fire, has decreased by 46.6 percent, compared to a 13.2 percent drop in population. Mr. O'Malley has targeted waste and inefficiency - he has privatized some services, closed fire stations and neighborhood centers and tightened employee leave policies. City workers have been laid off, gone without pay raises and paid more for health care. We expect Mr. O'Malley to keep on this track - the city's financial health and appeal depend on it. With state aid declining (the city lost $8.7 million for the coming fiscal year) and Maryland's deficit woes unresolved, the city must seek to attract business, development and homeowners.

The proposed increases, if approved by the City Council, mean city residents will pay a $3.50 monthly fee on cellphones and pagers and a 4 percent energy tax - estimated at $4 a month for an average household. That totals about $7.50 a month. The cityproperty recordation tax will nearly double from $2.75 to $5 per $500 of the sale price. The city hikes, says City Hall, compare to about $15.50 a month in additional state fees, courtesy of Maryland's no-tax Gov. Robert L. Ehrlich.

Mr. O'Malley rightly dumped plans to increase the property tax assessment cap and local income tax. In balancing the city's proposed $2.1 billion budget, Mr. O'Malley has tried to equalize the pain. Rather than impose an energy tax solely on non-profit organizations as some expected the mayor would do, he chose to apply it to all: including households, manufacturers - who had been exempt - and commerical businesses, which already pay an 8 percent utility tax.

The energy tax would replace a special, $20 million, four-year payment negotiated with 23 nonprofits led by Johns Hopkins University. The "payment in lieu of taxes" (PILOT) - used to offset the cost of municipal services to non-taxable groups - expires next year. At the proposed 4 percent, Hopkins would pay about $1.2 million on its energy costs, less than its annual contribution under the PILOT .

Already, there is concern about the potential fallout from an energy tax - jobs lost and manufacturers leaving. The city can afford neither. A better approach might be taxing the amount of energy purchased based on kilowat or thermal unit, which would give a tenant in a studio apartment as well as a manufacturer like General Motors (or The Baltimore Sun) protection from future energy price spikes.

All in all, Mr. O'Malley chose fee and tax increases that appear palatable, equitable, and saleable. It's not the preferred solution, but it is the practical one.

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