Council to weigh mayor's tax plan

Proposal designed to fix city's $40 million deficit

`Not the time to increase taxes'

Fees would be on utilities, cell phones, real estate

May 31, 2004|By Doug Donovan | Doug Donovan,SUN STAFF

Since introducing a $40 million tax package late last month, Mayor Martin O'Malley has tried to prod - some say to scare - City Council members and special interest groups into supporting his proposal.

This week O'Malley's sales pitch will face its first political test. So far, the tax proposal - devised to eliminate a $40 million deficit projected for the fiscal year beginning July 1 - is meeting resistance despite the administration's dire financial forecast.

"I get the sense that things are not going to proceed as smoothly as the administration has anticipated," council President Sheila Dixon said.

The council's taxation committee will debate over two days the three elements of O'Malley's plan: a $3.50 monthly phone tax, an increase in fees on real estate purchases and a new levy on utility bills.

O'Malley has said that if the taxes do not pass, he will be forced to implement serious service reductions, such as laying off police officers, reducing trash collection and temporarily closing fire stations.

The council is expected to be joined during hearings tomorrow and Wednesday at City Hall by representatives from the real estate, telecommunications and nonprofit sectors eager to find an alternative to taxes they fear will drive residents and businesses out of the city.

"It's a no-win for everybody," said Councilman Kenneth N. Harris Sr. "Now is not the time to increase taxes."

Harris echoed the sentiments of several council members who believe new taxes would slow a local and regional economy they believe is improving. They point to the state government's revised projections that the recovering economy will generate $31 million more than expected for the state to spend in the fiscal year beginning July 1. O'Malley has said that the tax increases are needed because of reduced federal and state aid.

Economic questions

"What if next year more money comes in from the state?" said Councilman Edward L. Reisinger, who promised to vote against the taxes. "They're not going to do away with the cell phone tax or the recordation tax."

City officials said the state is not planning to provide the city with any additional funding stemming from the revised figures.

O'Malley's tax plan calls for a 4 percent tax on utility bills paid by residents, churches, manufacturers and nonprofit organizations, and state and federal office buildings. The city would continue an 8 percent energy tax it imposes on nonmanufacturing businesses.

The plan also seeks a $3.50 monthly telecommunications levy, which would tax for the first time cell phones and pagers as well as conventional phones. And it would almost double recording taxes imposed on real estate sales, raising the rate from 0.55 percent of the purchase price to 1 percent.

Possible layoffs

If the council does not approve the tax increases before June 30, the administration's spending plan calls for laying off 182 police officers, reducing trash collection, eliminating the city's recycling program, cutting back on fire protection and closing the central library on Sundays.

Reisinger said he believes the energy tax would drive companies out of Baltimore.

"If you hit manufacturers with the energy tax and the cell phone tax, they might have to lay people off," Reisinger said. "The mayor needs 10 votes. I'm not one of them."

Once the measures are moved out of the taxation committee, O'Malley will need 10 of the council's 19 members to vote in favor of them. The bills could emerge from committee with amendments.

Councilman Keiffer J. Mitchell Jr. said he intends to propose a cap on what companies would have to pay for the energy tax.

"I told the mayor he can't get everything he wants," Mitchell said.

Council members Helen L. Holton and Rochelle "Rikki" Spector, and Vice President Stephanie C. Rawlings Blake said they want to avoid the taxes but see no alternatives.

Nearly every council member contacted questioned how O'Malley could find $22 million to cover cost overruns in the current budget. Much of those overruns in certain agencies were covered by savings in other departments.

Councilman Nicholas C. D'Adamo Jr. said O'Malley has been scaring council members and special interest groups into supporting his tax plan with threats of service reductions.

"I question how much we really have a deficit if we can come up with $20 million in supplemental funds," D'Adamo said. "He puts us in this hole every year and asks the council to dig him out."

Tax plan

Mayor Martin O'Malley proposes to cure a $40 million budget deficit for fiscal year 2005 with revenues raised by three tax bills scheduled for City Council hearings tomorrow and Wednesday.

The taxes are:

A 1 percent fee on the price of a real estate transaction, up from 0.55 percent of a sale. The tax on a $100,000 house would rise from $550 to $1,000.

A $3.50 monthly telecommunications levy, which would allow the city to tax for the first time cell phones and pagers as well as conventional phones.

A 4 percent energy tax on utility bills paid by residents, churches, nonprofit organizations, manufacturers, and state and federal offices.

The hearing on the real estate tax is scheduled for 10:15 a.m. tomorrow at City Hall, fourth floor. The phone levy hearing follows at 11 a.m. The energy tax hearing is scheduled for 5 p.m. Wednesday.

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