Repeal of tax on fuel sought

Six council members say city levy should be reduced or dropped because of rising rates

March 24, 2006|By JOHN FRITZE | JOHN FRITZE,SUN REPORTER

Six City Council members said yesterday that they support reducing or eliminating a city tax on energy that would otherwise increase this year as Baltimore Gas and Electric Co. customers face massive rate increases.

In what is fast becoming the most contentious debate surrounding Baltimore's proposed $2.38 billion budget, supporters of the tax cut say it would give energy consumers a needed break while others, including Mayor Martin O'Malley, warn that the energy tax may someday be a crucial source of revenue.

Imposed in 2004, as the city faced a potentially devastating budget deficit, Baltimore's energy tax is expected to bring $6.6 million into city coffers this fiscal year from residential customers alone. The city expects to collect an additional $21 million from commercial businesses and nonprofits.

For homeowners, the tax doesn't amount to much - somewhere between $20 to $30 a year, depending on energy consumption - but those who support its elimination argue the city should do whatever it can to defray the rate increase.

"They've tacked an energy tax on many people who can least afford it," said Councilman Keiffer J. Mitchell Jr., the council's taxation committee chairman, who is leading the effort to do away with the tax.

Mitchell said he would introduce a bill at the next City Council meeting, on April 4, that would phase out the tax for residential customers this summer. Though they have not seen the specifics of the proposal, five additional council members - two short of a majority - said yesterday that they support that concept.

"We're having a cost crisis," said Councilwoman Mary Pat Clarke, who supports abolishing the tax. "This is one thing we can contribute to help our families."

City Councilman Bernard C. "Jack" Young said he, too, supports eliminating the tax - for residents only - but said he is also convinced the added revenue has helped improve the city, from public safety to parks.

Electric bills are expected to jump by 72 percent this summer after a six-year cap on energy rates is lifted. That cap was put in place to soften the blow to consumers as the state's energy markets were deregulated, but ultimately delayed rate increases until now.

Supporters of cutting the tax said they are confident they can find two more votes on the 15-member council, but critics are less certain the measure will gain momentum - especially if state officials reach a deal with BGE officials to reduce the rate increases in coming days.

Mitchell and the others said they would continue to fight for the reduction even if the General Assembly finds a way to phase in the increases.

"If we can bring some relief to the citizens of Baltimore, why not?" said Councilman Kenneth N. Harris Sr. "I'm thinking about our low-income families that are already on budget billing" for their utility payments.

The other two council members who expressed support yesterday for cutting the tax were Belinda Conaway and Nicholas C. D'Adamo Jr.

The O'Malley administration argues that keeping the tax in place diversifies the city's revenue base - just as private investors diversify their portfolios - to reduce the risk of relying too heavily on one form of income, namely the property tax.

The city's real-estate boom has inflated property tax collections and helped transform the city's budget from one that frequently bled red ink to one that has run a surplus for the past two years. But as the housing market has cooled - and government costs have gone up - officials are concerned about making ends meet in the future.

"I think we would be moving backward to return to our dependence on the property tax," O'Malley said when asked about the energy tax this week. "The huge hit that is facing our citizens is not from the energy tax ... it's the jacking up of the price by 72 percent."

As part of the city's proposed fiscal 2007 budget, which was unveiled this week, the administration calls for a second consecutive 2-cent reduction to the property tax rate. If approved by the council, that would translate roughly into a $30 savings on a home valued at $150,000.

Baltimore's energy tax was put into place in 2004 for residents - an energy tax had been imposed on certain businesses for years - as part of a larger package of new fees and tax increases that included a $3.50 charge on phone bills.

At the time, the administration projected a $45 million deficit for fiscal 2005. Instead, officials realized a $59 million surplus - a sudden turnaround that troubled many on the council.

The original energy tax proposal that year called for a flat percentage to be paid on the amount billed for energy - like a sales tax - that was then converted into a fluctuating tax on the per-unit consumption of energy. The more a customer consumed, in other words, the higher the bill.

As part of a compromise intended to reduce the amount owed when this year's energy prices spiked, the administration instead tied the tax to consumption and limited the tax rate increases to inflation.

That complicated scenario, unique in city government, ultimately benefits consumers in times when energy prices rise faster than inflation. When energy prices stagnate or do not grow as fast as inflation, however, consumers will pay more.

D'Adamo was one of the council members who voted against applying the tax to residents in 2004, and he said yesterday that his position hasn't changed. Now that the city is running a surplus, he said, the money should be returned.

"The taxpayers stuck around during the hard times," said D'Adamo, who said he intends to introduce legislation to cut the city's property tax rate by 10 cents, rather than the 2 cents proposed by the mayor. "It's the right thing to do to give the people their money back."

john.fritze@baltsun.com

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