Auditors Unearth Millions For City

Neglected Tax Account For Partial Payments Holds $39.7 Million

April 16, 2009|By Annie Linskey | Annie Linskey,

Cash-strapped Baltimore has unearthed a nearly $40 million windfall, after auditors realized that an obscure account had been accumulating tax payments for about a decade.

Finance Department employees were supposed to manually transfer money from partial tax payments into the city's operating budget. But because of staff turnover and poor communication, no transfers had taken place for years, city officials acknowledged Wednesday in disclosing the results of an annual audit.

City Finance Director Edward Gallagher said he was "embarrassed" when he learned of the oversight.

"It is my department. It is my responsibility," Gallagher said. "It is good that we found it."

The cash is considered surplus, which, by law, must go toward reducing the city's planned bond purchases. That means it won't forestall layoffs or postpone recreation center closures proposed last month by Mayor Sheila Dixon.

Still, it is the best financial news Baltimore has received in a while and perhaps the mother of all change-under-the-sofa-cushions caches.

With the city needing to close a $65 million shortfall for the budget year that begins July 1, Dixon has proposed laying off 153 workers, shortening pool and library hours and eliminating the Police Athletic League. Adding to the distress, state lawmakers have recently decided to keep millions in road construction money that was supposed to go to Baltimore and other municipalities, and the city is grappling with out-of-control police and fire pension costs.

The found money - $39,714,985 to be precise - is more than the annual budget for the Department of Recreation and Parks or the state's attorney's office.

It is equivalent to a one-time 12-cent reduction in the city's property tax rate.

"When [Gallagher] shared it with me, I thought we had some new revenue," the mayor said Wednesday. "Believe me."

Baltimore had been set to borrow $75 million for renovations at schools, theaters and city libraries. Because of the discovery, the city will need to borrow only $35 million, Gallagher said.

So taxpayers will receive the benefit, eventually. "There will be less debt service," Gallagher said. "It is not immediate."

Gallagher assured residents Wednesday that the city has properly accounted for tax payments. The problem was limited, he said, to transfers.

After experienced staff left a tiny accounting office in the city's Collections Department, younger workers did not realize that the partial tax payments had to be manually moved from one account to another, Gallagher said. So they didn't do it.

The finance chief has sinced moved the office under the umbrella of the city's larger accounting office.

The error was uncovered as officials prepared for an annual audit of city funds in the previous year.

There wasn't much finger-pointing or anguish at Wednesday's Board of Estimates meeting, where the audit was presented.

Dixon matter-of-factly noted that the Finance Department found the problem and rectified it.

City Council President Stephanie C. Rawlings-Blake shook her head back and forth silently and then said: "It is for this reason that we do audits."

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