A shaky plan

Our view: The City Council is caving to special interests in rejecting the bottle tax, and its replacement plan is far from certain

May 20, 2010

The announcement by eight members of the Baltimore City Council that they do not support a 4-cent tax on certain bottled beverages is a triumph of special-interest politics. The bottle tax, estimated to bring in about $11 million to help restore some of the services cut as part of Mayor Stephanie C. Rawlings-Blake's plan to close a $120 million budget gap, could be entirely avoided by Baltimore residents if they choose — either by buying larger containers, which are exempt, or skipping bottled water and soda altogether. The notion promulgated by the beverage industry, grocers and others in a well-financed public relations campaign that it will have a devastating impact on recession-strapped working families is entirely fiction. If that was the council's real concern, why is it not targeting the mayor's proposal to increase the city's income tax rate?

To the council members' credit, they did offer suggestions for ways to replace some of the revenue the bottle tax would generate, but their proposals don't cover the full amount and would likely leave under-funded or unfunded important services such as public sanitation and the cleaning and boarding up of vacant buildings. And that's assuming the council passes the rest of Mayor Rawlings-Blake's $50 million revenue package wholesale, which is no sure thing. Neither is it certain that their alternatives will produce the revenue they promise. Council members say a proposed tax on billboards would net an estimated $1 million, as would a tax on oversized vehicles in the city. But the bulk of their alternative package — $5 million — comes from Councilman Robert W. Curran's plan to, effectively, tax illegal slot machines.

Mr. Curran supports the bottle tax and proposed his plan as an addition to it. But a cabal of council members has latched onto it as the key component of a plan to replace the revenue that would be lost by rejecting the bottle tax. The slots tax is a fascinating idea, but it is so unusual and the revenues it would generate are so speculative that it would be a mistake to count on it to help in such a dire budget climate.

Mr. Curran's hypothesis is that many of the thousands of "for amusement only" video poker machines in Baltimore's bars and taverns are in fact being used as gambling devices, and that revenues from them are being grossly understated when the time comes to pay admissions and amusement taxes. This supposition is no doubt solid. Why on earth would people play slot machines if not to gamble? And why would bars devote so much space to them if they are really only generating the average of $14.50 a day in gross revenues they reported to the comptroller's office?

Here's how Mr. Curran proposes to generate more revenue from them: He would make the faux-slots exempt from the admissions and amusement tax so that reporting how much revenue any given machine takes in is no longer an issue. Instead, he would slap an excise tax on each machine of up to $2,250. Mr. Curran estimates that such a scheme could generate more than $5 million a year.

To be sure, there is uncertainty about the $11 million revenue estimate for the bottle tax. Although the city has experience with a similar levy from the early 1990s, it's impossible to know for sure how much the tax might change behavior. If people buy more in bulk or cross the city-county line more than the city expects, the full revenue might not materialize. But that's nothing compared to the uncertainty that surrounds the slots tax.

The $5 million estimate is based on what amounts to a series of educated guesses about the true number of machines in the city. Mr. Curran got his figure by extrapolating from the number of liquor stores, bars and taverns and the estimate of a longtime liquor board inspector of what percentage of such establishments have the machines. Further, he guesses that half as many machines are also operating in gas stations, convenience stores and other establishments. That brings him to an estimate of 3,200 machines in the city. There's no way to know whether he's right.

Even if he is, there's some built-in uncertainty in trying to tax people for doing something illegal. What's to stop people who are already breaking the law by low-balling revenues from their slot-like devices from simply failing to report the machines' existence entirely? Mr. Curran addresses this problem by creating a system for citizen watchdogs to report machines that don't display a license, which he figures would work because rival vendors of the machines would rat each other out.

Maybe it would work, and if it does, perhaps Mr. Curran could come up with ideas for taxing prostitution and drug dealing. But considering the stakes Baltimore faces, making it the basis for replacing the bottle tax is a pretty big gamble.

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