TAX NEWS - June 2010

Baltimore City Council committee backs $15 million in new taxes

A City Council committee approved more than $15 million in new taxes on Thursday and announced a deal with hospitals and universities that will net the city another $20 million over the next six years.

But the taxation and finance committee delayed action on a proposal to apply the city's energy tax to industrial businesses, over what its chairwoman, Councilwoman Helen Holton, described as "a technical issue."

During a session devoted to finding new revenue to narrow the city's $121 million budget gap before the end of the fiscal year on June 30, Holton announced that city officials had reached an agreement with hospitals and universities on a payment in lieu of taxes, or PILOT, that would take the place of a proposed $350 annual fee for beds.

Under the terms of the deal, which was signed by the presidents of the Maryland Hospital Association and the Maryland Independent College and University Association, the nonprofits would pay the city $5.4 million for the first two years and smaller payments in the next four.

According to a copy obtained by The Baltimore Sun, the deal would protect hospitals and universities from increases to telecommunications and energy tax rates over the six-year period, although they would experience rate increases this year.

The committee voted to increase hotel room taxes, parking rates, an excise tax on billboards and the energy tax for residents, nonprofits and nonindustrial businesses.

Holton said the proposal to apply the energy tax to industrial businesses, which has drawn opposition from local manufacturers, is still alive and will be presented in the coming days.

"It was a technical issue," Holton said. "It's not being pulled."

There was concern that the issue wasn't properly advertised to allow the public to comment, said Council Vice President Edward Reisinger.

Holton planned initially to introduce an 8 percent industrial tax projected to raise $8 million. She has since softened her stance, saying she was looking at a 5 percent to 6 percent levy that would be lifted after three years.

Manufacturers, whose operations require large amounts of energy, don't currently pay tax on it. Some say being made to pay now could put them out of business.

Holton and other supporters of the bill said everyone needs to play a part in closing the budget shortfall.

Some council members have said the energy tax could replace the $11 million tax proposed for bottled drinks, which is favored by Mayor Stephanie Rawlings-Blake.

A spokesman said Rawlings-Blake was "very pleased that the council is taking a second look" at the energy tax.

"She had serious concerns about the impact on job opportunities for city residents," spokesman Ryan O'Doherty said in a statement.

More than a dozen manufacturers showed up at City Hall prepared to express their opposition to the tax.

"This is a small victory," said Scott Macdonald, managing partner at plastics components maker Maryland Thermoform Corp., but added: "It's just a change in procedure. We're not comfortable. They could come back at us on it."

Stu Fitzgibbon, refinery manager of the Domino Sugars plant in South Baltimore, said he and other manufacturers would continue to press the council to abandon the proposal. Fitzgibbon has threatened to turn off the landmark Domino sign if the tax is approved.

"I don't think the battle is over at all," Fitzgibbon said.

Councilman Carl Stokes, who is seen as a swing vote on the issue, spoke to the manufacturers outside council chambers. He said the measure is "almost off the table," but did not specify how he would vote on the bill.

"I am in favor of your exemption," he told the manufacturers.

Ricky Smith, plant manager of drywall manufacturer National Gypsum, said his company spends $16 million in energy a year and can't afford the tax in the current economic climate, when the plant is already operating under capacity.

"There's no way we can pass the cost on to our customers," he said. "There is too much competition. They would just go elsewhere."