TAX NEWS - June 2010

Last call for the bottle tax

It hasn't been pretty, but it looks likely that the Baltimore City Council will complete a series of votes tonight that will stave off the worst consequences of a projected $121 million budget shortfall for the fiscal year that starts in two weeks. Tax increases the council or Board of Public Works have already given at least preliminary approval to will provide enough money to prevent layoffs in the police and fire departments and will restore millions in funding for recreation and parks, health and other key city priorities.

But the question that has played a disproportionately large role in the debate over how to close the budget gap — Mayor Stephanie Rawlings-Blake's proposed beverage container tax — remains unresolved as the administration scrambles to bargain with council members about what spending could be restored with the $11 million it is expected to generate. The beverage industry, which has spent lavishly in print and radio ads to stop the bottle tax — did they pay extra for the spooky music in the background? — isn't giving up easily. Its latest missive suggests that Baltimore's children will grow dehydrated in the summer heat because their parents won't be able to afford an extra four cents on their bottled water and Gatorade.

Of course, Baltimore's parched youths will at least be able to cool off with a dip in a city pool this summer, thanks to the council's decision to raise a host of taxes that will hit families harder than the beverage tax. The council has raised income taxes, energy taxes and telephone taxes and has eliminated a discount for early payment of property taxes. Those will affect city residents alone, while a substantial portion of the beverage tax would be paid by commuters and visitors.

Ideally, the way this debate would have unfolded would have been for the council to put the proposed tax increases in order — from the least effect on city residents to the most — and to correlate that with the list of budget cuts the mayor laid out, which she had already prioritized from most damaging to least. For example: The parking tax increase and increased parking fines, which raise $8 million, would clearly have less impact on city residents than cutting the fire department, which saves $7 million. At the other end of the spectrum, the question would become more difficult. Is a $6 million increase in the income tax rate more or less damaging than cuts to street sweeping, graffiti removal and the cleaning and boarding up of vacant houses? That's a tougher call.

But that's not what happened. Because of pressure from the beverage industry and deal making on the council, we're left with a choice between raising a tax that city residents could avoid entirely if they wanted and a set of spending priorities whose value isn't so clear as preventing layoffs at the police department.

Mayor Rawlings-Blake has identified about $7 million in cuts that are clearly worth the pain the $11 million beverage tax would cause, such as reducing the number of rotating fire station closures and maintaining the budgets for city cleanliness programs.

But the other programs the council is considering are debatable. Restoring funding to the cooperative extension service and to city horticulturist and arborist positions would help make the city greener and support efforts to increase urban farming. But would people want their taxes raised to protect it? Maybe not. Would they want to pay more taxes to preserve four positions in the Mayor's Office of Cable and Communications, to the tune of $473,876? Almost certainly not.

For better or worse, those are the kinds of items on which the entire budget debate hinges now. As insignificant as the staffing at the city cable channel is, the council on Tuesday held its fourth hearing on the matter.

But looking at the big picture, it is important to remember that even if the beverage tax passes, most of Baltimore's budget hole (nearly $70 million) will have been filled through spending cuts. Even with the beverage tax, the city will have to lay off some 250 workers and continue furloughs for everyone else. Baltimore isn't just taxing its way out of this problem. And the city isn't out of the woods yet when it comes to budget troubles; with the economy still struggling to gain traction, it's entirely possible that more spending cuts will be necessary after the new fiscal year starts. Having some cushion from new revenue sources will probably be welcome. And once the recession ends, the beverage tax would help with the mayor's effort to diversify Baltimore's revenue base and reduce its over-dependence on a sky-high property tax rate. For those reasons, it's still worth passing.