“We are looking to update the expense practices and create a much more open and transparent way of dealing with City Council expenses,” O’Malley said in an interview.
His comments followed a report in The Sun on Sunday that showed that Baltimore’s system is unlike those used by other major cities and counties.
The handling of the accounts, which might be in violation of federal tax laws, is being scrutinized by federal prosecutors as part of a wide-ranging investigation into council members’ finances.
O’Malley said his administration might stop handing council members advances totaling $5,000 a year apiece, and instead require them to file receipts before being reimbursed for legitimate business expenses by the city’s finance department.
This is the kind of system used by legislators in many other jurisdictions, including Chicago, New York, Philadelphia, Boston and Baltimore, Howard, Anne Arundel and Montgomery counties.
A second option being studied is to allow the council members to keep receiving the $5,000 annually and report the money to the IRS as income, on top of their $48,000 annual salaries, O’Malley said.
This second option might require the council members to pass an ordinance officially granting themselves the raises, to $53,000 a year, said City Solicitor Thurman W. Zollicoffer Jr.
City Comptroller Joan M. Pratt, who has criticized the city’s handling of the expense accounts, said the mayor’s first option sounds more prudent.
“If a public official spends money, they should submit receipts before they get reimbursed,” said Pratt, who added that the city should hand out cash advances only if the officials turn in receipts afterward.
Pratt also receives a similar $5,000 a year expense account and says she would be willing to abide by any rules the council has to follow.
The council’s expense account system is at least 20 years old. In recent months, it attracted the attention of U.S. Attorney Thomas M. DiBiagio, whose office in September began an investigation into the council’s financial and political affairs.
That probe appears to be entering a new phase, with about half of the council’s 19 members scheduled to meet individually next month with Carl P. Jaworski, the investigator spearheading DiBiagio’s probe, several council members said.
The council members said they were not subpoenaed to appear at the meetings. They said the discussions will focus on the voluminous documents they turned over in answer to DiBiagio’s subpoena late last year seeking five years worth of council members’ financial records.
President scheduled
Council President Sheila Dixon said yesterday that she was one of the members scheduled to meet with the investigators.
In addition, Dixon said she would meet as early as today with Finance Director Peggy J. Watson to “change” and “update” the council’s expense account system “so that there are no questions in reference … to how we handle it.”
In Sunday’s Sun, Dixon defended the expense account system, saying, “These perks are perks that everyone has gotten over the years.”
However, yesterday, Dixon said of the process: “It does need to be updated.”
The system might have evolved over the past three decades in part as an alternative to issuing council members city-owned vehicles, officials said yesterday.
But the city during the 1990s stopped offering cars to council members – except for the council president, who is issued a city-owned Jeep Grand Cherokee and a Crown Victoria – and allowed the council to keep the expense account money.
The system allows most mem-
bers to take home $1,250 checks each quarter for business expenses such as travel, gifts and entertainment. The city does not require the council members to turn in receipts, or explain what they do with the money, according to city officials and documents.
This expense account money is in addition to the more than $80,000 that council members each receive from the city for running their offices.
The city does not report the $5,000 in expense account money to the Internal Revenue Service as income as long as the council members sign forms every year swearing that they spend the entire $5,000 on business.
Possible violation
This appears to be a violation of IRS tax laws, which requires all of such cash advances to be reported as income if employees do not give their employers receipts or detailed explanations of how they spend the money, according to IRS regulations and four accountants interviewed by The Sun.
If council members declare on these annual forms that they didn’t spend the $5,000 on business, the city’s system allows them to pocket the remainder.
In these cases, the city reports the leftover portion to the IRS as income.
Last week, O’Malley said it wasn’t his place to interfere with the council’s expense accounts. He said the council deserved his “deference and respect” as a separate branch of government.
But the day after The Sun’s article on the expense accounts ran, O’Malley said he had discussed the subject during a meeting with Dixon and Watson, and they all agreed that the system had to be changed.
“Any system that raises this many questions needs to be reviewed and adjusted,” Watson said.
Watson said city payroll officials assumed they were following IRS rules by requiring, since the mid-1990s, the council members to sign documents every year swearing that they would personally keep records on how they spent the money. They were not required to show these records to the city.
Time for changes
But now the Department of Finance believes that the system needs to be changed, Watson said.
Some council members told The Sun that they kept no records and deposited the money in their personal checking accounts.
Others said they distributed the money to churches, community groups and nonprofit organizations.
Council members reactions to O’Malley’s intention to change the system were muted yesterday.
Councilwoman Catherine E. Pugh said she did not know the details of what O’Malley wanted to do, but added that, “I think we all should be accountable.”
Clarification
Councilman Robert W. Curran clarified the amount he reported spending on his annual form. He said it was more than $5,000, but not the $7,500 in expenses noted in a graphic that accompanied The Sun article.
Curran, however, could not say yesterday exactly how much he had spent.
Councilman Kenneth N. Harris Sr. said he would support changes that would require more accountability.
“I’m open for any suggestions,” Harris said. “I’ve just been following a process that was in place before I got here.”