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Baltimore Mayor Pugh says she paid taxes on book sales, calls inquiries a 'witch hunt'

Baltimore Mayor Catherine Pugh said she properly reported and paid taxes on all sales of her “Healthy Holly” books and called inquiries into her deals with the University of Maryland Medical System a “witch hunt.”

Pugh declined to provide copies of her personal and business tax records related to the $500,000 she has received from the medical system for 100,000 books since 2011, a period that includes her time as a state senator and as mayor.

She said she returned the most recent $100,000 she received from the medical system since resigning from its board Monday amid questions about the deal. The first-term Democrat also said she understood the concerns state lawmakers have about business deals between UMMS and its board members.

Two other board members who have had business relationships with UMMS — John W. Dillon and Robert L. Pevenstein — resigned Tuesday and four others with contracts were placed on leave.

“All my income is reported to the IRS and everything is filed,” Pugh said in a telephone interview with The Baltimore Sun on Wednesday afternoon. “I don’t know what witch hunt y’all are on, but it’s done. I’ve got 1099s and I pay my taxes and everything is filed.”

Full coverage: Scandal involving University of Maryland Medical System board members »

The mayor broke her silence on the issue as legislative leaders in Annapolis were meeting with medical system officials about potential conflicts of interest among board members. And Maryland Comptroller Peter Franchot blasted the mayor for striking a deal to sell books to UMMS while she served on a powerful Senate committee that approved millions in state aid to the system.

Maryland citizens are outraged, he said.

“Everybody is wringing their hands about the self-dealing that was going on,” Franchot said.

In the interview, Pugh said she decided to return $100,000 to the medical system because she is still working on her latest book — “Healthy Holly: Walking With My Family” — and wanted to fully “settle” her relationship with UMMS after resigning from the board.

Pugh said she approached UMMS officials with samples of her first book in 2010 or 2011 after being inspired to write it at a national conference on “healthy lifestyles” in 2008. She could not recall which UMMS officials she approached.

She said that after she shared the “mission” of her books and concerns about obesity, UMMS officials expressed interest. She said her Health Holly company makes children’s clothes in addition to publishing the books.

Pugh said she has not sold her Healthy Holly books beyond those she provided for the UMMS deal, adding that those books “are mostly distributed.” She said she did not know “all the places that they’ve been used,” but that most of the books had gone to schools and day care centers.

She said she believed she sent 21,000 books to the Baltimore City Public School System, which she called the result of an agreement with schools officials.

“Many of the elementary schools around the city should have received them,” the mayor told The Sun. “I don’t know why they haven’t distributed them.”

Schools officials have said that they received an “unsolicited” shipment of an unknown number of books from Pugh sometime between 2011 and 2013, but that they have not been able to locate any documentation related to the shipment.

They said about 8,700 copies of Pugh’s book “Healthy Holly: Fruits Come in Colors Like the Rainbow” are being stored in a warehouse. They said the school system never received a grant from the medical system.

Describing her company, Pugh said Healthy Holly LLC “is not a book company” but “a company promoting healthy lifestyles for children.” She said she would explain the difference in coming days.

Healthy Holly LLC was incorporated on Jan. 13, 2011, for the purpose of manufacturing and distributing “various products and/or services related to Healthy Holly brand and [re]lated activities,” according to incorporation records.

The company has “book groups and all kinds of other stuff,” Pugh said in the interview. An avid runner, Pugh said she hopes the books “get people to understand the lifestyle changes” needed to stay healthy.

Asked if she would release her tax returns, or tax documents for her company, Pugh said she would not “because I did everything right.”

A spokesman for the medical system, Michael Schwartzberg, said that UMMS “purchased the books and made payment to Healthy Holly, LLC, and provided a Form 1099 to that business entity.”

Despite calling the transactions book purchases in public statements, UMMS in tax forms for years ending 2015 and 2017 reported the deals as “grants” — one to Healthy Holly LLC and one to the school system. The report lists Pugh’s home address as the location of the school system.

Schwartzberg said the medical center was “currently evaluating” its form for the 2015 tax report that called the transaction a grant to Healthy Holly. He called the incorrect address for the school system in 2017 a “clerical error.”

Tax experts interviewed by The Sun have questioned why the medical system did not specify in some of its tax filings that money was being paid that benefited Pugh, a member of its board.

UMMS did make the point in a tax form for the year ending June 30, 2013.

“The medical center purchased ‘Healthy Holly’ books through a third party and Mrs. Pugh was the recipient of the profit on the sale,” the form says. “Books were purchased at or below fair market value.” The value listed in the tax form was $100,000.

But two other forms examined by The Sun, for 2015 and 2017, did not mention the tie to Pugh.

Schwartzberg said the medical system was not required to characterize the transactions as benefiting a board member because each did not exceed a threshold of $100,000.

UMMS has previously said it paid $100,000 each of the five times it bought the mayor's books from 2011 to 2018.

Eve Borenstein, a national expert on tax reporting by nonprofits, said the $100,000 threshold for reporting insider deals only applies if that is the total amount of small payments provided over a year. Any single purchase of $10,000 or more involving a board member needs to be reported, she said.

“If the check is made to her or her company as a transactional payment” such as buying books, “it does have to be reported,” Borenstein said in an email. She also said that grants of any amount to a board member must be reported.

Baltimore Sun reporters Luke Broadwater and Talia Richman contributed to this article.

This article was updated. The mayor previously cited a different date for when she approached UMMS officials about her book.

krector@baltsun.com

twitter.com/rectorsun

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