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Release of city fiscal forecast sparks false reports of bankruptcy

A consultant's report paints a bleak picture of long-term city finances, though the current budget is balanced and without deficits.

rawlings-blake announcing 10yr fiscal forecast

Mayor Rawlings-Blake announces a 10-year forecast of municipal finances today at a media briefing.

Photo by: Mark Reutter

Mayor Stephanie Rawlings-Blake today presented a 10-year financial forecast so bleak that it led to a published report that Baltimore is facing “financial ruin” and “bankruptcy.”

In fact, the city’s current 2013 budget is balanced, there is $90 million available in a “budget stabilization reserve,” and next year’s projected shortfall of $30.3 million is modest compared to recent budget deficits.

Still, the forecast by the Philadelphia-based PFM Group – that the city faces a cumulative budget deficit of $745 million over the next decade as well as $3 billion in unfunded retiree liabilities – was enough to produce an AP news article saying that Baltimore city government “is on a path to financial ruin and must enact major reforms to stave off bankruptcy.”

Reporters questioning the mayor over the prospect of municipal bankruptcy got this response, “This is about being pro-active to get around that [bankruptcy].”

Rawlings-Blake’s comment was followed by remarks by City Councilwoman Mary Pat Clarke, who attended the press briefing.

“This city is not in financial ruin or bankruptcy. We have a balanced budget,” Clarke said, noting that, by law, the City Council must approve a balanced budget by June 30 of every year.

Softening the Blow of Budget Cuts

The mayor’s media presentation – and report by PFM – was clearly aimed at softening political opposition to cuts in the upcoming 2014 budget and changes in the way employee pensions and health benefits are paid.

Beginning with her “State of the City address” before the City Council next Monday, Rawlings-Blake said she will propose “a bold set of major reforms to address the fiscal challenges outlined in the Ten-Year Fiscal Forecast.”

In today’s prepared statement, the mayor said, “The reforms will focus on eliminating the deficit, making modern investments and changing the city’s tax structure to make Baltimore more competitive for growth. But before proposing anything, we need to understand the full scope of the problem, and that is why we are outlining the forecast today.”

In September 2011, the city paid PFM $460,942 to provide “professional services” for the development of a 10-year financial forecast, with an option to retain the consultants for two more years after the forecast is completed.

Stagnant Revenues, Ballooning Costs

Essentially, PFM found that the city’s revenues will remain stagnant for the next 10 years, while costs, especially for employee health and pension benefits, will grow steadily.

The group projected a modest yearly deficit between fiscal years 2014 and 2015. After that, the deficit would balloon from a projected $37.6 million in FY 2015 to $74 million in FY 2017 and $124.7 million in FY 2022.

City Comptroller Joan Pratt, Finance Director Harry Black, managing director of the PFM Group Mike Nadol and Budget Director Andrew Kleine at today's press briefing. (Photo by Mark Reutter)

City Comptroller Joan Pratt, Finance Director Harry Black, managing director of the PFM Group Michael Nadol, and Budget Director Andrew Kleine at today’s press briefing. (Photo by Mark Reutter)

Regarding employee costs, the report described the ongoing litigation with the fire and police unions over retirement benefits “the single largest, most immediate threat to the city’s fiscal stability.”

The retirement plan was changed in 2010, leading to lawsuits by the unions. “If the city’s approach [to changing the pension plans] is not fully upheld by the courts, the city’s recent fiscal progress would be set back dramatically to the severe detriment of the public interest and welfare,” PFM reported.

The consultants projected that Baltimore will have unfunded pension and other retiree liabilities of $3.2 billion by 2022. Currently, the city has 14,000 employees, down from 15,500 four years ago, said Budget Director Andrew Kleine.

The city will also face a $1.1 billion cumulative shortfall in infrastructure spending by 2022, mostly for roads, bridges and municipal building repairs. This figure does not include the $2.5 billion that’s needed to rebuild the city’s “aging schools [that] are now in substandard condition.”

Developer Tax Breaks to Continue

The mayor stressed today that the city could not spend it way out of the projected deficits by raising property taxes. In fact, she said that “new ways to restructure and diversify overall tax policies to reduce the burden on residents” was an important goal of her administration.

Asked if she planned to reevaluate PILOTS and other lucrative tax breaks that her administration has awarded to private developers, Rawlings-Blake said, “I’m not sure about reopening existing deals.”

She said her goal is “how we can use these [tax] incentives to grow the city.”

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  • Flint Arthur

    Sounds like the major intends more austerity, perhaps a superficial reduction in the property tax, no change to the tax structure (distinguishing residential homes, small business, big business, vacant and blight like in D.C.), and a continued policy of huge tax breaks to developers. So,what’s that going to mean?  More reduction in city services?  Maybe bring back a plan to sell city buildings?

  • ScottHW

    One of the that Baltimore can strengthen our economy and our city is through efforts to support relocalization.  Things like BNotes (Baltimore’s local currency) help to decrease the city’s trade deficit, keeping and building wealth locally.

  • ScottHW

    One of the best ways to support our local community and economy is to shop locally.  Things like the BNote (Baltimore’s local currency) help to relocalize demand, and strengthen our economy and our city at the same time.

    We don’t need to give tax breaks to developers to help “broaden the tax base” through “growth”.  We can keep wealth local by supporting each other just by shopping locally.

    (Apparently my previous comment was filtered when I tried to add a link to a list of local businesses.  Sorry, it wasn’t intended as ” blatant commercial self-promotion”.)

  • peter matchette

    Thanks for covering this with a critical eye.  Something did smell right when I first heard that we were going bankrupt. 

    I can’t be the only one who sees this as a cynical ploy to push through more PILOTs and superblock type projects in the name of fostering growth.
     

  • trueheart4life

    Where is the report Mayor Rawlings-Blake??? The citizens of Baltimore paid your consultant friends almost $500,000.00 and you won’t release the report to the public??? How dare you hold this announcement in a closed meeting, clearly with other elected officials present, in clear violation of the open meetings law, with only complicit reporters and without any citizens in attendance to ask the critical questions you so readily avoid answering!!!  The media only tells US what they are comfortable printing and your slanted communications staff provides none of the details we’ve constantly demanded. Get real … We deserve the best and can do so much better!!!

    • discer

      You could have said the same thing without coming across as a jerk. Might I suggest reading a little Dale Carnegie and some ritalin.

      • trueheart4life

        To discer:  I see that you’re still smarting from my last response to one of your past post.  Let me suggest that you stick to commenting about the wonderful articles the Brew staff produce for its loyal readers.  You really DO NOT want to continue critiquing the comments that I post, as you’ve already offended me and I will respond accordingly to your immature name calling. 

  • RickFromBmore

    I don’t envy the task of any mayor in this era when the Federal Government has turned its back on cities and states are trying to downsize anyway they can. But one potentially innovative – albeit contentious – idea would be to begin charging a property tax on nonprofit and religious organizations. Exactly why Johns Hopkins or the Catholic Archdiocese get away without paying a dime in tax on property they own is beyond me. We could probably reduce residential property taxes significantly and maintain our commitmenst to city employees by passing some of the expense on to the nonprofit sector.

  • H S

    It’s time for the consolidation of Baltimore City and Baltimore County governments. This allow for a much more equitable distribution of the region’s resources.

  • http://profiles.google.com/jamiehunt344 James Hunt

    Exactly why Johns Hopkins or the Catholic Archdiocese get away without paying a dime in tax on property they own is beyond me. We could probably reduce residential property taxes significantly and maintain our commitmenst to city employees by passing some of the expense on to the nonprofit sector.

    +++++++++++++++++++++++++++++++++++

    Not true. Any property those entities own – dorms, food service, etc. — that generates unrelated business income is taxed. Both also provide millions of dollars in free services to those in need.

  • MC2012

    The Mayor deserves credit for looking at this trend head on.  We have got to find the political courage to restructure the antiquated benefit packages for City employees.  Not only are the current plans unsound, putting people’s retirement at risk, but they are far from an effective way to attract & retain the best and brightest employees- which is their purpose in the first place.

  • ZacharyMurray

     I don’t think trueheart sounds like a jerk here, if anything you just sound like a hater.  I wish many more people in this city would express outrage at the arrogance of “our” public officials.

  • BmoreFree

    In spite of the the obvious intent of this report to be used in negotiations with city employees I still think it was a worthwhile exercise. An ounce of fiscal discipline now will forestall bankruptcy down the road. It is good to have someone from the outside to come in and take a look at the city’s finances – I thought that is what many who read the Brew and comment are always asking for?

    The mayor and her team need to tackle the holy trinity of crime, education, and taxes. Some individuals will end up benefiting from the changes and some will lose – the overarching long term goal should be the grow and improve the city as a whole. I see this study as one step (not that I necessarily agree with all of the conclusions) in that direction.

  • ZacharyMurray
  • BmoreFree

    ZacharyMurray – Thanks for posting a link!

    The most interesting items I found in the report were (1) how dramatically state support for transportation infrastructure has fallen and (2) the tax burden relative to other counties in Maryland. I trust the five year forecast more than the longer term one since after five years too many externalities enter the picture and compound factors tend to skew results one way or another.

    We at least now have a picture in front of us. I will be interested to hear what the Mayor proposes in her state of the city speech on 2/11 to solve the issues identified.

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