Baltimore finance officials say they project an $80 million city budget shortfall in 2012 and “virtually flat” revenues for the next three years.
When Mayor Stephanie Rawlings-Blake took the helm as Baltimore’s top official last February, one of her most daunting tasks was closing the $121 million budget gap. She and the City Council enforced contentious tax hikes and pension overhauls, but according to the Finance Department, they may not have done enough.
In a recent public hearing about the city’s economic outlook, two finance and budget officials contended that the city must enact “structural changes in pension, medical coverage and other areas to ensure long-term sustainability.” They also cited unemployment, the housing market and deflation as causes for the spiraling deficit.
Roughly 26,000 fewer city residents have jobs than in 2007, but employment growth is not expected to return to pre-recession levels until 2014, budget analyst William Voorhess reported at the hearing. The high unemployment precludes income tax levels, which are based on residential income assessments, the real estate market and stocks.
Unstable housing prices won’t return to pre-recession levels for another four years, he said, adding that the federal housing stimulus “did little” to stabilize Baltimore’s housing market and the city saw low housing sales all last year. He says if the city sees “strong and steady growth,” this year, property tax revenues might level off in eight years.
“We are experiencing the tail end of the benefit of the housing bubble boom,” noted Andrew Kleine, chief of Budget and Management Research. According to his three-year budget projections, city revenue streams will remain flat and wages will be stagnant.
By far, Kleine said, pension costs are overwhelming the city budget most, having tripled since 2003. Fixed costs—including retirees’ healthcare and workers compensation—drive 70 percent of the city’s increased costs. The spike may be credited to aging baby boomers.
The city lost an historic $100 million in highway user revenue due to cutbacks to the state gas tax and fewer car purchases. What’s more, city officials raided the fund to balance the general budget and Kleine said they might have to again for fiscal year 2011.
On the upside, the city avoided a double-dip recession and the Gross Domestic Product, or the market value of goods and services within the city, is gaining momentum. “There is going to be growth, but it’s going to be slow,” Kleine said, but even its slow growth will create jobs.
Still, the city has $786.7 million set aside for service operations this year and an expected gap of $154 million by 2014.
“This gives you a sense of the challenge that lies ahead, but of course that can’t happen,” Kleine said.
By law, city officials must have a balanced budget by June 30, the end of the fiscal year. Kleine said he must present a balanced city account to the Board of Estimates by March.
“I think we have a tougher budget than last year,” he said.
In a slide presentation, Kleine said the looming $80 million deficit equates to 1,066 police officer positions, 1,200 firefighters and 30 percent of the current workforce, excluding fire and police, comparisons that incensed Councilman James Kraft, D-1.
“This creates an atmosphere of fear,” he said, glaring at Kleine. “Everyone knows we aren’t going to cut 1,000 police officers.”
Councilwoman Mary Pat Clarke, D-14, concurred, “This is the year when we have to tighten our belts…We don’t want residents to think we balance these shortcomings on the backs of public safety and we don’t want our financial process equated to fire and police.”
She said she was not aware the city would face another year of a “sizable” deficit. “There is nothing more to raise (in taxes) that I foresee,” she said. “We gave our best effort last year; I don’t know what is left to do…We need to look at projections again to make sure we aren’t being too pessimistic.”
Calls to the Mayor’s Office for comment were not immediately returned by AFRO deadline.
Gov. Martin O’Malley reveals the state budget this week, which has a gloomy $1.6 billion projected deficit. Kleine said although O’Malley promised not to shift teacher pension costs to localities, the state Legislature is sure to cut other municipality aid.
“It’s just a matter of the magnitude,” he said, adding he expects a $22 million reduction in state aid over the next three years. That would push Baltimore’s shortfall well over $100 million.
“The impact of this recession is going to live with us for a very long time,” Kleine said.