Mayor Stephanie Rawlings-Blake plans to create a post in her administration to oversee hundreds of millions of dollars in grant money after the city's finance director found that agencies can't account for as much as $40 million.
The city received more than $332 million in grants last year from the state, federal government and other sources.
Andrew Kleine, Baltimore's finance director, estimated last year that city agencies haven't properly accounted for about $40 million they received over the past several years. He blamed poor budgeting and oversight, outdated policies and inconsistent accounting procedures.
Earlier this week, the U.S. Department of Housing and Urban Development ordered the city to repay $3.7 million from a homeless services grant. The city dispersed the money to anti-poverty organizations that didn't properly document how it was spent, federal officials said.
"This keeps piling on, and at the end of the day the people who live and do business here in the city, we wind up paying more money for the miscues," City Councilman Carl Stokes said Wednesday. "If we were managing our money better and catching our errors sooner … we would find ourselves on better financial footing."
Rawlings-Blake spokeswoman Caron A. Brace said the mayor commissioned Kleine's study "because she saw the negative impacts this issue was having on city operations and finances."
Two years ago, the city lost access to federal grant money to pay for efforts to clear dangerous lead paint from homes. HUD had declared the local health agency ineligible for new grants because of a series of problems, including being chronically behind in fixing enough houses to meet goals.
After reviewing Kleine's findings, Brace said Rawlings-Blake "immediately made funding available to hire a grants coordinator to oversee and manage grants awarded to agencies throughout the city — the first such position we have had."
The city is interviewing candidates for the new position.
"We expect to have a person in place within the upcoming weeks to work within the Finance Department, as well as with agencies, to ensure supervision and compliance of all grants awarded to the city," she said.
Brace said the city has taken a number of actions to shore up its finances, including eliminating $400 million of Baltimore's long-term structural deficit.
Kleine reported the $40 million shortfall in September, and said the problem had grown over the years. He said a detailed accounting of more than 245 state, federal and special grants would be needed to determine whether money from the city's general fund should be transferred to reconcile the books. The general fund, including taxpayer dollars, pays for city services.
"The risk to city assets will continue to increase if current grant management practices are not improved to ensure the efficiency and effectiveness of grant programs," Kleine wrote.
"Research shows that a portion of the deficit is due to poor management practices and overspending," he added.
He said at the time that the city should create a grants management unit with up to five employees to oversee the money and ensure compliance and also require that departments follow new, updated rules.
Stokes said he is disappointed the city didn't act immediately on Kleine's recommendations, and said officials should begin regularly auditing the grant money.
"We should not have let several months go by," he said.
Councilwoman Mary Pat Clarke said the city should be concerned about the potential loss of future grant dollars.
"The consequence is you'll have your grant suspended, terminated or you'll never see a penny from that source again; this is major," said Clarke, who helped manage grants when she worked at the Johns Hopkins School of Medicine.
"We did not miss our deadlines, and the reporting requirements were a driving force that kept us on top of the money and the process," she said, recalling her experience.
Niki Edwards, a HUD spokeswoman, said the federal agency "remains concerned about the quality of grant management and oversight within the Mayor's Office of Human Services," which oversaw the homeless services grant awarded under President Barack Obama's signature stimulus program.
However, Edwards added, the agency "has been working with the city for months to improve its grant management systems and procedures for homeless programs. Over the last year, substantial improvements have been made, particularly those involving internal financial controls."
Rawlings-Blake said Wednesday that she is continuing to work with HUD and that Baltimore may not have to repay the money "dollar for dollar." The mayor declined to elaborate, saying the issue isn't settled.
As for the lead abatement grants, the HUD spokeswoman said the city is again receiving them. It was awarded $2.9 million under the Lead Hazard Reduction Demonstration Program in March 2012.
Most of the state, federal and special grants to the city are spent on health initiatives, homeless services, housing, police and workforce development.
Kleine noted that a portion of the $40 million shortfall could be explained by a lag in receipts but warned that any overspending represents a direct liability to the general fund.
It was unclear Wednesday what efforts the city has undertaken to further analyze the shortfall.
At the state level, the Governor's Grants Office was created about a decade ago to help coordinate grant money and train local governments and state agencies to identify potential benefactors and manage the money.
Merril Oliver, the office's deputy director, said most states and local governments don't have staff specifically devoted to overseeing grants, although such positions have become more common in recent years. Providing the oversight gives entities issuing the grants confidence that the recipient will be a good steward of tax dollars, she said.
Oliver, who wasn't familiar with Kleine's report, said the additional grants oversight will give Baltimore an edge.
"It's exciting to me to hear that Baltimore City wants to focus in this area, and we're happy to offer them our assistance," Oliver said.
Baltimore Sun reporter Luke Broadwater contributed to this article.