2:03 PM EST, February 6, 2013
It should come as no surprise that Baltimore City's long-term fiscal prospects are bad. The population has dropped by more than a third since its peak, poverty and unemployment are high, and the signs of disinvestment are everywhere. Meanwhile, the way the city provides government services remains effectively unchanged, and the cost of everything from police to code enforcement grows every year.
But just how bad things are has never been apparent, largely because no one has had the stomach to ask. Mayor Stephanie Rawlings-Blake did, and the answer, presented to the City Council today, was grimmer than most would have guessed. Even if the economy grows at a reasonable rate, even if the state and federal governments don't slash aid, even if we don't take into account the costs of crumbling infrastructure, Baltimore will be bankrupt within a decade. Factor in the costs of pensions and retiree health care, and the problem looks even worse.
That's the conclusion of an independent analysis conducted at the mayor's request by the Philadelphia firm Public Financial Management Inc. PFM has conducted similar studies in other cities, including Philadelphia, Pittsburgh and Washington, D.C., and has found similar problems. The only difference is, Baltimore requested this assessment before it landed in state receivership or bankruptcy court.
That may prove a blessing and a curse. We can take actions now to avert this bleak fiscal course — all told, PFM estimated a 10-year deficit for operating and infrastructure expenses of more than $1.8 billion, plus another $3.2 billion in unfunded pension and retiree health care liabilities. But without the crisis of bankruptcy or receivership, it will be difficult for the mayor to muster the political will necessary to take on the public sector unions and other interest groups that will likely fight efforts to constrain costs.
To Ms. Rawlings-Blake's credit, she is signaling that tax increases are not a part of her plan to establish fiscal sustainability. Baltimore's property tax rate is twice as high as any other jurisdiction in the state, its income tax is at the maximum level allowed by the state, and the nickel-and-diming of city residents through taxes on everything from cellphones to beverage containers has reached its limit.
But what, exactly, she does plan to do about the looming crisis is unclear. She has promised to lay out a "bold" agenda of reforms, starting with her State of the City address on Monday, with the aim of not only bringing the budget into long-term balance but also reforming the tax system and investing in infrastructure to make city living more attractive.
Achieving that is going to require major spending cuts, and even if we don't have the specifics of the mayor's plan yet, it's not hard to guess what she might be considering. The mayor successfully pushed for changes to police and firefighter pensions when she took office three years ago, though the effort is subject to litigation by the public safety unions. She may well seek to make reforms to the pensions for other government employees which, while less generous than police and fire benefits, represent nearly as large an unfunded liability. It is also likely that the mayor will need to downsize the city workforce, which is much larger than Baltimore's current population requires. Ms. Rawlings-Blake has resisted the idea of reducing the size of the police force, but other agencies are likely on the table.
Ultimately, the best solution for the city may be a broader reimagining of the way government services are provided throughout the region. That's a tricky issue, given the history of local politics, but it may be an idea whose time has come. House Speaker Michael E. Busch recently created a task force to study ideas for greater coordination in efforts to revitalize the Baltimore metropolitan area, and Baltimore County Executive Kevin Kamenetz has expressed interest in regional management of the water system, which, although unrelated to the fiscal problems PFM outlined, could pave the way for other such efforts.
Baltimore's fiscal problems have been long in the making. The billion-dollar infrastructure deficit the city faces over the next decade is the product of years of neglect and underinvestment, and the unsustainable personnel costs that drive the city's operating budget woes are the result of decades of inefficiency and unaffordable promises. But the troubles PFM found also do not represent an immediate crisis. Rather, if Baltimore takes decisive action now, it can avoid more draconian cuts in the future. Mayor Rawlings-Blake has been willing to take politically unpopular steps in the past when Baltimore's finances were in trouble. Whether she will be able to do so again will determine her legacy.
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