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Recession throws another punch at staggering city

THE BALTIMORE SUN

There is no good time for a recession, but the current downturn may prove devastating to Baltimore and more painful to Maryland than most people realize.

Despite our well-earned reputation over here in Medialand for being almost gleeful purveyors of gloom-and-doom, delivering a negative message about our economic fortunes is not enjoyable.

Yet, while public and private sector leaders say privately that they understand how bad things could get here, there is far too little public discussion of the need to consider new strategies and ways of doing business.

The city's unemployment rate reached 9.8 percent in December, according to the monthly jobless report issued last week. Even the metropolitan area's unemployment rate, at 6.8 percent, was uncomfortably above the national level, and the broader state economy was in the unusual position of being no better than the U.S. either.

In fact, Maryland's ballyhooed resistance to recession has been shattered. Government employment in the state has long been viewed as a cushion against downturns, given that federal, state and local government jobs account for 20 percent of the roughly 2.2 million jobs in Maryland.

But government employment was not a source of job growth last year and won't be this year either. Rather, we're being told to expect layoffs at the state level and in a number of local jurisdictions as well.

The state's No. 2 safeguard against downturns -- defense spending -- has also been rendered inoperative by federal spending cutbacks. The considerable cost of the gulf war will not show up in major payments to Maryland defense companies. And, although many companies in the state did play sizable roles in producing some of the major weapons systems being used in the gulf, any reordering of depleted inventories would not flow through to the private economy for some time.

The bottom line is that state employment has already fallen roughly 6 percent below year-ago levels. That drop has been masked by an unexplained decline of nearly 3 percent in the work force during the same period, according to Charles McMillion, an economist and senior fellow with the Institute for Policy Studies at the Johns Hopkins University.

The unemployment rate is the ratio of those looking for jobs to those in the labor force, a group composed of people with jobs and people looking for jobs. So, having a smaller work force meant that the state's unemployment rate was not dropping in tandem with the actual job losses that were occurring. Now, however, those job cutbacks are showing up as large monthly increases in unemployment.

What's more, matters are expected to get worse. January was a very tough month for the national economy, as nearly 300,000 jobs disappeared. Figures for the state, which lag a full month behind U.S. reports, should show substantial increases from the weak December showing.

February started out horribly with formal layoff announcements to 1,200 Westinghouse employees tied to the canceled A-12 attack-aircraft program. You get the picture.

They do in Annapolis, that's for sure. Gov. William Donald Schaefer rolled out an austere budget last week that could be cut further by a state legislature with a perceived voter mandate to avoid higher taxes.

Recommendations by the Maryland Commission on State Taxes and Tax Structures, headed by attorney Robert Linowes, look to be one casualty of the recession. Its far-reaching proposals to reform state taxes, adding some $800 million a year in revenues from new and altered tax programs, are expected to be shelved until happier economic times return.

Inasmuch as the Linowes commission recommendations would provide hundreds of millions of dollars in new revenues to Baltimore, the city's hope for major fiscal relief from Annapolis seems to have also been put on the shelf.

What makes this prospect so upsetting is that the city seems finally to be getting its act together in coming to terms with what has been a continuous budget crisis.

Last week, almost lost in the news about the gulf war, state budgets and adverse economic news, the city quietly released a document called a "Preliminary Strategic Financial Plan for the City of Baltimore."

(It's not clear that the city wanted to release the report so quietly, and officials in City Hall continue to struggle with how to effectively communicate. But that's a mountain to climb another day.)

For one of the few times since Mayor Kurt L. Schmoke took office three years ago, the city has taken a look at the economic writing on the wall and, instead of whining about it, has tried to produce a plan that includes a realistic fiscal agenda.

Although this plan is of obvious interest to city residents, it's primary audience for now is the legislative leadership in Annapolis. After listening to tales of woe from the Schmoke folks for two years, the leadership is both more sensitive to the city's needs and more insistent that the city be willing to take charge of its destiny. The plan lays out ways to do just that.

Unfortunately, the city's hard work, like that of the Linowes commission, might not bear fruit in this very, very tough recession year.

Fortunately, as a blueprint for what's in store for Baltimore, this plan is already proving a useful and persuasive tool.

"We gave all the labor leaders a complete briefing last week on the financial condition the city was presented with," city finance director Bill Brown said in an interview last week. "It was sort of like a wake."

Three years of tough times, negative choices and program cutbacks have not solved any of the city's financial problems but only delayed the day of reckoning. The strategic plan says that day has finally come.

"Without additional revenues and continued downsizing of government, the City does not expect to be able to balance its FY92 budget [fiscal year 1992, beginning in July] without significant disruptions to normal operations," the plan said.

The city's general fund covers the programs and salaries of about 11,300 city employees involved in police, fire, recreation, library and parts of other programs, including housing and health services.

More than 17,000 employees are in other programs, funded mainly with state and federal money, including transportation and roads, water and sewer utilities, the public schools and parts of other programs. These other funds "are in fairly decent shape," according to city budget director Ed Gallagher, although highway user revenues have been soft.

It's the roughly $800 million general fund that's under pressure. Labor contracts, rapidly climbing health benefits and increased spending on city schools (the general fund makes a substantial payment to the schools beyond their state funds) will cause general fund expenditures to climb an estimated 8.8 percent in fiscal 1992, 7.5 percent in 1993 and 7.7 percent in 1994.

However, because of the recession and related weakness in tax revenues, general fund revenues are estimated to rise by only 2.2 percent in fiscal 1992. They will recover somewhat the next two years as the economy improves, rising by a forecast 5.1 percent in 1993 and 5.2 percent in 1994. But the shortfall will widen unless state aid is boosted or city workers are removed from the payroll.

The city's plan for dealing with this scenario also includes setting aside a portion of any increased tax revenues to reduce the city property tax rate from its current level of $5.95 per $100 of assessed value to $5.88 over the next three years. That's a modest improvement that would still leave taxes in the city much higher than in any other Maryland jurisdiction, but city officials hope it's a move in the right direction and would help keep middle-class homeowners in the city.

If the city didn't change its programs and received no new help from the state, the plan forecasts a general fund deficit of $54 million in fiscal 1992, $78.7 million in 1993 and $106.4 million in 1994. Proposals to have the state take over certain court and jail functions would narrow but not close the gap, and it's not clear now how much state money will be available.

Something has to give.

"The city clearly has reached a point where its existing revenue base cannot support the current level of services," the plan said. "The City of Baltimore will need to undergo a period of vast transformation."

The plan outlines areas for possible action, but the real action for the next couple of months will be in Annapolis. By April, the city's legislative fate will be clear, and we'll see if the area's economy has weakened further.

We'll also see if city officials are seriously talking about this plan then.

And whether the rest of us are seriously listening.

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