Baltimore MayorStephanie Rawlings-Blake's preliminary budget proposal for the next fiscal year displays some encouraging signs that, after three rocky years, city finances are stabilizing. Income tax revenues are ticking slightly upward in conjunction with an improved jobs picture in the city, and some of the mayor's controversial pension reform efforts are beginning to hold down costs. The plan calls for an end to employee furloughs and will result in few layoffs, if any. It even includes a small reduction in homeowners' property taxes. But there are still ominous signs ahead, enough to justify what are sure to be some unpopular proposals in Ms. Rawlings-Blake's spending blueprint.
Overall, the plan does an admirable job at constraining increases in the cost of government. Total spending growth for operating expenses in this plan amounts to less than 0.1 percent. That restraint helped the city to close what would have been a $48 million budget gap without seeking any new taxes or fees.
Things don't look rosy in the next few years, though. In the fiscal year that starts in July, city officials anticipate they will experience a drop in property tax revenues for the first time since the recession began. Because of the three-year cycle of assessments and other mitigating factors such as the Homestead Property Tax Credit, it can take several years for a bad housing market to show up in the property tax ledger. And once it does, the bad news will keep coming. Even if the housing market turns around, Baltimore can expect less from its primary source of revenue for some time.
Meanwhile, although the reductions to police and fire pensions that Ms. Rawlings-Blake implemented in her first year in office are now saving the city more than $60 million a year, the costs of other employee pensions continue to rise unchecked. That is not addressed in this spending plan, but it will need to be in the future. The city has also seen more than $15 million in annual savings from retiree prescription drug benefit reforms, and the mayor is now proposing changes to the health plans for current employees that could help constrain future budget growth. Her plan calls for employees to pay a deductible for their health expenses, to pay more for prescription drug coverage and to pay higher co-pays for visits to the doctor. Employees will surely be unhappy with that, but their coverage is still better than what's typically available in the private sector, and they retain the option to switch to a lower-cost HMO plan.
Another likely flash point in the debate over this plan is Ms. Rawlings-Blake's proposal to close three fire companies permanently rather than continuing the current policy of rotating closures. That's certainly not a welcome prospect, particularly for the neighborhoods that will be affected. But it is probably a realistic decision. Rotating closures may minimize the effect on any particular community, but they pose management challenges for the fire department. This way, department officials can determine which companies can be eliminated with the least effect on operations, and they can develop a permanent plan to compensate for those companies.
An area of concern is the mayor's continued desire to turn rec centers over to private operators. The effort so far has gotten off to a rocky start, with far fewer qualified bids in initial rounds than the mayor had hoped for, and with some groups proposing to charge user fees or to serve constituencies other than the city youth who have been the centers' traditional focus. So far, the city has not accepted any bids from groups that plan to charge for their services, and it shouldn't do so in the future. Fortunately, the Rawlings-Blake administration appears to have learned some lessons from previous rounds of bidding, and the number of rec centers on the chopping block is smaller than in previous years. We continue to hope that the city will maintain this important commitment to its youth even if it can't find private partners, and we encourage the council to look for cuts elsewhere in the budget to make that possible.
Overall, this appears to be another solid spending plan from Ms. Rawlings-Blake, but it also hints at the limits of her generally incremental approach to bringing city finances under control. Her reforms to employee benefits have reduced the rate of growth, and her plan to dedicate most of the revenues from the still-unbuilt city slots parlor to property tax reduction should fund a series of modest cuts over the next several years. But if she wants the tax rate to be remotely competitive with the suburbs or to make the kind of investments that will cause the city to grow, she is going to have to start adopting more fundamental changes in the way Baltimore delivers services. This plan does a good job of getting Baltimore through the next year, but it doesn't sufficiently point the way to the future Baltimore deserves.