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Rainy Day Fund: Dip in now or when the fiscal storm grows worse? | COMMENTARY

Baltimore Police Commissioner Michael Harrison speaks before the Board of Estimates last fall. The five-member panel has been asked to approve a potential $25 million withdrawal from the city's rainy day fund to cover a budget shortfall attributed largely to the COVID-19 pandemic
Baltimore Police Commissioner Michael Harrison speaks before the Board of Estimates last fall. The five-member panel has been asked to approve a potential $25 million withdrawal from the city's rainy day fund to cover a budget shortfall attributed largely to the COVID-19 pandemic (Karl Merton Ferron / Baltimore Sun)

Baltimore’s Board of Estimates, the five member group that manages city finances, will face a choice on Wednesday over whether to authorize up to $25 million be withdrawn from the city’s rainy day fund (a.k.a. the “budget stabilization reserve”) to cover budget shortfalls related to the pandemic. For the average Baltimorean, this might seem irrelevant (As long as they aren’t raising taxes or reducing city services, why should I care?). But it’s actually a rather significant milestone. Think of budget balancing as a high-wire act and the rainy day fund as a bunch of mattresses offering a soft cushion should you fall. What’s essentially being proposed is a bit of short-term steadying on the wire in return for removing a big chunk of mattress. Is that wise? There are reasons to be skeptical.

In simplest terms, governments at the state and local level maintain rainy day funds — think of them as emergency rations — in case of fiscal disaster. Bond rating houses expect governments to always have this cash on hand; if they don’t, they’ll be penalized with greater borrowing costs in the form of higher interest rates. It’s also prudent. Just as ordinary households should have some savings to cover human-scale calamities like serious illness or loss of a job, governments need to be able to weather bad times like economic recessions without making them worse with massive layoffs or tax increases. Baltimore has dipped into its emergency funds just twice over the last decade, but never for quite this much. The $25 million withdrawal wouldn’t leave the $145 million cupboard bare, but it would be 25% more than the $20 million taken out to help the city after the Freddie Gray unrest in 2015.

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The question here is not whether it’s raining (the city’s Fiscal 2020 apparently ended with expenditures exceeding tax revenue by $14.3 million largely because of the pandemic) but whether this is exactly the right time to trot out the city’s last line of defense. At best, the shortfall suggests that Mayor Bernard C. “Jack” Young and members of the City Council failed to control spending sufficiently in the early stages of the pandemic. In neighboring Baltimore County, for example, there is no proposal on the table to withdraw from the county’s rainy day fund, nor is one anticipated in the near future. Not because businesses did not close and tax revenue was not disrupted but perhaps because the county took sufficiently action in March and April.

Still, that’s almost beside the point. Baltimore has had a hiring and spending freeze in place since mid-March and 48 city workers were laid off this summer so it’s not as if the threat was ignored. The bigger question in the context of a roughly $2.9 billion operating budget is what’s coming ahead. Unfortunately, there is no $2.2 trillion CARES Act riding to the rescue out of D.C. Congress can’t seem to get its act together over coronavirus relief. And that means for local government, the worst is probably yet to come. While the federal government can always borrow its way out of fiscal trouble, Baltimore does not have that option and Gov. Larry Hogan and the state Board of Public Works will soon face their own budget woes. And so the Board of Estimates is now faced with a quandary: Take the relatively easy path of transferring rainy day money or force city government to follow the much, much harder route of making potentially painful budget reductions?

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One more point: It’s an election year in Baltimore. It’s safe to assume that the folks in City Hall like Council President Brandon Scott, the Democratic nominee for mayor, and others on the ballot do not want to announce further layoffs or postpone popular public works projects or be associated with reductions to services. That’s not the way to endear yourself to city voters (or politically influential public employee unions), at least not when Election Day is a mere seven weeks away. Yet a depleted rainy day fund means that whomever is elected on Nov. 3 will have fewer options about dealing with city budget shortfalls going forward. There are no plans to replenish the fund until July of next year at the earliest. That doesn’t make the $25 million rainy day fund withdrawal a terrible idea necessarily, but is it appropriate given what lies ahead — a potentially long, slow recovery from a once-a-century public health and economic disaster? Sure, it’s raining, but those are some dark, foreboding clouds on the horizon, too.

The Baltimore Sun editorial board — made up of Opinion Editor Tricia Bishop, Deputy Editor Andrea K. McDaniels, and writer Peter Jensen — offers opinions and analysis on news and issues relevant to readers. It is separate from the newsroom.

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