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Baltimore asks to withdraw $25 million from Rainy Day Fund to balance budget after coronavirus costs

Baltimore’s spending panel is being asked to authorize the withdrawal of up to $25 million from the city’s “Rainy Day Fund,” a rare request that finance officials say is necessary to balance the budget after it was hammered by the coronavirus pandemic.

It’s only the third time such an ask has come before the Board of Estimates. But over the past six months, city revenues plummeted and costs soared as officials grappled with how to limit the spread of COVID-19.

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Fiscal year 2020 was the “perfect storm” of budget problems, according to the agenda for the Board of Estimates meeting.

“If there was ever a rainy day, this is the rainy day,” said City Council President Brandon Scott, who chairs the board.

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The five-member spending panel will be presented with the Finance Department’s proposal Wednesday. The funds are intended to stabilize the budgets of the fire, general services, health and housing departments.

The board also will be asked to authorize the transfer of $2 million in surplus funds from the transportation department to the Baltimore Police Department, which incurred additional expenses and overtime costs as officers responded to both the pandemic as well as the protests against police brutality that swept through the country.

City policy is strict on when officials can draw from the Rainy Day Fund, which currently holds about $145 million. It only can be used to balance “a post-adopted budget that has been impacted by an uncorrectable shortfall in budgeted revenues or expenses.” The Finance Department also has to demonstrate it’s taken every possible step to avoid withdrawal.

Budget Director Bob Cenname said officials there did so. The city instituted a hiring and spending freeze on March 20, deferred a scheduled contribution to the fund and aggressively pursued federal aid.

While Baltimore received $103 million as part of the federal coronavirus relief package, that money cannot be used to backfill lost revenue.

Cenname said that before the pandemic hit, agencies were on track to stick to their budgets.

“COVID blew the lid off the whole forecast, of course,” he said.

The city also is furloughing some union employees, and has laid off others.

The city ended the 2020 fiscal year on June 30 with a $14.3 million deficit, which is lower than what finance officials predicted at the start of the pandemic. The authorization to withdraw up to $25 million from the Rainy Day Fund gives them a cushion should auditors have to make adjustments to the final figures.

In the end, the actual withdrawal will only be for the amount needed to bring the General Fund into balance.

Cenname said a strong emergency reserve is needed to handle economic shocks like this one. Ideally, the city’s Rainy Day Fund should be equal to 8% of its operating budget. Before this anticipated drawdown, it was at 7.5%.

“We’re a little more vulnerable, but not by much,” he said.

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Typically, according to city policy, the Finance Department must come up with a plan to replenish the reserves immediately. With so much uncertainty still looming, the finance board is being asked to push back the first year of the replenishment initiative until 2022.

The city authorized withdrawals from its Rainy Day Fund twice before: $17 million in 2010 amid the recession and historic snowstorms and $20 million in 2015, after the unrest that rocked the city following the death of Freddie Gray in police custody.

“The reality is,” Cenname said, “there have been a lot of unanticipated emergencies in Baltimore over the last decade.”

After the board authorizes the withdrawal, the City Council also must approve the supplemental spending.

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