Baltimore mayor seeks budget reforms to avoid financial ruin

WASHINGTON Mon Feb 11, 2013 5:39pm EST

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WASHINGTON Feb 11 (Reuters) - Less than a week after releasing an independent study that found Baltimore could face financial ruin within a decade, Mayor Stephanie Rawlings-Blake on Monday outlined a plan for fiscal stability during her annual state of the city address.

The 10-year projection completed by Public Financial Management Inc (PFM), a Philadelphia-based consulting firm, found that if Baltimore maintains its current course, it will have a deficit of $30.3 million in the fiscal year starting in July. Over the next decade the city would accumulate a deficit of $744.8 million.

At the same time, the report projects that the city's reserves would likely disappear within three years.

"We cannot build a foundation of a growing city on the mud of a fiscal swamp," Rawlings-Blake said. "The status quo is unacceptable and the price of inaction is clear."

Hit by a sharp decline in population, Baltimore - a port city once dependent on manufacturing - has fallen into fiscal decline. For the last three years, the city has had to close millions of dollars in budget gaps through layoffs and furloughs, while increasing taxes.

The budget problem stems primarily from flat revenues - the result of lagging property tax collections, weak economic conditions and slow growth in state aid. Employee costs, meanwhile, are set to rise quickly and will likely swamp those meager revenues, PFM said.

The mayor proposed a plan that included reforming public employee benefits, switching new employees to 401(k)-like retirement accounts, create efficiency within government bureaucracy, negotiating new contracts with firefighters, increasing pay-as-you-go infrastructure financing and charging trash collection fees.

"We all know Baltimore cannot simply hike property taxes to improve our financial situation," she also said, adding that she would not use tax increases to balance the budget.

Using a more "optimistic scenario," PFM said the deficit over the next nine years would equal $325 million. Under a "pessimistic" one that shortfall swells to $1.3 billion.

In the public imagination, Baltimore is the home to the Ravens NFL franchise - recent Super Bowl victors - and is closely linked to the HBO crime drama, "The Wire," which portrayed the city as a post-industrial, drug-infested wasteland.

Other cities in Maryland weathered the 2007-09 recession better because federal contractors and technology companies wanted locations close to the federal government in Washington, D.C.

Many U.S. cities are grappling with growing pension and healthcare costs for their retirees and employees. Pew Center on the States recently estimated U.S. cities' total pension shortfall is at least $99 billion. The underfunding has of late pushed some cities toward bankruptcy and forced many to pull budget dollars from other areas.

The PFM study found that as of fiscal 2011, Baltimore had an unfunded liability of $3.2 billion for all of its promises to retirees. Its pension shortfall is about $1.1 billion, and healthcare and other benefits beyond monthly pension payments are underfunded about $2.1 billion.

Rawlings-Blake said she would release details of her financial plan soon, but presented the tenets of her pension reforms.

Along with having new employees enroll in retirement accounts similar to those in the private sector, known as defined-contribution plans, she is seeking to have public safety workers put into plans that are a hybrid of defined-contribution and traditional pensions. She also said elected officials should have pensions in line with regular government employees.

Baltimore, she said, is the only city in Maryland that does not require employees to contribute to the retirement system, adding she will soon ask workers to pitch in.

"We must rebalance the way we compensate our hard-working employees by reforming outdated, unsustainable benefits and instead invest in better wages up front," she said.

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