The Scott administration unveiled a proposed budget Monday for Baltimore’s next fiscal year, presenting a balanced budget that avoids any cuts to services despite projections last fall that the city could face a deficit of up to $107 million.
Two primary factors helped avert a shortfall, said budget director Laura Larsen: Baltimore’s bill for funding state schools was smaller than officials had anticipated, while the city netted more property tax revenue than they’d planned for. Even so, that left a gap of about $62 million that budget writers still needed to cover, which came together from new boosts to revenue and by trimming around the edges of agency allocations
The presentation of Mayor Brandon Scott’s new spending plan comes as Baltimore is still reeling from last week’s Francis Scott Key Bridge collapse. The cargo ship Dali crashed into one of the bridge’s columns early Tuesday, toppling the bridge, sending six construction workers to their deaths and bringing the Port of Baltimore, a major economic engine in the region, to a near-total standstill.
With a budget back in balance, Scott argued at a Monday press conference, the city is well-positioned to weather the financial fallout of the Key Bridge collapse. Just how much of a hit the city could take financially in the wake of the incident remains unclear, the first-term mayor said, and the city “is bracing for the long-term impacts of this unthinkable tragedy.”
But Scott said his spending plan covers the budget gap “without closing any fire stations or rec centers and without cutting city services or without turning our back on the priorities of Baltimore moving forward,” he said. “More than anything, this preliminary budget ensures that our city’s fiscal health will be strong as we work to address the fallout from this crisis.”
Scott’s proposed $4.06 billion budget for the fiscal year starting July 1 includes $3.4 billion to cover the city’s operating costs and dedicates $654 million to capital improvements.
A smaller crunch than anticipated
Last year, the Blueprint for Maryland’s Future, a 2021 law that rewrote the formula for how much local jurisdictions contribute to school funding, caught city officials by surprise with a $393 million bill — about $79 million higher than they’d planned for, per initial estimates tied to residents’ income levels. City Hall dipped into a $30 million pot of emergency funding to pass a balanced budget, and finance officials spent the rest of 2023 grimacing in anticipation of the next bill.
They were pleasantly surprised in January, when the state hit them with a bill for $3.4 million less than the year before, instead of a planned $15 million increase. The same month, the city took home $9.5 million more in property taxes and $18.9 million more in income taxes than finance officials had estimated.
The city netted a total of $1.13 billion in property taxes and $460 million in income taxes. Meanwhile, the city’s unemployment rate fell below 3%, the lowest it’s been since 1990, said Bob Cenname, deputy finance director, at a Monday morning briefing on the spending plan.
Cuts
Meanwhile, senior Scott officials had already asked agency leaders to identify potential cuts of 5% in their agency budget submissions, which led to $20 million in miscellaneous savings.
“I would say none of those decisions were easy,” Larsen said. Even though the city found ways to streamline costs without cutting back on the services, tight budgeting times mean the Scott administration wasn’t able to invest as much money back into areas like employee wages or the city’s many capital improvement needs, she said.
Officials also cut 89 long-term vacant positions, saving a total of $13.3 million. The Baltimore Police Department accounted for 55 of these positions; Scott aides were quick to stress that a new state grant program will cover the cost of 80 new BPD positions: 40 this current fiscal year, and 40 in fiscal year 2025.
“We’re not eliminating 55 positions, we’re eliminating them from the general fund and the costs are being picked up on the state side,” Cenname said.
The city also changed how it accounts for the hundreds of millions of dollars in grants it receives each fiscal year.
Historically, Baltimore has allowed agencies to budget for grants agency leaders think they will receive in the coming year. Now, the city will only budget for grants that are certain, such as federal funds received every year.
The method the city previously used led to some budget writing complications, and finance officials said their new method gives a more accurate picture of grants.
As a result, Scott’s proposal comes in slightly under his last budget. But the mayor said the city’s spending is up 5% over a year ago.
New revenue sources
New or bolstered streams of revenue helped bring the budget to balance.
The city will expand a residential permit parking program in several neighborhoods and use new license plate reader technology to issue more tickets to vehicles that violate the restrictions. Officials estimate that will net an additional $2.6 million.
And Baltimore will also resume penalizing motorists who don’t pay parking tickets on time. The city had slowed the timeline for late fees on unpaid tickets during the pandemic, but “we think it’s time at this point to turn that back on, starting July 1,” Cenname said. Those fees would bring in another $3.2 million in revenues, he estimated.
The city is also still benefiting from the $641 million windfall it received in federal pandemic aid. Close to two-thirds of that money is sitting in city accounts, meaning officials are able to pocket interest earnings off the money in the city general fund. A combination of higher interest rates and earnings off the one-time American Rescue Plan Act funding landed the city an additional $15.6 million.
Baltimore has until the end of 2026 to spend its American Rescue Plan Act funds, but all of the money must be earmarked by the end of this year. A small cut of the pandemic allocation — $1.7 million — will bridge a half-year of salaries for some positions the city has funded with that one-time aid. That covers 29 of the Scott administration’s highest-priority positions, including positions in the city’s IT department and at the Mayor’s Office of Neighborhood Safety and Engagement, his flagship public safety program.
City in ‘strong’ position to weather bridge collapse
Scott administration officials stressed Monday that it’s too soon to say just how big the financial hit from the Key Bridge collapse could be.
Just one terminal within the Port of Baltimore — outside the wreckage of the bridge, in Baltimore County — remains open, and both federal and local leaders have declined to estimate how long it may take for waterways to reopen for ship traffic.
The Port of Baltimore, which straddles both Baltimore and Baltimore County, is exempt from property taxes, Cenname said. Instead, Baltimore receives an annual fee through an agreement known as a payment-in-lieu-of-taxes, or PILOT, budgeted at $1.9 million for this fiscal year and the next.
The closure of the port means that some 8,000 dock workers are temporarily without jobs, and Cenname said it may be weeks or months before finance officials have an estimate for losses in income tax revenues it would typically get from those workers.
The bridge itself will be reconstructed on the federal government’s dime, President Joe Biden has pledged. Larsen said finance officials are abiding by Federal Emergency Management Agency protocols to keep track of their own emergency response expenses so that they could seek reimbursements. So far, the federal agency has not authorized those reimbursements.
Finance officials will continue to assess the implications of the bridge’s collapse and port closure for city coffers, but Scott stressed that Baltimore is on solid footing.
While the Finance Department has recently painted a bleak picture for that longer-range outlook — predicting in December that the city might face a cumulative budget deficit of $1.8 billion over the next 10 years — officials also predicted that the tactics they used to balance this year’s budget should set the city up well for the long haul.
After last year’s tough budgeting season, City Administrator Faith Leach said the administration began to look more closely at the city’s finances over the next 10 years and came up with a list of options for new revenue sources. Those new income streams should pay longer-term dividends, covering “nearly all” general fund expenses, Larsen added, and he 10-year projected deficit should come down.
Leach commended budget officials for finding levers that would allow the city to pass a balanced budget without having to sacrifice services for residents.
“Obviously, things worked out in our favor,” she said. “But fixing a $60 million budget deficit is no small feat.”
The spending plan will head to the City Council for a series of public hearings beginning in mid-April and running through early June. The budget must be approved no later than June 26th, according to the city’s charter.
