Baltimore officials from the city’s Department of Finance reported a first-quarter budget deficit of about $600,000, a relatively small amount linked to overspending in several areas and “bright spots” in others.
The city’s investments are yielding higher returns, for example, and relocated speed cameras are bringing in more money than anticipated. But revenues are below expectations in other key city functions, including license and permit fees, transfer taxes and energy taxes.
Here are some other takeaways from the City Council’s quarterly budget hearing.
City residents are cutting the cord
Finance department officials told members of the Baltimore City Council that changes in television streaming habits have begun to hit the city’s bottom line.
Budget director Laura Larsen said there’s been a “dramatic drop-off” in cable revenues in just a few years. In the budget year that ended in June 2020, about 106,000 city households paid for cable. That number has plummeted since to fewer than 60,000 households, Larsen said — a roughly 44% decline. As fewer people subscribe to cable TV, the city is collecting less from its 5% franchise fee charged on gross cable revenues.
“It’s something we will be continuing to monitor,” Larsen told council members. The agency projects a $1.3 million deficit for the first quarter.
Though the trend in cable cord cutting has existed for a few years, the city did not experience any “alarming” changes until the fiscal year that ended in June when it saw a more than 10% decline in the franchise fee.
Baltimore Fire Department in the red
The Baltimore Fire Department is among the city agencies with the largest projected deficits in the city, Larsen said, along with the city’s law, police and public works departments.
Fire officials are projecting a nearly $25 million deficit due to overtime spending, contracting to supplement ambulance services and mischarging the fire communications service to the general fund.
During a review of the Fire Department’s request for $18.5 million in supplemental money to cover some of its extra spending, City Councilwoman Phylicia Porter noted that the agency had also reported a deficit last year. And City Councilwoman Danielle McCray asked how much of the additional funding would cover overtime spending.
Larsen said the $18.5 million would only cover a portion of the overtime spending. She also said it could be worse, but the agency is saving money from vacant jobs. The situation could improve further, she noted, if the department hired more staff to prevent overtime spending.
“How can we start budgeting more consistent to reality?” City Council President Nick Mosby asked.
“That will be a policy choice,” Larsen replied. “It’s a policy choice we’ll have to wrestle with as we build the fiscal year 2025 budget.”
Tax sale cancellation cited as cause for lower revenue, again
The finance department projects a nearly $3 million loss in property tax revenue, a deficit explained at least partially by a declining collection rate.
Larsen said the department believes this could be due to the mayor’s cancellation of the tax sale for all owner-occupied properties in the city, which he did in 2022 and 2023. In 2021, he canceled all first-time owner-occupied tax sale liens and allotted resources to homeowners at risk of losing their homes.
Larsen said the department’s theory is not definitive but is likely the cause of the lowered collection rate.
“It’s a modest decline,” she said. “But we’re still so close to 100% [collection rate].”
A state bill that would have allowed the city to overhaul its controversial tax sale system failed to cross the finish line during last year’s General Assembly session, after city officials raised concerns about the cost of the legislation. The legislation would have given the mayor authority to cancel the sale for owner-occupied homes for good, according to the amended version of the bill.
But finance officials raised concerns in the eleventh hour of the 2023 session, a day after City Hall officials presented a budget that included a $79 million increase in education spending — an unanticipated cost that Mayor Brandon Scott likened to a “gut punch” due to a change in a new state school funding law.
It’s not yet clear if state lawmakers will take up the issue again in 2024 — but Thursday’s comments could indicate that the city’s financial position could again make it difficult for the bill to pass.