The forecast, which Mayor Stephanie Rawlings-Blake commissioned from Public Financial Management, Inc., is a proactive approach that other cities might consider following, they said.
Baltimore Finance Director Harry Black and PFM Managing Director Michael Nadol stressed that the city is nowhere near financial ruin and the unprecedented long-term projection is an attempt to stave off serious fiscal problems.
“Baltimore City is very solvent,” Black said, pointing to Baltimore’s investment-grade Aa2 credit rating from Moody’s Investors Service.
The PFM forecast, rolled out by Rawlings-Blake and other city leaders in a Wednesday press conference, predicted that even a baseline economic scenario would be disastrous for Baltimore if nothing is done to change the city’s fiscal path.
“Without corrective action, under this mainstream set of assumptions, PFM projects a fiscal gap of approximately $30.3 million in fiscal year 2014, growing to more than $124 million by fiscal year 2022,” PFM said in the forecast. “Over the nine years from fiscal 2014-fiscal 2022, this cumulative shortfall would total $744.8 million, eroding all of the city’s reserves in less than three years and driving the city deep into deficits. Quite simply, a status quo approach is not financially sustainable.”
Under a more constrained scenario, in which federal or state spending cutbacks occur, the housing market recovery slows, or the U.S. enters another recession, Baltimore could suffer even more severely.
“Even the optimistic scenario results in deficits in every year, with a cumulative shortfall of more than $325 million over the next nine years,” the forecast states. “Under the pessimistic scenario, deficits would grow even deeper year-by-year, resulting in a cumulative shortfall of nearly $1.3 billion.”
Black acknowledged that the report, which also details other hundreds of millions of dollars in shortfalls projected over the next decade in pension and infrastructure needs as well as ongoing legal troubles related to challenges to the city’s 2002 pension reform, shows that failing to act aggressively could lead to major consequences.
“The key is not to wait until those events occur,” Black said.
Rawlings-Blake plans to unveil a sweeping set of reforms beginning on Monday, Black added. The mayor’s proposals are likely to include a variety of spending cuts, since city income taxes have already reached the maximum level allowed by state law and the PFM report warns that higher property taxes could hurt Baltimore’s economic competitiveness.
Nadol, who worked with Pittsburgh, Pa. following its 2003 public employee layoffs and downgrades to speculative credit, agreed that Baltimore is not yet in that situation.
“That’s not even close to where Baltimore is,” Nadol said. “They’re not in any kind of immediate budget crisis.”
Black said revenues are not growing at a pace to keep up with expenses, a problem that is not at all unique to Baltimore.
“Baltimore is not distressed,” said Black. “There are pressure points. We want to get out in front of those.”
Nadol said that Baltimore represents the first large city he knows of to commission a comprehensive ten-year financial projection. While annual and five-year projections are common, Nadol said, the Baltimore approach could help potentially troubled municipalities see distant problems in time to take corrective action before disaster strikes.
“Baltimore is starting to lead the way, taking a much longer view,” Nadol said. “I see a lot of value in it.”