BALTIMORE — Baltimore is going long, and it's not a Hail Mary pass at a Ravens game.
Staring at a budget shortfall estimated at $745 million by 2022, city officials last year charted a 10-year financial plan. Although Baltimore had investment-grade bond ratings of Aa2 from Moody's Investors Service and AA-minus from Standard & Poor's, it wanted to move proactively to avoid the route of such distressed poster children as Harrisburg, Pa., Stockton, Calif., or even Detroit.
"We weren't in that condition yet," Mayor Stephanie Rawlings-Blake said in an interview after her keynote speech Thursday at The Bond Buyer's Municipal Distress, Recovery, & Financial Sustainability Symposium. "But it's like going to your doctor. You feel fine, maybe a few aches and pains, but the doctor diagnoses something else. Then, you can't ignore it."
Baltimore's plan, called "Change to Grow," had four cornerstones: structural budget balance, tax competitiveness, infrastructure improvement and addressing long-term liabilities such as pensions and health care. Public Financial Management Inc. is the primary consultant of the plan.
Rawlings-Blake wants to add 10,000 families by 2022. Baltimore lost about one-third of its population from 1950 to 2000.
"We're off to a good start. We have a ways to go, and we're going to get there," said finance director Harry Black. "This is not just a financial document sitting on someone's shelf. We'll be calibrating it on an annual basis. The quote that bothers me a lot is: 'Why even plan?' You would think it would be a no-brainer."
According to Black, Baltimore in the first year of the plan has identified enough initiatives to reduce its expected 10-year shortfall to $395 million from $745 million. City officials added $125 million of unexpected expenses to its projections, but have $282 million worth of initiatives in the pipeline that would reduce the projected gap to $238 million.
The plan calls for some increased taxes, higher pension contributions for current employees, pension overhaul for new hires, new work schedules for public safety employees with tradeoffs that included some salary increases, and some workforce reductions, although Rawlings-Blake said most will come through attrition. Baltimore has also established an audit department to investigate benefit eligibility.
Baltimore city pensions are now contributory, with the City Council now considering the establishment of a hybrid plan for future hires. A bill before the council offers new workers the option of the traditional plan or a hybrid plan that would be two-thirds defined benefit, one-third defined contribution. Police and fire department employees have their own pension systems, as do elected officials.
"We operate in a totally collective bargaining environment," said Black. "We've had to work harder and harder, but we've been successful."
The visionary approach alone has created a buzz in the capital markets.
"Ten years is remarkable, I think. It goes beyond any mayoral profile or horizon that can be anticipated, and says that 'we're here to protect the city over the long haul, and not just my tenure in office,' " said William Rhodes, public finance chairman at Philadelphia law firm Ballard Spahr LLP and Bond Buyer symposium co-chairman, along with Public Financial Management Inc. Managing Director Dean Kaplan.
Robert O'Brien, senior vice president at union-owned Amalgamated Bank, called the plan an excellent starting point.
"Ten years is a long time. Elected officials can change during the game plan. But certainly it can provide a road map," said O'Brien, whose bank has financed deals in Harrisburg as well as distressed cities Scranton, Pa., and Allen Park, Mich.
Steven Goldfield, an attorney for Public Resource Advisory Group and the lead financial advisor to the Harrisburg receivership team, said cities must adjust along the way.
"[Ten years] is a good exercise and you can learn an awful lot from the rigors. But then life occurs," said Goldfield.
Life occurred in Baltimore on Wednesday, one day before the mayor's conference speech. After two days of unrelenting rain, a 120-year-old retaining wall collapsed in the Charles Village neighborhood one mile north of downtown, throwing sidewalks, several cars and street lights onto CSX tracks below. Details are murky over whether CSX or the city owns the retaining wall.
The accident — miraculously, nobody was injured — halted travel along a main rail artery that carries cargo to the Port of Baltimore and disrupted many city streets near downtown.
"It's not real sexy to talk about pipes, rails and stuff like that, but we have to find creative, alternative financing for our infrastructure needs," said Rawlings-Blake, who favors efforts to create a national infrastructure bank.
Crumbling Northeast infrastructure has generated many headlines the past few months, from Baltimore's mudslide to building collapses in New York, Philadelphia and Harrisburg, and massive sinkholes in Harrisburg soon after Pennsylvania's capital began implementing a recovery plan intended to keep it out of bankruptcy.
"You have to put yourself in position to deal with the unexpected," said Rawlings-Blake.
According to PFM managing director Michael Nadol, the 10-year plan included baseline, optimistic and pessimistic scenarios. "They include drivers like rising pension costs — trying not to be caught by surprise," he said.
Nadol said long-term plans are more prevalent on the West Coast. "We've done work in California and we see more long-range planning in California with local governments than you see in the Northeast states," he said.
Rawlings-Blake, 44, is seen as a rising political star. The daughter of the late Maryland Sen. Howard "Pete" Rawlings, she was first elected to the City Council in 1995 at age 25. Rawlings-Blake became council president and succeeded Sheila Dixon as mayor in 2010 after Dixon resigned as part of a plea deal following her conviction for embezzlement. Rawlings-Blake won election to a full term the following year with 87% of the vote.
She was elected secretary of the Democratic National Committee after President Obama's election and has served in several leadership positions with the U.S. Conference of Mayors.
"She's a terrific representative for her city," said William Lynch, the former state-appointed receiver for Harrisburg and a retired Air Force general.
Back-to-back winter blizzards greeted her right away, forcing her to essentially live in an emergency command center. Once that crisis was under control, she stared at budget woes. "I came out of the freezer of 'Snowmaggedon' and into the fire of the budget," she said.
According to Rawlings-Blake, the 10-year plan includes significant investments such as property-tax reductions, increased funding to demolish blighted buildings, and a capital infrastructure program.
Baltimore is using high tech to gauge its progress. It established a CitiStat office to monitor the quality of service delivery, outgrowths of which include a fiscal report card. It also uses the open source Checkbook software that the New York City comptroller's office launched two years ago.
"This [transparency] all makes some of our financial folks nervous, but I'm sure they'll get over it. They worry that data will be misinterpreted and used by the media to play gotcha," said Rawlings-Blake.
Transparency, she said, has resonated with city investors.
"It's common sense," she said. "We have a track record of financial accountability. People want us to be more forward. You can't make decisions based on a four-year election cycle."
According to Kristin Barcak, Baltimore's 10-year financial plan project manager, the pension plan for civilian employees is 68% funded. For fire and police personnel, she said, that total is 72%. Baltimore also changed its firefighter full-time work week from 42 hours to 47, which both benefited the plan and improved the regional competitiveness of pay.
"Compared with other jurisdictions, in the region and nationally, we had generous benefits for fire personnel but paid less in wages," said Barcak.
The city is not alone in attempting to rein in healthcare and retirement costs amid eroding revenue, aging infrastructure and high taxes. Escalating legacy costs pushed Detroit into bankruptcy, triggered Puerto Rico's wild financial ride over the past year, and stressed other cities such as Chicago and Providence, R.I.
At the state level, Rhode Island passed pension overhaul in 2011, only for public-sector unions to challenge it in court. Pennsylvania is stalled over pension overhaul. Fitch Ratings downgraded the commonwealth last year, citing pension impasse, and Standard & Poor's days ago threatened to do likewise.
