The tweet exchange that erupted last week between President Trump and Rep. Elijah Cummings has been largely political in nature. However, the character and the hopes of the City of Baltimore have been impugned in the process.
The recent exchange characterizing the City of Baltimore has affected me on many levels. There is the matter of fairness and accuracy when it comes to assessing the status of the socioeconomic indicators in the city. Putting the politics aside, I have worked directly with urban America for over four decades and I fully appreciate that there are many challenges out there to overcome.
As a young analyst at a major rating agency, I was the lead analyst for the city of Baltimore for a number of years. My focus was, and still is, primarily on the financial side and has been focused on the ability to repay outstanding bonds and debt. Assessing the socioeconomic status is especially important but is not the only element in determining a bond rating. There are many qualitative aspects to the process as well.
What particularly impressed me in those early days was the vision of Mayor William Donald Schaefer. He had a passion for the vitality of the city that was translated into real action that was achieved in remarkable fashion during a very difficult period. Some might criticize the outcome of the Inner Harbor and surroundings, but the project that was realized brought a lot of foot traffic to the city that was badly in need of same. The transformation from steel and other heavy industrial activity was not a certainty by any means.
The Mayor was also behind bringing the much-celebrated Aquarium to the waterfront. He promised that if the project was not on time that he would dive into the shark tank. He made quite a show of it in front of the cameras but he left unspecified whether or not sharks had to be in the tank. The Aquarium is now one of the most-visited venues in the City.
Some observers at the time said that more could have been done in the neighborhoods and for housing. Section 8 and other programs were employed to the max but were not able to fully satisfy the demand. The Mayor eventually became Governor and did what he could for the city from the higher office.
Fast forward to today and certainly there have been changes. The Inner Harbor could use a bit of attention and updating and the housing needs and the crime rate all merit attention.
One of the challenges for the City is the budget profile. General Fund expenditures of $1.736 billion in FY2018 are concentrated in a few key categories. Public Safety at $766 million accounts for a very high 44.1% of total expenditures. Only a small sampling of cities across the nation are at this level. On the other hand, Debt Service of $94.6 million is quite manageable at only 5.5% of the total.
The debt service burden is quite manageable because the city has a fair amount of restraint when it comes to issuing debt. The Net General Obligation Debt of $418 million approximates only 1% of assessed valuation. The high level of spending for public safety means there is not much room in the budget to accomplish many of the other goals and services that citizens desire.
The revenue side of the General Fund is also a factor in this consideration. Total revenues stand at $1.795 billion. Local Taxes that are primarily comprised of property and income taxes accounts for a relatively high $1.406 billion or 78% of the total. State revenues received by the city only account for $146 million or 8% of the total.
The rating agencies that assign ratings to the city have assessed them in the AA category. This level hardly reflects a city down on its luck. The AA level is relatively strong.
Having said all of this, one only has to drive around the city to fully appreciate that there are problems to overcome. Housing is certainly one of the critical needs. There never appears to be sufficient funds to fix existing properties or to create new units. Building in Baltimore is not as expensive as it is in housing-deprived California, but new units still do not come cheap. A bare bones housing unit has to be at least in the $150,000 to $200,000 range. How to fund is always the issue. The existing federal programs that have been used in the city are probably already fully utilized.
One hope is that the recently designated Opportunity Zones in the city may generate some activity. In this case, the private sector takes risks on projects in the zones to obtain some substantial tax credits as an incentive. Perhaps, some of the developers could be nudged along by leaders in high office to consider taking a serious look at engaging in promising projects.
No one has all of the answers to the urban ills. We are very adept at pointing to the problems but we are not as facile in coming up with answers or solutions to those problems. I read Robert Dahl’s study Who Governs? and learned that he came to many of the same conclusions about New Haven at the time. I just keep wondering how much we have really learned since that book was written about 50 years ago.
It is time for more creative thinking about finding more solutions and ways to fund improvements. It was encouraging to read some commentary being made by the HUD Secretary who know the scope of the problem first hand.
Just provide us with some authorization, a reasonable revenue stream and the municipal market will produce the funds post haste. I look forward to commenting more on solutions than predicaments.
