PDF Table of Contents

Table of Contents

City of Baltimore Ten-Year Financial Plan Background Report

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Financial and Economic Analysis: City Economic Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Ten-Year Budget Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Key Challenges:

Structural Budget Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Tax Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Infrastructure Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Addressing Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Next Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Appendices Appendix A: Project Background and Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Appendix B: SWOT Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Appendix C: Multi-Year Budget Projection Detail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Appendix D: Paid Leave Benchmarking Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Appendix E: Hay Group Benefits Benchmarking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Executive Summary

... this Ten-Year Financial Plan

has been developed to help ensure that this is the time when Baltimore truly begins to move forward in a new direction.

n Facing the ten years ahead, the City of Baltimore is now at an inflection point -- the juncture where a trend or curve changes direction.

n For more than half a century, Baltimore's narrative has been a story of post-industrial decline. From 1950 to 2010, the City lost more than a third of its population, manufacturing jobs relocated, once-vital neighborhoods destabilized, and City government has been left with a legacy of high tax rates and growing liabilities -- compounded in recent years by the worst recession in generations.

n Even with the economic downturn, however, a new Baltimore story has begun to emerge. The City's education and health services sector has grown from 80,300 to 113,100 jobs since 1990, global linkages are strengthening through expansion of the Port of Baltimore, and the City ranks high among the nation's top cities for technology jobs. Over the past halfdecade, the City's overall population has largely stabilized, with positive growth in an increasing number of neighborhoods.

n Having now reached this crossroads, this Ten-Year Financial Plan has been developed to help ensure that this is the time when Baltimore truly begins to move forward in a new direction, with recent progress becoming more than just a momentary pause in a longer-term story of decline.

n As a Financial Plan, this effort does not encompass every aspect of service delivery, urban planning, or economic development. At the same time, this long-range fiscal planning process is more than just a spreadsheet exercise.

n This Ten-Year Financial Plan begins with the premise that Baltimore's new narrative must be grounded first in stable City finances. A structurally sound budget and improving balance sheet will provide a necessary foundation for municipal government to play an effective role in sustaining the growth and vitality of the broader community.

n In this Ten-Year Financial Plan Background Report, the consultant team engaged by the City to support this effort outlines key findings regarding Baltimore's opportunities, challenges, and options going forward.

n This research and analysis is centered primarily around the City's General Fund -- the primary operating budget for taxsupported municipal services. Certain fee-supported "enterprise" activities, such as the City's water and wastewater utility, are also important to Baltimore's future, but are not the focus of this report.

n The Ten-Year Plan analysis begins with an overview of the economic forces that drive Baltimore's finances, and then turns to a set of "baseline" General Fund budget projections based on mainstream economic assumptions and the carry-forward of existing municipal services without changes in current practices or law.

n While the City's budget is balanced for Fiscal Year (FY) 2013 following another round in a series of recent cuts, recurring revenues in the years thereafter are not forecast to keep pace with projected, recurring expenditures. Without corrective action, this structural imbalance is projected to result in a fiscal gap of over $30 million in FY2014 -- growing to nearly $125 million by FY2022 -- for a cumulative shortfall of almost $750 million across this plan period. Quite simply, a status quo approach is not financially sustainable, and will not support a new narrative for Baltimore's future.

n In addition to this General Fund operating budget shortfall, Baltimore also faces significant infrastructure and retiree benefit liability challenges that are also important to address for the City's long-term fiscal health. Based on a high-level capital needs analysis conducted for this report, the City would

2 City of Baltimore n Ten-Year Financial Plan n Background Report n February 2013

Executive Summary

need to spend a cumulative $1.1 billion in local infrastructure investment through FY2022 above the levels included in the baseline forecast just to maintain the current state of repair for capital assets and to begin to make slow progress toward improvement. With regard to retiree benefits, the City's FY2011 actuarial valuations identified a $3.2 billion unfunded liability across Baltimore's combined pension and retiree healthcare programs.

n To address these important concerns, this Ten-Year Financial Plan process has highlighted critical long-range challenges and potential strategies in each of four cornerstone areas:

? Structural Budget Balance: Bringing recurring spending in line with recurring resources by shaping a smaller, more productive government, and by restructuring fast-growing employee healthcare and retirement benefits while maintaining a competitive total compensation approach.

n With the findings detailed in this background report in hand, Mayor Stephanie Rawlings-Blake developed Change to Grow: A Ten-Year Financial Plan for Baltimore, a separate document available on the City's website at .

n In Change to Grow, Mayor Rawlings-Blake charts a specific course of actions designed to not only strengthen the City's long-range financial position, but also to launch Baltimore forward as a growing City again.

? Tax Competitiveness: Reducing the City property tax burden to improve Baltimore's position as a location of choice for residents and businesses, while seeking to diversify revenue streams creatively, maximize collection of existing taxes due, and rely more on user-based charges to sustain services that now draw on the general tax base.

? Infrastructure Investment: Reversing historical underinvestment to renew and rebuild the City's core assets, improve school facilities, enhance the tourism and hospitality sector, and eliminate the blight of vacant structures in Baltimore's neighborhoods.

? Addressing Long-Term Liabilities: Demonstrating long-term fiscal stewardship by reducing underfunding of the City's retirement benefits, maintaining debt at manageable levels, and strengthening budget stabilization reserves.

n Meeting these and other challenges faced by the City will require difficult choices, significant change in how the City does business, and sustained and persistent effort. It will require strategic collaboration and support, not further cutbacks, from the State and federal governments, and strengthened partnerships with Baltimore's business and nonprofit communities. To successfully chart an upward trajectory, all of the City's stakeholders must come together.

Addressing these... challenges faced by the City will require difficult choices, significant change in how the City does business, and sustained and persistent effort.

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