Baltimore is facing a $3 million budget shortfall by the end of the fiscal year, casting doubts on whether the city can follow through on its promise to cut the property tax next year.
Mayor Kurt L. Schmoke said yesterday that the budget shortfall -- the result of lower-than-expected property tax revenues from public utilities and downtown office buildings -- "complicates" the question of whether the city can afford to provide property tax relief.
"But we won't make any final decisions on the property tax rate for several months now, and we'll look for ways to generate revenue and find other efficiencies in government. We would like to continue our efforts to reduce the city's property tax rate, and we don't want to move away from that strategy until we've explored all other areas," the mayor said yesterday.
The issue of a cut in the city's property tax rate -- which at $5.90 per $100 of assessed value is by far the highest in the state -- was at the heart of last spring's bitter budget battle.
The City Council last June passed a budget that cut a nickel off the property tax, but Mr. Schmoke promptly vetoed the budget, saying the city could not afford both to cut taxes and pay for additional police officers.
The council upheld the mayor's veto and passed a new budget calling for the property tax rate to stay the same. In signing the new budget, the mayor said he was "committed" to reducing the property tax rate by at least a nickel in fiscal year 1995, which begins July 1.
City budget director Edward J. Gallagher -- who outlined the $3 million budget shortfall at a hearing yesterday of the council's Budget and Appropriations Committee -- demurred on what the gap could mean for a possible tax cut, saying, "That's a political question."
But Mr. Gallagher pointedly included as part of his presentation to the committee scenarios on the possible fiscal impact of 5- and 10-cent cuts in the city's fiscal 1995 property tax rates. With a nickel cut, the city's approximately $800 million general fund would decline by $3 million, and with a dime cut it would be reduced by $7 million, he said. Maintaining the property tax rate at its current level would result in a $1 million general fund increase, he said.
The general fund is the city's principal fund, containing revenues that finance existing operations and some construction projects. Other funds contributing to the city's $2 billion annual budget are education and motor vehicle funds and federal and state grants.
Property tax revenues, which are expected to be flat through next year, make up more than half of general fund money.
Council Budget and Appropriations Committee co-chairman Joseph J. DiBlasi said after Mr. Gallagher's testimony that this year's revenue shortfall meant that it was "not as likely" that the city could afford both a property tax cut and a larger police force in the fiscal 1995 budget, which begins July 1, unless it gets additional aid from the state.
"I'd like to have both. But there's always a need for more police. That has a higher priority than a tax cut," the 6th District Democrat said.
Meanwhile, the head of a citizens group pushing for a reduction in the city's property tax rate said that the disclosure of the shortfall wouldn't change his group's position.
"We still feel there's room in the budget for a substantial reduction in the property tax rate," said Daniel J. Loden, president of the Baltimore City Homeowners' Coalition for Fair Property Taxes. "This is early in the year. We're not giving up at this stage."
RTC Mr. Gallagher said he believed that this year's $3 million shortfall could be made up by imposing a hiring freeze on departments other than the Police Department and by more carefully scrutinizing planned purchases of goods and equipment.
Layoffs of city workers should not be necessary to close the gap, nor should the city's ability to pay for raises to city workers this year for the first time in three years be jeopardized, Mr. Gallagher said. Plans to hire 150 additional police officers also would not be affected, he added.
"I think we can generate enough through targeted spending cuts," he said.
Based on projections for the first three months of the 1994 fiscal year, which began July 1, Mr. Gallagher said that the city is expecting to receive $5 million less in revenue than originally expected. But savings of some $2 million have already been identified, he said, leaving a shortfall of $3 million.
Mr. Gallagher said a large portion of the shortfall was the result in decreases in the property tax assessments of downtown office buildings, whose occupancy rates and values have been declining because of the recession.
Among those downtown buildings whose value was reassessed downward this year are Signet Towers at 7 St. Paul St., which was reduced from $65 million to $48 million, and the Candler Building at 700 E. Pratt St., which went from $33 million to $20 million.
Overall, according to Mr. Gallagher, the value of property in the downtown area has declined by $18 million in the last year while the value of property throughout the city has remained essentially the same.