With levies, trims, city finances are on more stable footing

The bottom line on fiscal claims

October 13, 2006|By John Fritze | John Fritze,Sun reporter

Seven years ago, Baltimore's fiscal outlook was bleak: a $153 million budget deficit, cuts to city parks and police layoffs. To balance the books, officials sold public land and demanded back payments from an auctioneer who had absconded with profits he made peddling used city cars.

This year, as Mayor Martin O'Malley presented his spending plan to the City Council, the teeth gnashing typical of the city's budget season gave way to smiles. The council's hardest decision was how to spend a $61 million surplus.

The city's financial picture has improved during O'Malley's seven-year tenure, a change the administration attributes to cost cutting, better management and a stronger economy. But critics say the bottom line has improved in large part because of tax increases - from a jump in the income tax to a new levy on cell phones.

"What we have tried to do, as we improve our quality of life, is to squeeze every efficiency that we can," said O'Malley, the Democratic nominee for governor. "We had to turn around the reality of being the most violent and addicted and rapidly abandoned city in America."

While the mayor proclaims the city's overall progress on the campaign trail, he has not discussed financial management as frequently as his opponent, Gov. Robert L. Ehrlich Jr.

Much of the recent growth in city revenues has come from soaring property values. Despite a four-cent reduction in the property tax rate - and a promise to reduce the rate another six cents by 2010 - many will pay higher taxes because the value of their homes has increased. Officials estimate Baltimore will collect $592.1 million in property tax in the current fiscal year, up 6 percent from the year before.

The city's property tax rate, $2.288 per $100 of assessed value, is by far the highest in the state. (It was also the highest before O'Malley took office.) But growth in property values is limited to 4 percent annually. That means no property tax bill can increase by more than 4 percent a year.

Still, a handful of City Council members have argued that the city should move faster to reduce the property taxes as a way to encourage more growth. City Councilman Keiffer J. Mitchell Jr., a Democrat who is considered a potential mayoral candidate next year, has been one of the most outspoken leaders on the issue.

"The bottom line is assessments continue to go up in Baltimore City, and I just felt that we could have done more," said Mitchell, chair of the council's taxation and finance committee. "It's preventing people from moving into the city."

The city's annual budget has grown slightly faster than inflation during O'Malley's two terms, though the number of city employees declined.

General fund spending, over which the mayor has wide discretion, has increased 37 percent to $1.2 billion since the mayor took office during the 2000 budget year. Taking out police, fire protection and the state's attorney's office, spending increased 26 percent over that time.

O'Malley initiated a series of controversial cost-cutting efforts after he took office. He closed five fire stations, which saved the city $7 million a year. Another $3 million was saved by using private companies for janitorial and security services for city buildings. In 2003, O'Malley renegotiated health insurance plans for city employees, a move that increased out-of-pocket worker costs but saved the city $32 million a year.

O'Malley has also relied on his CitiStat program - which collects and analyzes department performance data - to drive costs down, especially overtime and worker compensation. The administration says the program has saved the city $350 million.

Analyses from Wall Street credit-rating agencies chronicle the city's progress. In the late 1990s, the city's A1 bond rating carried a negative outlook, which meant the grade could get worse and the city would be charged higher interest to borrow money. Today the forecast is positive.

A 1999 Moody's report focuses on the city's "middle-class suburban flight, reduced manufacturing employment, significant poverty levels, and a stagnant tax base."

Those problems are raised in reports this year, but so, too, is a growth in the tax base, reduced unemployment and slowing of population loss. The agencies have noted the city's rainy day fund, which grew to $83 million, up from $17.3 million in 1999.

"Moody's belief is that the city has very strong fiscal management," said Alicia Stephens, an analyst with Moody's Investors Service, which gives Baltimore a stable outlook and still pegs the city's bond rating at A1, four positions from its best rating. "They certainly have demonstrated a long-term, conservative approach to budgeting."

Many American cities have benefited from strong national and regional economies, but not all take advantage of improving conditions in the same way, several experts said.

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