Baltimore officials see Detroit as cautionary tale

Bankruptcy not authorized under Md. law; Baltimore faced scare in 1800s

  • A Detroit merchandise store sign is seen in a window in downtown Detroit July 19, 2013.
A Detroit merchandise store sign is seen in a window in downtown… (Bill Pugliano, Getty Images )
July 19, 2013|By Yvonne Wenger and Luke Broadwater, The Baltimore Sun

Baltimore officials say Detroit's bankruptcy filing this week is a cautionary tale for the city that underscores the need to fix a $750 million structural deficit before the situation here grows similarly dire.

"It is on my mind every day," Mayor Stephanie Rawlings-Blake said Friday, the day after Detroit became the largest city in U.S. history to file for bankruptcy protection. "Once you know that's a possibility, you have to spend the rest of your time trying to prevent it."

Bankruptcy is not currently an option for Baltimore, or any jurisdiction in Maryland — the General Assembly has passed no law to authorize such a move. Historically, local governments facing insolvency here have opted to dissolve.

But officials across the country are watching Detroit to see whether it provides a road map for dealing with the fiscal challenges presented by aging infrastructure, bad investments and crushing economic pressures.

Rawlings-Blake promoted her efforts since taking office in 2010 to avoid a Detroit-style disaster: overhauls of the city's health care and several pension systems, cuts to Baltimore's property taxes and hikes on fees aimed at generating more revenue from visitors and tourists.

"Even when people are frustrated, they understand why we're doing what we're doing," Rawlings-Blake said. "It's not because I enjoy imposing fees or taxes or talking about difficult subjects. It's because if we don't make those tough decisions, I'll end up at a press conference declaring something."

Baltimore's finance director emphasized that the city has a relatively strong bond rating, compared to cities such as Washington, Philadelphia and Pittsburgh. Moody's rates Baltimore's bonds as "high quality" with "very low risk."

"Baltimore is not even remotely vulnerable to bankruptcy at this point," Finance Director Harry E. Black said. "The city has had a historical positive record from a financial management standpoint."

Other cities aren't in as strong shape.

Harrisburg, Pennsylvania's capital city, plagued by the financial fallout from privatizing an incinerator decades ago and subsequent mistakes including a failed Wild West museum, sought bankruptcy in 2011, but the state legislature blocked it.

Pennsylvania state Sen. Judy Schwank predicted other communities would be watching Detroit "very, very carefully."

Municipal bankruptcies are rare: The National League of Cities counted 54 between 1970 and 2009.

The Detroit bankruptcy was years in the making, as the city and region grappled with the decline of the automobile industry and the population loss that followed.

"It is really important to underscore: Cities do what they can to avoid bankruptcy," said Christiana McFarland, a research director at the National League of Cities. "Going into bankruptcy has negative consequences to borrowing and bond rating. It sends a negative message about the community. It's a very severe point to get to."

Detroit filed for bankruptcy protection Thursday with debts of $18.5 billion, making it the largest city and the largest municipal bankruptcy filing in U.S. history.

A Michigan judge ruled Friday that the bankruptcy violated the Michigan Constitution and ordered the city's emergency manager to withdraw the petition. City officials predicted a protracted legal battle.

Frank H. Shafroth, the director for the State and Local Government Leadership Center at George Mason University, said Rawlings-Blake is taking the right steps to keep Baltimore from facing a financial debacle like Detroit's.

"Your mayor is dead right," he said. "As soon as you even think there is a potential problem, you have to move on several different fronts. You have to invest in infrastructure; you have to do something that the federal government doesn't do.

"You make good investments. You have to be an eagle on your budget. The really remarkable success about Baltimore is the way it's catching on."

Thirty years ago, Shafroth said, Baltimore and Detroit were both facing trouble. Both are old industrial port cities with declining manufacturing bases and high rates of poverty and violent crime. Detroit has lost nearly two-thirds of its population since World War II; Baltimore has lost about a third.

With fewer taxpayers, city governments have fewer ways to fund essential city services. Black, the city finance director, described Baltimore's population as "stabilized and growing."

Unlike Detroit, Baltimore has the economic draw of the Northeast that keeps generations of young professionals moving to the area, said Rolf Pendall, director of the Urban Institute's Metropolitan Housing & Communities Policy Center. The future of the corridor from Boston to Richmond, Va., in the decades to come rests on that strength.

In the absence of a state law in Maryland that allows local governments to declare bankruptcy, some have chosen to dissolve.

Ellicott City, for example, gave up its charter in 1935 and reverted to the control of Howard County.

Baltimore faced a bankruptcy scare in 1867. City leaders warned at the time that it "seems in a state of collapse, and the sanitary interests … are likely to suffer in consequence," and halted street cleaning immediately, The Baltimore Sun reported.

Reuters and Baltimore Sun research librarian Paul M. McCardell contributed to this article.

luke.broadwater@baltsun.com

twitter.com/lukebroadwater

ywenger@baltsun.com

twitter.com/yvonnewenger

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