Change to Grow: Baltimore's ten-year financial plan.

• Author: Kleine, Andrew
• Position: Cover story

"Today, more than ever, we face a crossroads. We can make choices that serve the greater good, put us in a better position for the future, and honestly confront real challenges. Or we can make choices to serve ourselves, choices that leave us worse off than before, choices that deny trust and truth. As mayor, I'm choosing to head down the straight-talking, no sugar-coating path toward change and real progress for Baltimore. I am asking everyone in this great city to join me. This path is guaranteed to have bumps, obstacles, and even hardships, but if we stay strong and stick with it, it will take us where we need to go. "

--from the Baltimore mayor's 2011 State of the City address

Revenues for the City of Baltimore, Maryland, have eroded in recent years, as they have for many other jurisdictions. Cyclical challenges--the most severe economic downturn in generations, while key expenditure drivers such as employee health care and retirement costs grew at unsustainable rates--compounded longer-term pressures caused by decades of post-industrial population loss and aging public infrastructure. But since early 2013, Baltimore's ten-year financial plan has been addressing these challenges.

As the GFOA best practice, Long-Term Financial Planning, suggests, Baltimore's plan establishes a set of actions designed to bring the city's recurring revenues and expenditures into structural alignment. At the same time, in using a ten-year horizon--longer than the more common planning period of four to five years--the city is also focused on areas such as infrastructure renewal and tax competitiveness where additional investment is critical for fostering truly sustainable economic growth, community vitality, and fiscal strength.

Baltimore has already used the plan, now in the second year of implementation, as a framework for restructuring employee health-care and retirement benefits (while improving worker salaries), beginning to reduce regionally high property tax rates, and increasing investment in public infrastructure--along with a broad range of other initiatives. Building on recent trends of population stabilization and emerging local strengths in health care, technology, and higher education, the ten-year plan's name reflects Baltimore's goal: Change to Grow.

WHY A LONG-RANGE FINANCIAL PLAN?

Like many major American cities, Baltimore experienced a period of population decline as the manufacturing era ended. Traditionally a prosperous port and a production center, the city lost hundreds of thousands of jobs after World War II. Accompanying the job loss was the departure of thousands of residents for surrounding suburbs. From 1950 through 2010, Baltimore's population fell from 949,708 to 620,961, while neighboring counties grew.

As tax rates were increased in an attempt to offset this erosion of the tax base, and important capital investments were deferred under chronic budget pressures, Baltimore was left with a legacy of high property tax rates--more than twice as much as most surrounding suburbs -- aging infrastructure, and growing liabilities. This "vicious cycle" of disinvestment eroded both community and fiscal stability.

In recent years, however, Baltimore's population has stabilized, the city has become a hub for knowledge-economy jobs, and multiple neighborhoods are experiencing growth and reinvestment. Economically, Baltimore is now at a turning point, poised to grow again --but only if finances remain stable, quality-of-life services are improved, and tax rates become more competitive.

During the Great Recession, all of these conditions were put under strain as both local and state revenues eroded. Throughout that period, the city was forced to make painful and unsustainable choices--a series of service cuts, furloughs, hiring freezes, layoffs, tax hikes, and curtailments of capital investment. While the city also used outcome-based budgeting to prioritize spending, the growth in costs so outpaced revenues that Baltimore's economic progress was placed at risk.

Wage and benefit costs increased by 19.6 percent between fiscal 2007 and 2012, despite efforts to contain them. Over the same five-year period, revenues rose just 3 percent. (See Exhibit 1.)

After years...