Szczepaniak 1

Marc Szczepaniak
Professor Payne
Political Science 240
3/28/14
Fiscal Plight of Baltimore
Baltimore is Warm but Pleasant I belong here These words by famous Jazz age poet
F. Scott Fitzgerald describe Baltimore in its heyday, when it was a booming manufacturing hub,
but do not ring true for the city today. In a city where unemployment is already high and public
services are being rolled-back, Baltimores long-term fiscal outlook looks dire at best, with the
possibility of being catastrophic if there is gross mismanagement in the future. Over the nine
years from fiscal 2014-fiscal 2022, budget shortfalls are projected to be a total of $744.8 million,
eroding all the citys reserves in less than three years.
1
From a declining city population, excess
taxes and fees that stunt growth and union contracts that threaten to stretch the budget thin,
Baltimore has a myriad of issues it must address if it is to return to its former glory as one of the
great American cities.
A large factor in Baltimores fiscal peril has been its steady decline in population since its
peak after the Second World War. The city's population had continued to decline between 1990-
2000, losing 85,000 residents over that decade. Moreover, the city's rate of population loss had
accelerated to nearly double its rate between 1980-1990.
2
The 2010 census showed the

1
Glazier, Kyle. "Baltimore's 10-Year Forecast Sets Precedent." Www.bondbuyer.com. The Bond Buyer, 07 Feb. 2013. Web.
09 Apr. 2014.


2
Population Dynamics in Baltimore Neighborhoods: The Good, the Bad, and the Neutral."Jhu.edu. Johns Hopkins,
n.d. Web. 09 Apr. 2014.

Szczepaniak 2

population some positive signs as the population had decreased by 30,193 residents to 620,961
in the past decade, the smallest 10-year decrease since the 1950s, census data show. The 4.6
percent drop followed a 12 percent slide in the 1990.
3
This data shows that the city is still
dealing with the loss of population but that it is slowing and small, steady increases in population
can continue to occur in the future.
Baltimores decline in population has numerous adverse effects on the citys financial
outlook. With a decrease in citys residents, the city loses tax revenue from their former residents
who have moved out of the city and into the suburban counties that surround the city. The
decline in tax revenue will be part of the reason why (Baltimores) revenues are not growing at
a pace to keep up with expenses
4

The fact that population decline is slowing is little consolation to the city residents who
are dealing with its effects. For much of the city, the population loss has been devastating and
still leaves parts of the city forsaken, with a dearth of economic resources. While there are
pockets of improvement such as the area around Hollins Market in the citys southwestern
district other neighborhoods remain forsaken.
3
Baltimore may celebrate the recent news of
slowing population decline, but it most continue to foster growth if it is to be a harbinger of
things to come.


3
Selway, William. "Census Shows Baltimores Population Decline Slowing." Boston.com. The New York Times, 20 Feb.
2011. Web. 11 Apr. 2014.

4
Glazier, Kyle. "Baltimore's 10-Year Forecast Sets Precedent." Www.bondbuyer.com. The Bond Buyer, 07 Feb. 2013. Web.
09 Apr. 2014.


Szczepaniak 3

A second large issue imperiling Baltimores fiscal health is its unreasonable tax structure
that is stunting economic growth that can provide much needed tax revenue for the cash-strapped
city. A massive fiscal issue facing Baltimore is its property tax rate, which is much higher than
the surrounding counties, forcing business and residents to leave for other parts of the state.
From 1950 to 1985, the property tax rate in Baltimore was raised an astonishing 21 times.
5
The
steep property tax in the city has caused the physical capital being taxed, such as buildings, to be
abandoned to rot as the tenants leave the city for areas with lower property tax rates. While the
physical capital stays and rots in the city, the city also loses the financial and human capital that
are also needed for growth. To investors and banks, real estate in the city is less enticing as the
high property tax rates may be more than they can afford.
The high tax rates have also driven out middle and upper-middle class residents as the
city now has a staggering 30,000 housing units in Baltimore that are abandoned and waiting to
be demolished
5
.With the dual effects of both driving residents and businesses out of the city,
Baltimore must take a look at how it can reduce property taxes and make the city attractive to
businesses and middle-class families again. Currently, the city does offer public redevelopment,
in which it uses targeted tax breaks and subsidies aimed at bringing big-foot development
projects downtown
5
.This indicates that officials recognize the burden of property taxes on the
city. In order to avoid fiscal calamity, Baltimore must balance the need to lower property taxes
with their responsibility to ensure that its citizens get the services they deserve.
Unions, which help millions of Americans fight for working wages and better working-
conditions, are, unfortunately, another part of the reason why Baltimore, and many

5
Walters, Stephen, and Steven H. Hanke. "Blame Taxes for Baltimores Rot." Www.cato.org. Cato Institute, 05 July 2008.
Web. 11 Apr. 2014.

Szczepaniak 4

municipalities, are facing such serious fiscal problems in the near future. Generous pensions for
city-workers is causing a serious strain on Baltimores finances as it must balance pension
payments to retirees while attempting to provide city services to its current residents. Recently,
Baltimore has enacted a series of pension reforms to help secure its financial future and avoid
even deeper budget cuts.
One of the flaws of Baltimores pension system developed from the so-called variable
benefit provision allowed for permanent increases in employee pensions in years when the
pension fund's performance in the stock market exceeded a certain threshold.
6
This means that
when stock market goes up, the increase goes directly into the payments of retirees. However,
when the stock market performs poorly, the taxpayers cover the losses in the pension fund.
Recently, Baltimore and the unions have come to the agreement that the current path is
unsustainable and city-elected officials are working with union leaders to reform pension plans,
but a compromise acceptable to both sides has been hard to come by. When Baltimore attempted
to reform its pension system in 2010, the Baltimore Fraternal Order of Police filed a lawsuit
claiming the law was unconstitutional. Though the federal judge found portions of the law
unconstitutional, he made clear the vast majority of provisions in the law are permissible.
6

Though the judge found certain provisions, such as the tiered system in which younger retirees
would pay more towards their pension, unconstitutional he made clear that Baltimore could
pursue similar actions in order to stabilize its finances.
While debate rages about what concessions from unions and from the city are needed,
what is undeniable is the monumental impact pensions are currently having on Baltimores

6
"In Defeat, a Victory for Baltimore Pension Reform." BaltimoreSun.com. Baltimore Sun, 23 Sept. 2012. Web. 11 Apr.
2014.

Szczepaniak 5

budget. In 2010, Baltimore was on the hook for a $165 million contribution to the fire and
police pension system, some $64 million more than the mayor had budgeted.
7
In an era of
budget austerity, where cities like Baltimore must cut essential services such as education and
public safety, $64 million is a huge amount of money for the city to cover. To compensate $64
million dollars, the city would have been required to increase the property tax rate by 18 or 19
cents, or cut the entire budget for the library system and the Department of Recreation and
Parks.
7
Clearly, Pension reform must be part of any long-term strategy to fix the fiscal health of
Baltimore.
Another alarming piece of news for the city of Baltimore is the lack of federal and state
resources it could receive in the future as government budgets begin to tighten. Uniquely
situated next to the nations capital, the state of Maryland is in a position that could cause it to
suffer dramatically from future federal cutbacks. If cutbacks that harm the state occur, Baltimore
City could suffer as the state, dealing with its budget cuts, could provide less aid to the city. In
the recent sequestration, for example, the State of Maryland lost14.4 million in funding for
primary and secondary education
8
. These cuts could be a harbinger of a future in which
government spending does not flow as freely to the Free State as it has in years past. With less
money flowing into state coffers, Baltimore could feel the effect as the city relies on state and
federal funds for a portion of its budget. In a future where less money is allocated, Baltimore
could face more tough budgetary choices.

7
"In Defeat, a Victory for Baltimore Pension Reform." BaltimoreSun.com. Baltimore Sun, 23 Sept. 2012. Web. 11 Apr.
2014.

8
"Impact of March 1st Cuts on Middle Class Families, Jobs and Economic Security: Maryland." Whitehouse.gov. The White
House, 2013. Web. 11 Apr. 2014.

Szczepaniak 6

Despite its many fiscal challenges, Baltimore is not suffering as bad as it could be, and
good management could put the city back on a strong footing towards fiscal strength. As the
report on its 10-year fiscal strength reports, Baltimore is not distressedThere are pressure
points we want to get out in front of them.
9
There are a myriad of policies Baltimore could
pursue to cover the fiscal pressure points it is facing.
To begin, Baltimore should work to reverse the decrease in population and work to
increase its population by attracting young, educated, middle-class citizens to help grow the
citys tax base. In order to achieve this, Baltimore should offer tax-incentives for residents to
move into more distressed neighborhoods and fix-up houses and make the neighborhoods more
attractive for investors. The active night-life, and proximity to high-paying jobs downtown make
the city attractive to young people, but overbearing property taxes discourages young
professionals from moving into distressed neighborhoods, as the renovations or upgrades may
add less value to a house than it will cost in taxes on that house with a higher assessed value
10
.
Baltimore already has gentrified pockets throughout the city, and a process that makes more
neighborhoods desirable to live and work in will benefit the city by growing its population and
tax base.
A criticism of gentrification is that it may displace residents who can no longer afford the
new rent if prices in a neighborhood increase. However, studies by an economist for the Federal
Reserve and a professor of urban planning at Columbia University indicate that gentrification

9
Glazier, Kyle. "Baltimore's 10-Year Forecast Sets Precedent." Www.bondbuyer.com. The Bond Buyer, 07 Feb. 2013. Web.
09 Apr. 2014.

10
Walters, Stephen, and Steven H. Hanke. "Blame Taxes for Baltimores Rot." Www.cato.org. Cato Institute, 05 July 2008.
Web. 11 Apr. 2014.

Szczepaniak 7

may actually help the poorer residents of a community. A study of the credit scores in
gentrifying neighborhoods of 55 cities found the number went up for original residents.
11

Additionally, the studies showed that the fear of residents needing to leave gentrified
neighborhoods were incorrect. They found that low-income residents moved out of gentrifying
neighborhoods at the same rate as they did nongentrifying neighborhoods
11
. Gentrified
neighborhoods also have an added benefit, according to these studies, as they showed
gentrification opened up neighborhoods to college-educated minorities
11
. This means that, in
addition to educated whites, gentrified neighborhoods helped bring in educated minorities who
can serve as positive role-models and leaders for the minorities who are original residents of the
neighborhood.
Though gentrification can alleviate population decline and loss of tax-base, Baltimore
must also address the other side of its fiscal challenges: spending. As mentioned before, pension
obligations run the risk of engulfing Baltimores budget. Baltimore should continue to work with
its fire and police unions to reform pensions. A tiered system in which the less years of service
the more benefits are reduced from their current values appears like the most appropriate and fair
solution. The particular plan Baltimore had used was struck down as unconstitutional but the
judge made it clear a similar system could be legal with minor fixes. Fiscal realities must be
addressed and cities must reduce lavish pension payments in order to ensure a strong budget for
the future that protects Baltimore Citys residents and guarantees sufficient funds remain for
important investments such as education. However, the city cannot cut benefits the steepest for
older retirees who have planned their fiscal future around their pensions payments and may not

11
Newcombe, Tod. "Gentrification's Not So Black and White After All." Www.governing.com. Governing, Mar. 2014. Web.
11 Apr. 2014.

Szczepaniak 8

be able to find work. Younger workers will be more flexible and able to adjust to a future in
which pension payments take more years to obtain and payments may be lower.
As serious as many of these fiscal realities Baltimore is facing, it is important to note that
these problems are not impossible to overcome and with strong leadership, Baltimore can once
again shine as one of the great American cities and as a national model for urban renewal.













Szczepaniak 9

Works Cited
Glazier, Kyle. "Baltimore's 10-Year Forecast Sets Precedent." Www.bondbuyer.com. The Bond
Buyer, 07 Feb. 2013. Web. 09 Apr. 2014.
"Impact of March 1st Cuts on Middle Class Families, Jobs and Economic Security: Maryland."
Whitehouse.gov. The White House, 2013. Web. 11 Apr. 2014.
"In Defeat, a Victory for Baltimore Pension Reform." BaltimoreSun.com. Baltimore Sun, 23 Sept.
2012. Web. 11 Apr. 2014.
Newcombe, Tod. "Gentrification's Not So Black and White After All." Www.governing.com.
Governing, Mar. 2014. Web. 11 Apr. 2014.
"Population Dynamics in Baltimore Neighborhoods: The Good, the Bad, and the Neutral."
Jhu.edu. Johns Hopkins, n.d. Web. 09 Apr. 2014.
Selway, William. "Census Shows Baltimores Population Decline Slowing." Boston.com. The New
York Times, 20 Feb. 2011. Web. 11 Apr. 2014.
Walters, Stephen, and Steven H. Hanke. "Blame Taxes for Baltimores Rot." Www.cato.org. Cato
Institute, 05 July 2008. Web. 11 Apr. 2014.