Understanding Baltimore City’s Budget

The Maryland Center on Economic Policy is launching a new project to increase public awareness and understanding of Baltimore City’s budget. As the largest city in the state, and a city facing significant challenges related to economic and racial inequity, it is vital that city residents have good information about the choices their elected officials are making. Budget decisions can help or hinder children’s education, economic security for families and communities, and public health and safety.

The significant federal funds coming to Baltimore City to help prevent evictions, protect public health, and support other community needs helped shape the current city budget, which went into effect July 1. In introducing the proposed $4.33 billion budget, Mayor Brandon Scott outlined several priorities including youth services, public safety, community health and wellness, neighborhood development and responsible stewardship of city resources. In addition, Mayor Scott established an office to manage the historic federal American Rescue Plan investment. The city projects a 3.9% uptick in the revenues for the current budget year due to increase in property and income tax revenue, highway user revenues, and other funding sources. Below is a list of the major highlights from this year’s budget.

Major Highlights: Revenue

• Federal and state aid:
  • Baltimore is receiving over $640 million in flexible federal relief dollars from the American Rescue Plan Act, passed earlier this year. City leaders opted to open a 10-member led commission, appointed by the mayor, to allocate and manage ARPA funds by its 2024 deadline. Applications are open for city agencies and organizations to submit project proposals to secure relief dollars.
  • The city also had funds remaining from prior federal pandemic response: $24.5 million in CARES Act funds and $27.5 million in Federal Emergency Management Agency (FEMA) reimbursements. CARES dollars will go towards cleaning costs for public facilities, personal protective equipment, and city personnel expenditures. FEMA reimbursements will go towards continuing COVID-19 vaccination and testing and other public health protocols.
  • The city received $164.8 million in additional state aid (not counting education funds). The Income Tax Disparity Grant and Teachers Retirement Supplemental Grant account for the largest portion of this aid at $76.2 million and $10 million respectively. State support for Baltimore City Public Schools—which is not included in the city budget—totals $970 million.
• Property and income tax to grow at 1.4% and 1.2% respectively.
  • A third of Baltimore City properties saw a 3.9% increase in assessments over three years, representing a 0.9 % increase in commercial and 6.5% increase residential properties. Despite the seemingly modest growth, about 20% of these properties are set to experience a decline in value in 2022, with 91% of these being residential properties.
  • Because of the pandemic, commercial property values declined as a result of reduced operations at many businesses.
    • The city’s 14.2% vacancy rate for office space means the rental income of commercial real estate owners is set to decrease.
    • The effects of the pandemic are expected to continue to push down commercial real estate tax revenues for some time, which will place greater responsibility on city homeowners to fund public services. First, because of the reassessment schedule, the City could see continued reassessment declines for the next three years as a result of less demand for commercial space. Second, even as the city and state economy recover from the effects of the pandemic, the need for leased working space may never reach pre-pandemic levels as more businesses and workers may be happy continuing work from home arrangements.
  • Income tax to see modest growth at $385.6 million, 1.2% increase from last year
    • The City’s income tax rate is 3.2%, the maximum allowed under state law
    • Because the pandemic’s economic fallout left the wealthiest households relatively unscathed, the total taxable income of Baltimore City residents is on average higher than in years past
  • Tourism and hospitality revenues along with city parking revenues to decline, reflecting an expected slow return to pre-pandemic levels for the industries.
    • For Fiscal Years 2022 and 2023, demand for parking is estimated to reach 78.0% of 2019 pre-pandemic levels.

Major Highlights: Expenditures

• More uncertainty than usual: Because the city has not yet determined how to use more than $640 million in federal funding from the American Rescue Plan, the city will ultimately invest more in some services than current documents suggest—but which services will receive this extra funding, and how much, is not yet known.
• Health Department to continue COVID-19 testing and vaccination sites, as well as a contact tracing operation. Operating budget increases to $208 million (23% increase)
  • While focusing on COVID response, the health department is cutting back on funding for other services, including chronic disease prevention, youth and trauma services, Healthy Homes, and multiple services for aging city residents.
    • City funds will increase in most of these areas, but they are offset by declines in direct federal or state funding.
  • It is possible—but not certain—that the city could use money from the American Rescue Plan to offset these losses.
  • There is increased funding for clinical services, the units addressing substance use disorder and mental health, emergency services, HIV treatment services for the uninsured and environmental inspection services
• Baltimore Police Department to increase budget by $27 million to $555 million, due to higher pension and health care costs.
  • The city’s consent decree with the U.S. Department of Justice requires it to fund department operations, particularly regarding personnel expenses. Activists and community members voiced their concerns about the increase, advocating for funding social services, affordable housing, and after-school programs instead.
• Baltimore City Public Schools direct operating support to decrease by $12 million
  • $12 million is the net change in local support for City Schools with an increase in operating support and decrease in retiree healthcare costs.
  • In part because of the Blueprint for Maryland’s Future law passed this year, which will continually increase funding for schools in every jurisdiction over the next decade, city schools will get an additional $53 million in state funds this school year.
  • However, because the city cut back its support, the public schools budget will only see an increase of $41 million.
• Capital Budget-
  • The city capital budget outlines plans to spend $487.6 million on construction projects in the budget year that started July 1, a decrease of $335.6 million or 40.8% from the prior budget year.
    • Most of the funds ($467.6 million) come from grants, loans and bonds, and other revenue sources used to finance capital improvements, infrastructure maintenance, and replacement. New facility projects or expansions with operating impacts are limited this year, as agencies did not report any capital projects that will have a significant impact on the operating budget. The Department of Public Works and Department of Transportation make up 73% of the capital budget ($274 million and $68.2 million respectively), with funds allocated towards:
      • Water, wastewater, solid waste, and stormwater utility improvements (DPW)
      • Bridges and major road reconstruction/rehabilitation projects, pedestrian, bike, and transit infrastructure (DOT).