‘Tough but smart’ budget plan closes $65 million deficit, protects core services without raising taxes

Today, the Department of Finance presented the Preliminary Budget for Fiscal Year 2012 to the Board of Estimates. Mayor Stephanie Rawlings-Blake said the budget plan bucks national trends in American cities by fixing the deficit while still fully funding the city’s obligation to public schools, continuing an aggressive plan to hire hundreds of new police officers, providing funding for street repair and blight elimination, and maintaining critical city services that neighborhoods rely on—all without raising any taxes, including property taxes.

The Finance Department’s latest projections for the Fiscal 2012 General and Motor Vehicle Fund revenues, which remain lower than Fiscal 2008, are approximately $65 million short of the cost to maintain current City services. Mayor Rawlings-Blake said the preliminary budget protects core priorities without raising taxes, but also requires tough spending reductions to close the projected $65 million shortfall, including reductions to library hours, 311 call center hours, and cutbacks to graffiti removal, and animal services.

The Fiscal 2012 Preliminary Budget plan reduces central administrative costs across city agencies by 10% below current service levels and freezes pay for city managers. The plan reduces employee healthcare spending through improved benefits management but also provides a modest two percent cost-of-living adjustment to most city employees, which is designed to offset the impact of continuing temporary employee furloughs. On average, the city’s lower-paid workers will see very slight gains in take-home pay, while medium to high earners will continue to see reductions in base pay from the continuing employee furlough plan, which began in 2009.

“Baltimore, like most major American cities, is still feeling the effects of the Great Recession,” Mayor Rawlings-Blake said. “Through sacrifice and smart budgeting, we will ensure that City Government tightens its belt to get more value for every tax dollar by doing what families are doing everyday: making tough choices about what we can afford and focusing our scarce resources on core priorities.”

Mayor Rawlings-Blake has made fiscal responsibility a hallmark of her administration, first by cutting her own office budget by 19.6% since taking office, balancing last year’s record $121 million deficit without raising property taxes, implementing tough pension reforms, and by making Baltimore one of a few major American cities to use the Outcome Budgeting process to demand greater efficiency. The City’s Outcome Budgeting effort was recently praised nationally in Governing Magazine saying Baltimore's solution to an historic budget crisis “was not the norm.” Mayor Rawlings-Blake has also announced an initiative to develop a 10-Year Financial Plan to address the City’s longer-term fiscal challenges.

Preliminary Budget Background:

Fiscal 2012 is the fourth year of fiscal challenges for Baltimore City as a result of the Great Recession. Combined revenues for the City’s General and Motor Vehicle Funds will remain lower in Fiscal 2012 than they were in Fiscal 2008. During the same period, fixed expenses – primarily pension and health care costs – have grown by $130 million (21%).

In order to confront this chronic gap between revenues and costs, Mayor Stephanie Rawlings-Blake has used the Outcome Budgeting process and other means to more clearly define funding priorities, make city government more innovative and efficient, examine program effectiveness more closely to cut spending, and diversify the City’s revenue stream to avoid property tax increases.

Over the past few years, the City has taken a wide range of actions to balance the budget and maintain core services. The City has frozen hiring and furloughed employees, reformed the fire and police pension system and reduced overtime spending, consolidated agencies and eliminated duplicative and underperforming services, tightened administrative costs in every agency, charged retirees a share of their prescription drug premium costs, cut funding for an array of services, and abolished more than 1,000 positions.

Fiscal 2012 revenues are approximately $65 million short of the cost to maintain current City services – services that are already diminished by the cuts made to date. This budget gap results from $75 million in cost increases and only $10 million in net current revenue growth. The key cost drivers are employee and retiree health care (+$21 million), and pension fund contributions (+$9 million). On the revenue side, reduced Homestead Tax Credit costs and new speed camera fines are offsetting the impacts of negative property assessment growth and expected State aid cuts.

At the time of this plan’s release, state and federal funding for Fiscal 2012 remain highly uncertain. The Fiscal 2011 budget includes more than $500 million in grants and other operating support from these sources, and spending cuts being debated in Annapolis and Washington could have far reaching impacts on City services, particularly in the areas of health, education, public safety, housing and community development, and job training.

Highlights of the Preliminary Budget Plan:

The Fiscal 2012 Preliminary Budget plan was built around Mayor Rawlings-Blake’s priority outcomes for Baltimore: Better Schools, Safer Streets, Stronger Neighborhoods, Growing Economy, Innovative Government, and Cleaner and Healthier City. Below are a few highlights of what the Preliminary Budget Plan funds and does not fund under each priority outcome.

Better Schools

• Fully funds the City’s commitment to the Baltimore City Public Schools (BCPS). The City’s Maintenance of Effort funding level increases by $1.8 million, to $201.3 million. City operating support for BCPS totals $276.9 million, including debt service on capital projects, retiree health benefits, and school crossing guards. The capital budget includes $16.6 million for school construction and renovation.
• Increases funding for Workforce Services for Out-of-School Youth so that 600-700 participants will have access to a full range of educational, occupational, and personal support services.
• Provides funding to keep all School-based Health centers open, in order to promote wellness and increase student attendance.
• Funds operations of the central and all neighborhood branches of Enoch Pratt Free Library, though hours of operation will be reduced by as much as 20% at some branches. At this funding level, 35 positions are eliminated and 25% fewer new books and database resources will be purchased. Mayor Rawlings-Blake will seek to restore library funding to current service levels if state aid is reduced less than expected.
• Maintains funding for Teach for America, Baltimore City Community College, and the Maryland School for the Blind at Fiscal 2011 levels.
• Eliminates one-time General Fund support for Career Connections for In-School Youth service (FUTURES Works and After School Matters). The program has lost grant funding in recent years, which has impacted its effectiveness. The program will continue to be supported by BCPS grant funding, and the number of students who receive these services will decrease from 420 to 180.

Safer Streets

• Fully funds the Mayor’s aggressive hiring plan to recruit hundreds of new police officers in 2011 to fill police vacancies.
• Maintains funding for the Fire Department’s Suppression service, continuing three rotating closures (down from four in Fiscal 2010) and maintaining current services in all other functions.
• Funds the Operation Safe Kids and Operation Safe Streets youth violence prevention programs, which have proven to reduce shootings in targeted neighborhoods.
• Funds operation of 515 crime cameras, which have been shown to reduce crime by 25% in covered areas.
• Increases funding for the Mayor’s Office of Criminal Justice to generate additional external grant support for the City’s public safety services.
• Reduces funding for Animal Services, resulting in slower response to service calls and the need to raise more outside funding to support the animal shelter.

Stronger Neighborhoods

• Increases General Funds for the Blight Elimination service to support the Mayor’s new Vacants to Value initiative and offset a $200,000 reduction in Community Development Bonds.
• Restores pay-as-you-go capital funding for neighborhood street repair and resurfacing, which was zeroed out in the last two fiscal years.
• Transitions to a new model for the City’s 55 Recreation Centers, consistent with recommendations of the Mayor’s Recreation Center Task Force, effective January 2012. The Department of Recreation and Parks will upgrade and fully staff 27 centers throughout the City. Between 18 and 28 centers will be operated by qualified non-profit partners, BCPS or other City agencies. Some centers could be closed depending on the number of non-profit partner centers created. The new model reflects the City’s fiscal realities, changing population and the need to provide improved programming for youth at the remaining centers.
• Funds City swimming pools at Fiscal 2011 levels with increased security. At this funding level, a combination of park, walk-to, indoor and splash pools will be open from May 28 to September 5.

Growing Economy

• Maintains funding for the City’s career centers to help citizens get prepared and trained to find employment in the slowly recovering economy.
• Increases funding for the Emerging Technology Center (ETC), enabling the ETC to support 27 new companies that can help expand key economic sectors and create new jobs for the future.
• Provides funding for the Baltimore Office of Promotion and the Arts to support cultural programming. More than 1,000,000 people will attend events sponsored by the Baltimore Office of Promotion and the Arts in Fiscal 2012, generating an estimated $100 million economic impact for the city.

Innovative Government

• Increases funding for the Office of the Inspector General to further reduce fraud, waste, and abuse. This increase funds one additional auditor position and a rewards program; both are expected to generate significant cost recoveries to the City.
• Reduces central administrative costs across agencies by 10% below current service levels.
• Establishes a new Innovation Fund to invest in ideas with potential to improve results for citizens and save money. The first three Innovation Fund projects will modernize the building plan review and permitting process, make food inspections paperless, and replace outdated software used by the City’s health lab to streamline recordkeeping and enable the lab to serve outside clients.
• Brings Recordation Tax collection in-house, saving the City half a million dollars in fees paid to the Circuit Court.
• Decreases funding for the 311 Call Center services, reducing daily Call Center hours and maintaining operations during peak hours.

Cleaner and Healthier City

• Maintains current services for many of the City’s health programs, including maternal and child health, substance abuse and mental health, and chronic disease prevention.
• Fully funds the 1+1 trash and recycling collection program and implements a charge for bulk trash pickup starting January 1, 2012. Residents will be encouraged to take their bulk trash to the City’s five free drop off centers.
• Expands the use of cameras to combat illegal dumping.
• Provides capital and operating funds to improve and maintain the City’s landfill to meet federal and State environmental mandates.
• Funds a full-time Food Policy Director to implement the City’s Food Policy Task Force plan, which calls for increasing access to healthy foods and fighting childhood obesity.
• Reduces funding for graffiti removal.

Heath plan Reforms to Reduce Costs:

Healthcare costs continue to rise at unsustainable levels. In Fiscal 2011, the City's costs for employee and retiree healthcare benefits are $257 million, or more than 11% of the entire operating budget. These costs have grown 30% since Fiscal 2003, despite a shrinking City workforce and previous cost saving measures.

In order to address these unsustainable costs, Mayor Rawlings-Blake has ordered a top-to bottom review of all employee health benefits as part of her 10-year Financial Plan initiative. The review will include a detailed analysis of the City’s current health benefit programs for active employees and retirees, including: descriptions of the benefit structure; historical and projected costs in the context of national health care cost trends and the City’s overall fiscal environment; and comparisons to neighboring jurisdictions in Maryland. The review will also include comprehensive actuarial analysis of options for achieving sustainable health benefits, a ten-year cost projection, information about how the options would impact employees, and other relevant considerations.

While the comprehensive review is conducted, this year, as part of the Preliminary Budget Plan, Mayor Rawlings-Blake is proposing changes to employee and retiree health benefits. These changes are expected to save nearly $5 million in Fiscal 2012 and $10 million in Fiscal 2013. The changes will not take effect until January 1, 2012 and are not subject to negotiation with employee unions.

Benefit changes for active and retired employees include:

• Prescription co-pay tier adjustments for retirees (estimated Fiscal 2012 savings: $1.3million). Adjusting the co-pay levels on brand-name drugs while decreasing the generic co-pay, retirees are encouraged to use generic drugs, wherever clinically appropriate.
• Reduce the number of Medicare supplemental plan options for retirees from five to two (estimated Fiscal 2012 savings: $1 million). This change will affect only 900 of 21,600 retirees.
• Drug Quantity Management (estimated Fiscal 2012 savings: $0.2 million). This program limits the amount of medication that can be dispensed during a given period based on Food and Drug Administration Guidelines. .
• Prescription Drug Prior Authorization with grandfathering (estimated Fiscal 2012 savings: $0.3 Million). Prior authorization programs monitor the use of high cost drugs for inappropriate use.
• Add a $100 annual pharmacy deductible for retirees Over Age 65 (estimated Fiscal 2012 savings: $0.85 million). In addition to co-pays, participants in the City’s Medicare Part D Prescription Drug Plan will pay the first $100 of prescription drug cost annually.
• Require mandatory pre-certification/enhanced utilization review/case management (estimated Fiscal 2012 savings: $0.5 million). Medical case management may include care assessment, a personal interview, and assistance in developing, implementing and coordinating medical care with health care providers.
• Step Therapy with grandfathering (estimated Fiscal 2012 savings: $0.9 million). Step Therapy is a process that requires a person to try one or more lower cost drugs before a higher cost drug in the same class is approved.

More Budget Information:

More information about the Fiscal Year 2012 Preliminary Budget, the budgeting process and materials about Outcome Budgeting can be found at:

http://www.baltimorecity.gov/Government/AgenciesDepartments/Finance/DocumentsReports.aspx