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While uncertainty remains, Baltimore finance officials predict $60 million budget surplus

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Emily Sullivan/WYPR
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Baltimore City Hall. On Tuesday, budget officials projected a nearly $60 million surplus after some revenue streams exceeded expectations.

Though some of the financial uncertainty caused by the pandemic remains, Baltimore finance officials project a nearly $60 million budget surplus for fiscal year 2022.

“The question was, ‘What will the recovery look like, if anything, from COVID?’” Baltimore Budget Director Bob Cenname told the Ways and Means Committee at a hearing Tuesday. “We're happy to report that the recovery seems to be going more quickly than we had anticipated.”

The projection stands in stark contrast to fiscal year 2021, in which general fund revenues plunged nearly $100 million as people stayed at home and netted the city less money in parking, travel and tourism fees.

Cenname and other finance officials arrived at the surplus projection after examining data from FY 2022’s first quarter financial data, which began in July. The period saw unexpected boosts in several revenue streams: income tax, recordation and transfer taxes, speed camera tickets and hotel tax.

Budget officials had expected a deficit in income tax due to higher levels of unemployment; for a period, unemployment insurance payments were not taxable.

“There was a pleasant surprise for us and many other local jurisdictions in Maryland that we just did not see any impact from that,” Cenname said. “We believe that the reason for that is those who were affected by the pandemic in terms of income were generally lower income folks that don't make up as much of a chunk of our income tax base.”

As a result, he projected a $29.2 million surplus from income tax.

Another $13.2 million in surplus funds are projected to come from recordation and transfer taxes, which are collected when transferring property. This particular revenue stream is the largest it’s been in 15 years, Cenname said.

Finance officials had written the FY 2022 budget assuming that the rate of speed camera ticket violations would decline, especially as some offices reopened and many city children returned to in-person learning. But the rates did not budge, leading to a projected $6.9 million surplus.

Hotel taxes also outperformed estimates, hinting at the gradual return to normal tourism figures. During the pandemic’s early days, hotel occupancy rates hovered around 15%. The 2022 budget was written assuming the city would see an occupancy rate of 51% by the end of the fiscal year, but the rate reached 52% during the first quarter.

“That lends some hope that we're going to continue to see some improvement over the rest of the year,” Cenname said. “Based on that, we're projecting a $3 million surplus in hotel tax.”

Federal relief money also played a role in the surplus prediction, Cenname said. The city still has about $25 million in CARES funding to be spent by the end of 2021, while FEMA has reimbursed the city for $36.4 million in pandemic-related spending.

Cenname said that none of the $641 million in American Rescue Plan Act funding is reflected in the budget. Per U.S. Treasury guidelines, those funds must sit outside of the city’s general fund, which is funneled into the budget.

However, about a third of the surplus is tied to a worker shortage. Cenname attributed citywide personnel vacancies to difficulty in filling frontline positions and the return to hiring after the hiring freeze, which ended in July.

Take librarians: the city did not hire any of these workers during the early days of the pandemic, as libraries remained closed. Now, Enoch Pratt is trying to bring workers in.

“But there is an impact of not hiring for a long time,” Cenname said. “In some cases, we have just gotten behind in positions that need to be filled. That's kind of the big theme that we've seen across expenditures as a whole.”

Several city agencies have surpluses tied to worker shortages. Rec & Parks, which has had difficulty hiring part-time workers, has a projected surplus of $2.5 million, a sum that makes up 5% of the agency’s budget.

One-third of the positions in the IT department are vacant. The agency has a projected $2 million surplus, amounting to 5% of its budget. Cenname said that the surplus will offset contractual spending.

The Baltimore Police Department has a projected surplus of $2 million, which is about 0.4% of its yearly budget. The surplus is largely driven by vacant positions and is offset by an increase in overtime spending to ensure that shifts and posts are covered despite vacancies, Cenname said.

The State’s Attorney’s Office, which Cenname said has had trouble retaining staff due to below-market salaries, has a projected surplus of $1.7 million. The agency recently eliminated five attorney positions to increase salaries for 43 attorneys — an attempt to ward off attrition.

Other agencies are operating at deficits tied to the worker shortage. The fire department has a projected $5.3 million deficit, which Cenname said reflects overtime spending particularly in fire suppression and emergency rescue services. The agency has also yet to disband two fire companies, which the fiscal year 2021 budget called for.

The health department has a projected deficit of $11.7 million, driven by pandemic response.

The city’s fiscal year 2023 budget must be finalized by June of next year.