Fixing Baltimore: Suggestions for Restoring Efficiency in Government

According to scholars Anthony Downs, Katherine Bradbury and Kenneth Small, Baltimore was a city in distress as early as 1982.1 Today, the town is in a similar state, if not worse, given the diminishing tax base and increased demand for services that have occurred over the last several years. Many of Baltimore’s – and other distressed cities’ – problems lie in their spending habits. A 1993 Cato Institute study, “The Myth of America’s Underfunded Cities,” ranked Baltimore as the city with the sixth-highest taxing and spending proclivities in the nation as of 1990.2 This ranking scored Baltimore better than New York and Richmond, but worse than Philadelphia – widely publicized as being among the worst of all cities in the days before Ed Rendell (D), an expert at negotiating with unions, was elected mayor in 1991. A 1995 study by District of Columbia’s Department of Finance and Revenue reported that the tax burden for a family of four in Baltimore was the seventh-highest in the nation.3

Though some of the base causes of a city’s degeneration are difficult to counter, there are ways to address urban decline and its byproducts. Harold Wolman and Barbara Davis identify three choices city officials have in dealing with stress: (a) obtaining more intergovernmental aid, (b) raising taxes in the hope of producing more revenue and (c) cutting expenditures.4

The first two strategies are not feasible in the long term, though with many politicians the message has not yet sunk in. Nonetheless, the facts are stark: Intergovernmental aid, especially federal assistance has declined, and is likely to continue doing so.5 This year, fiscal 1997, 36.4 percent of Baltimore’s $2.3 billion budget comes directly from state and federal grants.6 Despite the $100 million awarded under the city’s federal “empowerment zone” grant, the city itself is aware – and has been for some time – that aid from Washington cannot be counted on indefinitely. “The federal government is no longer playing its traditional role as a stabilizer in the Maryland economy in difficult times,” noted the city’s Board of Estimates in 1991.7 And as Mayor Kurt Schmoke (D) found out last spring, there is often great opposition to tax increases.8 People continue to vote with their feet. While Maryland as a whole saw a population increase of 5.5 percent from 1990-1995, Baltimore City’s population declined by 6.1 percent.9 So the tax-hike decision can be a costly one for a mayor and city.

But by instituting aggressive strategies to reduce expenditures, promote greater efficiency (and in some cases increase revenues), cities can, and have, restored their fiscal health. The implementation of such strategies by Philadelphia and Indianapolis, for instance, has helped both tackle the core of urban decline – high spending and taxes. They have reduced their budgets while maintaining high quality services. Their example should permit cities like Baltimore to follow the path that has been blazed.

The Baltimore Study

Last year, each of us was commissioned by the Baltimore Homeowners’ Coalition to conduct a study into aspects of Baltimore’s fiscal health. One of us examined comparative staffing and salary levels within municipal agencies in a number of cities; the other considered various cities’ differing responses to fiscal stress. Later this year, the final fruits of our labors will be published by the Calvert Institute. In the meantime, however, we present a synopsis of our findings so far.

Our municipal employment comparison study assesses whether Baltimore City’s employment policies exhibit signs of inefficiency. Two employment policy areas are examined, namely: (a) the number of positions and (b) employee salaries for selected positions. Baltimore is compared with six other U.S. cities facing similar demographic, economic and social challenges. These are Cleveland, Indianapolis, Milwaukee, Richmond, Philadelphia and St. Louis.

Our completed municipal employment study will include: (a) an examination of municipal employment trends in Baltimore; (b) a statistical analysis comparing the number of positions for selected Baltimore functions with those of the comparison cities; and (c) a statistical analysis comparing salaries for selected Baltimore employment classifications with those of the other cities in FY 1997.10 The five functions we have selected are: parks and recreation (P&R); planning, housing and community development (PHCD); police; public works; and fire.11

An analysis of Baltimore’s employment policies is germane to an assessment of municipal fiscal efficiency. Excessive personnel levels and unsuitable compensation policies create unnecessary burdens on city taxpayers. Both are crucial because employee salaries and benefits typically comprise more than three-fourths of general-fund expenditures. As the Calvert Institute has previously noted, Baltimore City in 1990 had the third-highest ratio of bureaucrats to residents of any city in America.12 In our study, employment figures are expressed as a ratio per 10,000 city residents. We focus primarily on those positions financed by Baltimore’s property-tax revenues. These are termed “general-fund” positions. When added to other city positions, funded from other sources, we refer to the total as “operating-budget” positions. Thus, the public works function’s Baltimore figures of 17 general-fund positions and 80 operating-budget positions mean that the city employs 17 persons per 10,000 residents paid for by means of property taxes; it employs a total of 80 persons per 10,000 residents paid for with funds from all sources.

In terms of staffing levels, among general-fund positions, our findings indicate that Baltimore’s fire function is the most seriously overstaffed function, with 24 employees per 10,000 residents as opposed to an average of 16 in the comparison cities. While Richmond’s and Milwaukee’s fire position levels are also above average, the Baltimore level is the only one that is statistically significant.14 The other Baltimore general-fund functions are more or less within the average range, except for the police function. The police function in Baltimore employs 48 per 10,000 residents, compared to 42 per 10,000 in the comparison cities. Perhaps just as troubling, except for the P&R function, Baltimore’s operating-budget positions are all well above average. Most notably, in Baltimore the number of public-works function operating-budget positions per 10,000 city dwellers is almost four times the average of the other six comparison cities. (See table 1.)

In terms of salary levels for top officials, Baltimore maintains salaries somewhat above, though sometimes below, those of the comparison cities.15 (See table 2.) The five top-paid officials in the P&R category are all paid less than the four-city mean for each of their categories in the other four comparison cities. (All figures below compare Baltimore salaries to the average of Cleveland, Milwaukee, Philadelphia and St. Louis. Cost-of-living adjustments are factored in.) In the PHCD function, officials 2 through 5 are all paid less than the average. But the No. 1 official in the category is paid much more than the four-city average, 11.52 percent ($112,900 next to a mean of $101,241). The top five police administrators and/or professionals are all paid below average, except for the No. 2 official; he is paid 1.17 percent above the comparison-city mean ($97,500 compared with $96,371). In public works, the top administrator is overpaid relative to the four-city mean, though his four immediate subordinates are all paid less than the average. The top public works official in Baltimore is paid $112,976, which is 6.00 percent more than the comparison average for his category, $106,576. Finally, in the fire category, the top five officials are all paid at rates far above average – respectively 13.00, 4.07, 14.89, 19.34 and 23.82 percent.16

The above average salary figures for the highest-paid administrators in the fire, PHCD and public works functions indicate excessive compensation policies in the corresponding departments in Baltimore City. While Baltimore must offer competitive salaries to attract exceptionally capable head administrators, this occurrence should nevertheless be investigated. The operating-budget staffing levels for the city suggest that policies determining labor needs for the police, PHCD and public works functions lack sound direction. While union influences may impair the city’s ability strongly to control personnel policy, further investigation should be undertaken to determine the full nature of the problem.

In particular, both the number of positions and the salaries paid suggest that the city Fire Department’s personnel policies lack efficiency. The 50 percent increase in the number of fire calls in the last six years may explain the significantly above average position level in the fire function. The salary compensation findings are unsurprising given the Fire Department’s protracted fiscal and personnel management problems, for it is widely recognized that the department has experienced policy dilemmas in recent years.17 Nonetheless, while position levels may be justified, an inquiry into the appropriateness of Fire Department salary compensation levels is needed.
City Response

The other part of our report examines the efficacy of recently instituted measures taken by several cities to manage their expenditures in an environment of diminished resources. In the final study, we shall: (a) profile what scholars identify as viable strategies; (b) identify the strategies employed by five cities (Baltimore, Indianapolis, Philadelphia, Richmond and St. Louis) and describe their experiences with these strategies; and (c) recommend actions for Baltimore based on a determination of whether other cities’ strategies can be replicated here.

The most popular revenue-raising strategy is to increase user fees, followed by finding new sources of local revenue, receiving new state and federal grants, and increasing taxes. Each city reported that it had taken action to improve productivity either through more efficient management or labor practices. The contracting out of municipal service provision is quite common, especially in Indianapolis and Philadelphia. And each of the five study cities has instituted various programs to reduce labor costs (e.g., hiring freezes, early retirements and buy-outs, or renegotiation of union contracts).

The study cities use a variety of strategies and programs to raise revenue and reduce costs. The cities that appear the most successful are those that creatively institute a harmonious blend of the measures detailed above. Indianapolis, for instance, reports that it has pursued additional revenue through the institution of user fees and by selling some assets. The city also cut expenditures by eliminating inefficient departments. Ultimately, the greatest savings for both Indianapolis and Philadelphia came about through their focussing on one area – municipal labor costs. Both cities have taken strides to put municipal services out to competitive tender, thus reducing personnel costs. Philadelphia estimates that it saves $34 million annually in this manner.18 According to analysts William Eggers and John O’Leary, where cities have tendered out services, the cost savings have been 40 to 50 percent on average.19 While Baltimore has attempted some of these measures in recent years (the recent early retirement program for city employees serves as a good example),20 the results have been less impressive. Mayor Kurt Schmoke’s recent interest in privatizing the city’s 911 ambulance service is an encouraging sign, though union opposition may derail the proposal.21 (The city ambulance service employs 189 personnel.)22 Indeed, it should be stressed that, except for union influence, there should be no major obstacles to implementing these measures in Baltimore. Our suggestions are detailed below.

The City of Baltimore should consider instituting a financial control board. The experiences of New York City, Cleveland and Philadelphia – each of which has regained or, in the case of Philadelphia, is regaining, its fiscal health – illustrate that a financial control board can be a useful tool for restoring municipal vigor. These non-elected, state-appointed boards force city officials to make tough choices, to think of the long-term impacts of their decisions, and to improve the city’s information-gathering techniques, accounting and budget-management methods. Despite their draconian appearance, control boards are a temporary measure, self-inflicted wounds brought upon incompetent city politicians. Cleveland’s control board was in existence for seven years. New York’s has been operating for 20 years, though its powers have by now been greatly diminished. Created in 1991, Philadelphia’s board is slated for expiration this year.

Baltimore City should also create an office, modeled after the one in Indianapolis, with the sole purpose of identifying opportunities for privatization and/or contracting out. This office should also manage contract agreements. The city should be subject to an annual external audit, which would evaluate the effectiveness of city agencies and contractors. Baltimore should impose a user fee for non-profit organizations (except those that mostly benefit city residents or civic associations). Most importantly, the city should renegotiate costly municipal union contracts. Unions in Baltimore have negotiated contracts over the past few years that have cost residents dearly. While the value of money eroded by about 20 percent during the period 1989-1996, the fire fighters’ union (IAFF) and the police union (FOP) negotiated pay increases of over 25 percent. The Baltimore Teachers’ Union (BTU), though not addressed as one of our functional categories, saw its members’ compensation increase by 33.4 percent.23 As shown in figure 1, most other salary increases were in accordance with inflation.


Baltimore’s combination of high spending and taxation, as discussed above, merits cause for concern. According to the Cato Institute, this combination suggests that Baltimore is in a state of fiscal stress, at best, or serious urban decline, at worst. It follows, then, that Baltimore must be especially prudent when making expenditure-policy decisions. Staffing levels and compensation should certainly not be excluded from such prudence.

A number of strategies can be, and have been, employed to ameliorate fiscal strain, stabilize city budgets and promote greater efficiency. Of the cities reviewed here, Philadelphia and Indianapolis have been the most intensely engaged in such innovations and policies. To a lesser extent, Baltimore has also sought to increase revenues and cut expenditures. With the third-highest number of municipal employees per 10,000 residents in 1990,24 much of Baltimore’s budget is consumed by employee payroll. Cognizant of this, five of Baltimore’s various recent strategies for easing fiscal stress have been work-force related (reduction in total staff through attrition, early retirements, hiring freezes, salary freezes and furloughs). Clearly, however, Baltimore’s efforts have not been sufficient. Though by no means an exhaustive list of possibilities, we have offered some policy suggestions that would go part way to reviving the city. Baltimore should consider them – and consider them seriously.

Mr. England and Ms. Whitt are M.A. candidates in policy studies at the Johns Hopkins University Institute for Policy Studies. They initially conducted research for the Baltimore Homeowners’ Coalition.

End Notes

[Top] 1. Anthony Downs, Katherine L. Bradbury and Kenneth Small, Urban Decline and the Future of American Cities (Washington, D.C.: Brookings Institution, 1982), p. 36.

[Top] 2. Stephen Moore and Dean Stansel, “The Myth of America’s Underfunded Cities,” Cato Institute Policy Analysis, No. 188, February, 22, 1993, p. 13; also Douglas P. Munro, “Ticket to Ride: Why Baltimore Must Not Raise Income Taxes,” Calvert Institute Calvert Comment, Vol. I, No. 2, April 29, 1996, p. 1

[Top] 3. District of Columbia, Department of Finance and Revenue (DFR), Tax Rates and Tax Burdens in the District of Columbia: A Nationwide Comparison (Washington, D.C.: DFR, 1995), p. 9; also Editorial Board, “Calvert Institute Launches New Voice in Public Policy,” Calvert Institute Calvert News, Vol. I, No. 1, Winter 1996, p. 1.

[Top] 4. Harold Wolman and Barbara Davis, “Local Government Strategies to Cope with Fiscal Pressure,” in Charles H. Levine and Irene Rubin (eds.), Fiscal Stress and Public Policy (Beverly Hills, Calif.: Sage, 1980), pp. 231-248.

[Top] 5. Thomas R. Swartz and Frank J. Bonello (eds.), City Finance Under Siege (London, U.K.: M.E. Sharpe, 1993), passim.

[Top] 6. City of Baltimore, Mayor’s Message, 1996/1997, pamphlet distributed by the city (Baltimore, Md.: Office of the Mayor, July 1, 1996), chart 1.

[Top] 7. City of Baltimore, Board of Estimates Recommendations: Operating Plan, Fiscal 1992 (Baltimore, Md.: Bureau of the Budget and Management Research, 1991), p. B-4.

[Top] 8. Robert Guy Matthews, “Council Increases Tax on Parking,” (Baltimore) Sun, June 7, 1996, p. 1A.

[Top] 9. James Bock, “Baltimore Population Down 6.1% since 1990,” (Baltimore) Sun, March 8, 1996, p. 1A.

[Top] 10. Figures for Baltimore, Philadelphia, Richmond and St. Louis are from FY 1997; figures for Cleveland, Indianapolis and Milwaukee are from FY 1996.

[Top] 11. Function descriptions are as follows: (a) fire protection, applies to city government fire protection and prevention activities plus any ambulance, rescue and other auxiliary services provided by the fire-protection agency; volunteer fire fighters are not included; (b) health, includes health research, clinics, nursing, immunization, environmental and general public-health activities; (c) planning, housing and community development (PHCD), includes municipal activities related to land use, transportation and environmental protection; also includes the operation of housing and redevelopment projects and activities to promote and aid community development; (d) parks and recreation (P&R), includes municipal activities pertaining to the operation of parks, playgrounds, swimming pools, public beaches, auditoriums, public golf courses, museums, marinas, botanical gardens and zoological parks; (e) police, applies to municipal activities concerned with the enforcement of law and order, including the coroner’s office, police training academies, investigation bureaus, and local jails, “lock-ups” or other detention facilities not intended to serve as correctional facilities; (f) public works, includes infrastructure maintenance, sanitation, solid waste management, water transport and treatment.

[Top] 12. Munro, “Ticket to Ride,” p. 1.

[Top] 13. City of Baltimore, Operating & Capital Plan: Summary, Fiscal 1997 (Baltimore, Md.: Bureau of the Budget and Management Research, 1996); City of Cleveland, Mayor’s Estimate, 1996 (Cleveland, Ohio: Office of Budget Management, February 1996); City of Indianapolis, Comprehensive Annual Financial Report (Indianapolis, Ind.: Office of the City Comptroller, 1995); City of Milwaukee, 1996 Budget (Milwaukee, Wis.: Budget and Management Division, 1995); City of Philadelphia, Mayor’s Operating Budget for Fiscal 1997, Book II (Philadelphia, Pa.: Office of the Mayor, 1995); City of Richmond, Annual Fiscal Plan, 1996-1997 (Richmond, Va.: Office of Budget and Strategic Management, [1996]); City of St. Louis, Annual Operating Plan, Fiscal Year 1997 (St. Louis, Mo.: Budget Division, 1996).

[Top] 14. A statistically significant numeric value is one far enough from the sample mean that the observed difference is too large plausibly to attribute to chance.

[Top] 15. Cost-of-living adjustments were made for the comparison cities’ salary figures using the American Chamber of Commerce Researchers’ Association Cost of Living Indices for the first quarter of 1996. The equation is as follows: ((city x index) x city x salary)

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