“I find it hard to believe that any other major city could say the same today,” says Andrew Kleine, Baltimore’s budget director.
The difference? For Kleine and his boss, CFO Harry Black, the answer is easy: outcome-based budgeting.
Outcome budgeting is a growing trend among cities and focuses on creating measurable goals and outcomes for governments. Ultimately, achieving those outcomes will help governments run more smoothly, save money and be more accountable. Other major cities like Lincoln, Neb., and Richmond,Va., have also adopted a outcomes-based budget in recent years.
Its success requires city officials who are willing to take the long view – a hard sell when it means they may not be in office when it comes time to reap the rewards. And having a larger perspective means developing a multi-year plan (in Baltimore it’s 10 years) that will guide budgeting and strategy instead of lurching from one fiscal year to the next. Additionally, developing a budget based on meeting specific outcomes requires coordination between city departments.
All these things are deterrents.
“It’s a lot of work,” says Henrik Minassians, director of Regional and National Partnerships for Public Sector at California State University Northridge. Especially among department heads, he added, the mentality can be, “what’s in it for them? Half the time they don’t talk to each other and they engage in budget games.”
Baltimore shifted to outcomes budgeting for the 2011 fiscal year when it was facing a shortfall of about $121 million. By the 2014 budget, the shortfall budget builders were tasked with closing had shrunk to $30 million in a $3.6 billion budget. The budget is built around six outcomes: better schools, safer streets, stronger neighborhoods, a growing economy, innovative government and a cleaner and healthier city. Baltimore’s budget prioritizes its spending around these goals and the subcategories.
Additionally, the city rolled out its 10-year strategic plan in February, which noted that the city’s cumulative shortfall of could reach $750 million over the next decade (annual amounts increasing from $30 million in FY14 to $123 million in FY22), if no changes were made to spending. The plan also identifies specific projects officials hope will help the city run more smoothly and effectively. For example, the risk management project starting this fall will look at how accidents are investigated, how data is kept and will identify areas to reduce risk over the next ten years.
Continuity is essential to making it all work, Kleine and Black say. And that can be a challenge in governments when the vision can change from administration to administration. The current mayor, Stephanie Rawlings-Blake, ascended to the mayorship in 2010 after then-mayor Sheila Dixon resigned. Rawlings-Blake was elected in her own right in 2011 to a four-year term and she is Baltimore’s 49th mayor. Baltimore’s finance department, meanwhile, has had long bouts in its leadership. Although Rawlings-Blake named Black the city’s finance director in 2012, his predecessor occupied the post for nearly three decades.
In a recent George Mason University study that looks at six struggling cities, the study authors noted, “What sets Baltimore apart from the other case studies in this series is that Baltimore is not experiencing a financial emergency,” and credited in part the city’s history of strong financial management. Baltimore has AA-bond rating and holds an unrestricted fund balance of $216.5 million (about 10 percent of the city’s budget). “Despite significant challenges related to poverty, blighted housing and the need for broad economic development throughout much of the city,” the report says, “Baltimore is on solid financial ground.”
That has allowed Baltimore to make counterintuitive moves like decreasing the property tax (which provides nearly 50 percent of the city’s revenue) while still increasing the reserve fund. The city’s property tax rate of 2.248 per $100 rate today – easily more than twice other rates in Maryland – is already 10 cents lower than it was five years ago. Officials hope to reduce the rate by 26 cents total by 2020. The city is also tackling its labor costs and estimates it will save $70 million by reforming pensions while still increasing employee salaries to remain competitive.
The mentality, says Finance Director Harry Black, is one of careful preciseness. His old boss, former City of Richmond Mayor Douglas Wilder, used to have three items framed on his wall that represented the different stages of budgeting. They were a butter knife, a scalpel and finally, a meat cleaver.
“If you don’t do something, that’s the progression,” Black says. “We are at the scalpel phase – making cuts in an orderly, responsible fashion.”
