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Budget analysis: Baltimore's 'systemic problems' put it on path to bankruptcy

| Tuesday, Feb. 5, 2013, 8:20 p.m.

WASHINGTON — The Baltimore city government is on a path to financial ruin and must enact major reforms to stave off bankruptcy, according to a 10-year forecast the city commissioned from an outside firm.

The forecast, obtained by The Associated Press before its release to the public and the City Council on Wednesday, shows that the city will accumulate $745 million in budget deficits over the next decade because of a widening gap between projected revenues and expenditures.

If the city's infrastructure needs and its liability for retiree health care benefits are included, the total shortfall reaches $2 billion over 10 years, the report found. Baltimore's annual operating budget is $2.2 billion.

The report was prepared by Philadelphia-based Public Financial Management Inc., a consulting firm that has prepared similar forecasts for Miami, Philadelphia, Pittsburgh and the District of Columbia. Baltimore's decision to commission the forecast differs from those cities because each of them had already ceded financial oversight to the state, or in the district's case, the federal government.

The forecast will provide the basis for financial reforms that Mayor Stephanie Rawlings-Blake plans to propose next week. The city has dealt with budget deficits for the past several years, closing a $121 million gap in 2010. But those deficits have been addressed with one-time fixes that haven't addressed the long-term structural imbalance.

“When you have budget after budget and you know that there are systemic problems, I felt an obligation to do more than what we have done in the past,” Rawlings-Blake told the AP. The forecast, she said, shows that the city needs to address its financial woes “before it's too late, and somebody is coming in and making these choices for us.”

That's what happened to the District of Columbia, 38 miles to the south, in 1995 once the city reported a budget deficit of $700 million. Congress created a financial control board that instituted tight spending controls and ultimately took over all hiring and firing in nine city agencies.

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