Posted on 09/18/25
| News Source: FOX45
Baltimore, MD - Sept. 18, 2025 - Baltimore City ended the 2025 budget year with a $3.3 million deficit, which was smaller than expected due to larger income tax revenue than budget leaders predicted.
Members of the Baltimore City Council got the kernel of good news during a budget hearing at City Hall. Laura Larsen, the city’s budget director, said the city brought in $42 million more in income tax revenue than it originally expected, resulting in the city ending up with $66 million more in revenue streams.
“Income tax revenue is collected at the state level and then dispersed to the local level based off of an allocation formula,” she said. “It was sort of very out of the norm and very unexpected.”
The boost in revenue paints a much sunnier picture than the dark days leaders had telegraphed in the early days of the Trump Administration, warning federal job cuts could significantly impact the city’s bottom line. However, Larsen said Baltimore may not be out of the woods just yet.
“Just because we didn’t see the drop off in FY 25, we do know that income tax returns are a lagging indicator in what’s happening in the job market in our state,” she said, noting the next two budget years could see the impacts of federal job cuts.
Earlier in the year, the city implemented spending freezes, tighter controls for overtime, and restricted credit card access for agencies except for department heads. However, despite the controls, the departments still went over budget, largely due to overtime costs.
The Baltimore Police Department spent $47.5 million over budget, the Fire Department spent $38.5 million more, Recreation and Parks went $5.6 million over budget, and the Sheriff’s Office spent $3.4 million more than budgeted.
“The city has still many, many issues, including, I think ultimately, will be a more significant impact from federal government downsizing, but also the fact that the City continues to spend far too much money on overtime,” said Anirban Basu, an economist and CEO of Sage Policy Group.
A spokesperson for Mayor Scott said the income tax surplus will be taken “into account while funding general expenditures including agency deficits and other carry forward commitments for multi-year procurement activity.”
“The City continues to closely monitor income tax revenue to inform future budget projections,” the spokesperson’s statement continued.
Larsen also talked about how the city is preparing for the end of the federal American Rescue Plan, or ARPA, dollars that will soon run out. Baltimore received $641 million in one-time, COVID-era funding and stood up a specific office to oversee the spending. That office, the Mayor’s Office of Recovery, will remain operational, Larsen said, after the money is gone; instead of ARPA dollars, Larsen said the Office of Recovery will oversee how Baltimore spends the Opioid Restitution Fund.
As for programs that have been funded by ARPA dollars and employees hired through the funding, Larsen said the city has been preparing for this, but said budget year 2027 is when the serious planning will begin.
“The city administrator has always been very clear with ARPA that there should be no expectation that the city will have resources to be able to continue those programs,” Larsen said. “I think we have an opportunity to have these individuals who have developed strong set of skills that can make real contributions to city services, that we have an opportunity to look for other ways to retain that talent in our organization.”
Despite the somewhat rosier than expected fiscal picture, Basu warned leaders about not getting too excited to spend more money.
Look, we just came through a fiscal year in which revenues exceed expectations. We might be about to embark on a year during which revenues fall short of expectations.
“I would think right now Baltimore should be looking to tighten its belts,” Basu said. ”And here's the thing, many policymakers may not be wanting to do that because they want to keep providing services. So, they might say, look, let's keep spending. I don't think they can afford to do that.”