Baltimore’s wastewater system is over budget and underfunded, according to a new financial disclosure, prompting city officials to consider more rate increases.

The regional sewer system — which primarily serves residents of the city and Baltimore County — notified its bondholders this month that it had a $20.3 million revenue shortfall while going $21.4 million over budget last year, a gap of about $42 million.

The Baltimore City Wastewater Utility Fund collected about $342 million in revenue in fiscal year 2025 and has not missed payments on its roughly $1.5 billion in long-term debt. But the fund was legally required to notify bondholders because its $42 million budget hole is a sign of financial weakness.

The budget shortfall comes despite repeated rate hikes over the past three decades, including a sharp increase last year. Accounting for inflation, it’s about five times more expensive to flush a toilet in Baltimore today than it was in 1997.

In February 2025, the city’s spending board approved a rare midyear 15% increase to sewer fees, the biggest hike ratepayers have seen in a decade. City officials argued the increase was necessitated by inflation and a drop in the rating for the city’s sewer bonds.

The wastewater system told bondholders its recent budget crunch was caused partly by an increase in delinquent water bills and more customers using its financial assistance program, along with accounting adjustments. The unexpected costs came from “biosolids management,” the process of converting a portion of the waste into fertilizer that is largely performed by private contractors.

The Department of Public Works oversees the wastewater system, which has a separate budget from the city. It’s funded almost entirely by ratepayers and operates like its own business.

In July last year, Baltimore ratepayers were hit with a 9% increase to wastewater bills on top of the 15% increase enacted in February. Another 9% increase is set to go in effect July 1 based on a rate schedule adopted in 2025.

DPW spokesperson Mary Stewart said it’s too early to know if further rate hikes will be necessary. The agency must hire an independent consulting engineer to make recommendations, she said.

Any further rate hikes would require approval by the mayor-controlled city spending board. Comptroller Bill Henry and City Council President Zeke Cohen, both members of the board, have expressed resistance.

Cohen and Henry said they had been informed of the shortage in the wastewater fund and are expecting briefings from the Scott administration in the coming days.

Cohen, who abstained from the 2025 vote on the current schedule of increases, said he would vote against further hikes.

“I have shared my frustrations with the Scott administration,” he said. “Baltimoreans had to shoulder a wastewater increase only just last year, and it’s unacceptable that yet another rate increase may soon be on the table.”

Cohen said he has questions for the administration about how the gap came to exist, given the previous rate hike.

A spokesperson for the mayor’s office noted the budget year that ended in June captured only four months of revenue from the most recent rate increases.

Henry, who voted in favor of the current schedule of increases, said via a spokesperson that he believes officials should consider multiple alternatives before enacting another rate increase.

Spokesperson Geoff Shannon highlighted Henry’s work on two task forces, one convened this month, to explore a regional water authority. Henry would like to see a more equitable sharing of costs with Baltimore County, he said.

Before an additional rate increase can be considered, officials need to know whether the shortfall last year was a one-time problem or a systemic issue, Shannon added.

Investment into the regional sewer system has yielded improvement in recent years. Since Baltimore came under regulatory oversight more than 20 years ago, sewage overflows have improved substantially. The city projects that by 2030 it will have spent $2 billion on its sewage system and reduced overflows by 94%.

But there is a lot of work to go. The Department of Public Works said in an August report that fully resolving its sewage overflow problem could take another $674 million and last until 2046.

Any extension would require approval by the U.S. Environmental Protection Agency and Maryland Department of the Environment.

In part, public works officials have pushed for leeway in the consent decree because they insist the models overstate how much work is left to do, potentially saddling ratepayers with unnecessary costs.

The department argues in its report that remediating that final 6% of overflows will cost ratepayers hundreds of millions of dollars for “relatively minimal” environmental benefit.

In a statement, the office of Mayor Brandon Scott said DPW is working to increase its revenue from its wastewater system and limit costs, but the city’s commitment to solving sewer overflows will not change.

“Cost-cutting measures would not be considered,” the mayor’s office wrote, “if they compromised compliance with the consent decree, the Clean Water Act, or the protection of public health and the environment.”