Long ago, around 600 years before the time covered by My Little Pony Friendship is Magic, the City-State of Baltimare was founded by a group of Earth ponies led by Rhonda "Lady" Baltimare. Rhonda Baltimare claimed descent from Chancellor Puddinghead, leader of the tribe of Earth ponies, who along with the tribal leaders of the Unicorns and Pegasi had founded Equestria (see Fictional chronology, List of ponies/Mentioned ponies, and Hearth's Warming Eve).
Rhonda Baltimare's band of Earth ponies had settled on the shore of the Horseshoe Bay and established a permanent settlement. Lady Baltimare subsequently visited Canterlot and successfully petitioned Princess Celestia to grant a royal charter establishing the autonomous City-State of Baltimare.
According to the charter, local government was to be jointly vested in the royally-appointed Governor of Baltimare and the elected Baltimare Council.
The local economy of the City-State was originally based upon agriculture, especially the growing of apples and the raising of cattle on dairy farms for milk.
Pretty soon, however, the construction of sailing ships and trade across the eastern Equestrian ocean with distant lands boosted the local Baltimare economy.
About 200 years before the present day and age, the local Industrial Revolution caused the local Baltimare economy to be involved in the construction of steamships, railroads, and trains.
Local pony families in Baltimare include local branches of the Apple family and the Pie family as well as relatives of Twilight Sparkle on her mother's side and relatives of Rarity, Rainbow Dash, and Fluttershy on their fathers' side.
Descendants of Lady Baltimare have very often been appointed by royal authority as Governor of Baltimare, although more recently Princess Cadance served as local Governor since Celestia wanted to give her poltical experience. The current Governor of Baltimare is Prince Blueblood, although local ponies usually regard him as an incompetent boob.
The democratically-elected Baltimare Council possesses most governmental authority in the City-State, although the royally-appointed Governor presides over meetings of the Council and technically has veto power over proposed local laws.