Category Archives: Property Taxes

Explaining Question A and Why I Voted No. (Definitely Vote No on Question B.)

How Property Taxes Work in Montgomery

Under current law, Montgomery County may only collect the same total amount in property taxes across the county as the previous year – also known as the constant yield tax rate –adjusted for inflation. So if the County collected $100,000,000 in property taxes last year and inflation is 3%, it may collect $103,000,000 this year. The only exception is if the County Council votes unanimously to raise property taxes.

This legal limit forces the county to adjust the tax rate based on changes in total value of assessed property in the tax. If the county’s tax base increases by 10% due to increases in real property values, the County treasury does not because the County must adjust the property tax rate downward, so it collects no more than last year adjusted for inflation. The county can also adjust rates upward if needed to collect the permitted amount.

Question A changes that system. It would cap property tax rates instead of receipts. Montgomery would see great increases in the amount of property tax collected when property tax values grow without changing the rate because they would no longer need to adjust the rate downward so they don’t collect more money.

Councilmembers will claim that they did not increase property taxes because they left the rate unchanged, but the County will collect a lot more. By keeping the focus on the rate rather than amount collected, the county can even nominally reduce the rate and claim that they reduced property taxes even as they go up in real terms and the county collects more than previously.

How Question A Raises Property Taxes

Councilmember Andrew Friedson, the sponsor of the amendment, argues that residents will benefit when housing values go down. However, the Council can vote to increase the rate to collect as much as the previous year as under the current system, just like the 8.7% tax increase that they adopted in 2017. There seems little doubt that they would do this if needed to avoid substantial cuts in spending.

In times when property values rise quickly, this can add up fast, Property taxes increases are limited to 10% a year but this is far above inflation and add up very quickly. If you pay $5000 in property taxes now, you would pay $6655 if you had the maximum increase each year for three years. The key caveat, of course, is that it all depends on how your property values change. But the amendment has no limit on the rate of growth in property taxes.

Confusing Wording

I’m not thrilled that the wording of this charter amendment focuses on limiting rates, and thus gives a rather deceptive impression that it limits, rather than increases, property taxes. (Some proponents argue that it doesn’t but since the unquestionable purpose is to allow the county to reap more revenue, it seems a fair characterization.)

Timing and Impact During an Economic Crisis

Normally, in an economic crisis, it’s not unusual to see housing values fall. But many in Montgomery have paradoxically seen their housing values rise because the crisis is due to COVID and more people are seeking larger spaces with some attached outdoor space. No one knows the future, but this would result in higher property taxes with the next set of assessments.

Many property owners in the county have seen salaries and benefits cut sharply due to the shutdown and economic crisis. Federal government workers haven’t seen pay cuts, but they haven’t had a decent pay raise in years. That’s true of many people.

As a result, a lot of people are ill-positioned to pay a property tax increase even though they may well receive one as a result of this charter amendment the next time that their properties are assessed.

Higher Taxes for Residents, Lower Taxes for Favored Developers

For me, the final straw is that the county council overrode the county executive’s veto of a huge dollop of corporate welfare for developers in the form of 15-year tax breaks (!) by 7-2 the other day. While I realize that opponents as well as the executive support Question A, and I am grateful for their votes and outspokenness on the issue, the Council seems far too inclined to continue down this path after the election. If they can afford giving tax cuts to developers to build high-priced apartments, I don’t see why they need to raise mine.

We Need Property Tax Reform, This Isn’t It

There are unquestionably problems with the county tax system. The three-year assessment cycle creates some odd quirks. Additionally, the current limit doesn’t take into account a growing population as well as other needs. In short, the budget corset is too tight. The unanimity requirement further limits the authority of our representatives too much, even if the voters passed it. But this isn’t the right way to do it, or the time, so I voted no.

But Others See It Differently

Adam outlined previously why some view this property tax increase as a good idea. Even leaving aside one’s desire to fund progressive policies, as I mentioned in the previous section, the current system does not provide sufficient funding with increases over time because it doesn’t into account factors like population growth and other needs. So I can see how other people might see this differently.

I mention this because, like much in politics, I see this as an issue on which reasonable people can disagree. Much of the rhetoric surrounding the ballot questions, even the form of the county council, has been getting more and more vehement on social media. Since we’re in a moment that is already overheated on steroids (now there’s a mixed metaphor!), it seems worth a mention that we’ll manage whatever the outcome of this ballot question.

Question B

Vote No. This is Robin Ficker’s latest very bad idea that would make current problems with the property tax system worse.

Share

Why Progressives Should Support the Friedson Amendment

By Adam Pagnucco.

MoCo voters will see two charter amendments on property taxes on their ballots this fall. One of them was submitted by long-time anti-tax activist Robin Ficker, who delivered his petition signatures in February. The other was authored by Council Member Andrew Friedson and placed on the ballot by the county council. The Washington Post editorial board dislikes both, but for progressives, the choice is clear: the Friedson amendment is superior in providing adequate funding for government.

The first reason why progressives should support the Friedson amendment over the Ficker amendment is due to the nature of how they allow revenue increases. The Ficker amendment uses the methodology of the current charter limit on property taxes, which dates back to 1990. Currently, MoCo’s charter allows the volume of real property tax collections to rise at the rate of inflation with a few relatively minor exceptions. Friedson’s charter amendment would cap the weighted average tax rate on real property and allow collections to rise with assessments. So to compare their revenue generation over time, we need to compare the growth in price inflation (which is relied upon by the Ficker amendment) to the growth in assessments (which is relied upon by the Friedson amendment).

The chart below compares the growth in the county’s assessed value of real property to the growth in the Washington-Baltimore Consumer Price Index (CPI) from 2003 through 2017.

This period contained three distinct economic phases. The 2003-2010 period saw robust economic growth throughout the Washington region, causing assessment growth (115%) to far outpace price inflation (26%). Then came the Great Recession years of 2010 to 2013, during which assessments fell (5% over three years) while prices rose modestly (7%). In the slow recovery through 2017, assessments went up by 12% while prices rose by 4%. For the entire period, assessments increased by 129% while price inflation was 41%, suggesting that Friedson’s approach would have yielded MUCH more property tax revenue growth than Ficker’s. (The exact difference would have depended on other factors such as the application of tax credits, especially the homestead tax credit.)

That said, in four of these sixteen years – the period of the Great Recession – Ficker’s approach would have raised more than Friedson’s because real estate values tend to decline during prolonged economic downturns. That leads us to the second major difference between the Friedson and Ficker amendments. Friedson’s amendment allows a unanimous council vote to break the charter limit on property taxes, which continues current practice. Ficker’s amendment eliminates the ability of the council to break the limit, thereby instituting a hard cap on property tax collections. (There is an important exception to this in state law which will be the subject of a future post.) If property tax collections collapse during a recession, Friedson would allow the council to intervene in case of an emergency while Ficker would not. That’s another big reason why progressives should support the Friedson amendment.

Some progressives were disappointed because they wanted the council to adopt County Executive Marc Elrich’s proposed charter amendment, which would have made property tax hikes easier. Good luck getting MoCo voters whose wallets are getting slammed by COVID-19 to support anything opening the door to tax hikes. The Friedson and Ficker amendments both limit property tax increases, but since the Friedson amendment raises more money over time, it deserves the support of the left.

Update: An earlier version of this post was based on changes in the national CPI. This version is based on the Washington-Baltimore CPI. The two measures change at similar rates so the conclusions here are unaffected.

Share

Ficker vs Friedson vs Elrich on Property Taxes

By Adam Pagnucco.

In an open meeting tomorrow, the county council will consider placing two charter amendments limiting property taxes on the ballot along with an amendment by Robin Ficker, which has already qualified. Let’s compare the three proposals – Ficker’s, one by Council Member Andrew Friedson and his colleagues on the council’s Government Operations Committee and one by County Executive Marc Elrich – to current law.

What would be limited?

Current charter limit: An annual growth limit is applied to the total dollar volume of real property tax collections.

Ficker: Same as current charter limit.

Friedson: A limit would be applied to the weighted average tax rate on real property.

Elrich: A limit would be applied to the real property tax rate but there is a lack of clarity on which rate. It could apply to the general property tax rate, which all county residents pay. Or it could apply to the weighted average tax rate, which includes both the general tax and many other smaller property taxes that are specific to function and/or geography. This issue needs to be decided one way or the other if this proposal appears on the ballot.

How would the limit be applied?

Current charter limit: The annual growth in the total dollar volume of real property tax collections is limited to the growth rate in the Washington-Baltimore consumer price index in the previous year. A few categories of property are exempted from this limit (notably new construction during the fiscal year).

Ficker: Same as current charter limit.

Friedson: The weighted tax rate on real property would not be allowed to increase without a unanimous vote of current council members.

Elrich: The property tax rate (whichever option is picked) would not be allowed to increase without a vote of two-thirds (six) of the council members.

Is there a waiver?

Current charter limit: Yes. The limit may be exceeded if all current council members vote to do so.

Ficker: No. The limit on property taxes is absolute (subject to state law).

Friedson: Yes. The limit may be exceeded if all current council members vote to do so (as in current law).

Elrich: Yes. The limit may be exceeded if two-thirds (six) of the council members vote to do so.

Are there disproportionate impacts on different taxpayers?

Current charter limit: No.

Ficker: No.

Friedson: No.

Elrich: Yes. The taxable value of owner-occupied residential property would be allowed to increase at a maximum rate of 3% per year. Other types of property would not be subject to this limit.

Who wins and loses under each option?

That depends on who you are and what your interest in taxes is.

People who depend on county services (other than schools) lose the most under the Ficker amendment, which ties the growth in property tax receipts to the rate of inflation. Inflation is low and might even be negative this year. If the Ficker amendment passes, it will raise the possibility that property tax collections will screech to a halt with limited ways to deal with that.

Groups favoring tax increases gain the most from the Elrich amendment because it lowers the threshold of breaking the tax limit from all current council members to two-thirds (six) of the council members.

Homeowners might benefit from the Elrich amendment, which limits annual tax bill growth on their principal residences to 3%. However, council staff pointed out that the average annual growth in residential assessments exceeded 3% only twice in the nine-year period of FY11-19.

Owners of commercial property and renters of both residential and commercial property will be disadvantaged under the Elrich amendment because they won’t get the 3% growth limit that homeowners will. Over time, the tax burden will shift away from homeowners and onto commercial entities and renters – including residential renters. This is exacerbated by the fact that the Elrich amendment makes property tax increases easier as stated above.

For stakeholders in MCPS’s operating budget, the entire discussion is irrelevant. That’s because a change to state law in 2012 allowed counties to ignore charter limits for the purpose of dedicating funding to approved budgets of local school boards. Since state law trumps county charters, no charter amendment can stop the council from passing a dedicated tax for MCPS. The Elrich administration included such a dedicated tax in its recommended FY21 budget but the council opposed it.

Ficker’s amendment looks to be headed to the ballot because it received enough petition signatures to qualify. We shall see what, if anything, the council decides to put on the ballot along with it.

Share

Council Rejects Hidden Tax Hike

By Adam Pagnucco.

Yesterday afternoon, the county council rejected the hidden tax hike that was buried in the county executive’s recommended budget.

The primary issue that bothered the council was the lack of transparency surrounding the tax hike. It was not mentioned in the executive’s budget but it would have raised $5.1 million next year and more money cumulatively in later years. Tax increase proposals attract major attention at budget time with much discussion and public testimony. But this one, which was not published but still included in revenue numbers, flew under the radar until near the end of the FY21 budget process.

Multiple council members complained about process issues. Council Member Hans Riemer noted the failure of the budget to mention the tax hike and said, “This is about our values and our approach to government… The reason why I am so concerned about this proposal is because I really think it flies in the face of our approach to good government and to transparency.” Council Member Andrew Friedson said, “Public policy means public input. And we cannot have transparent and accountable policy making unless there are transparent and accountable decisions for how we make those decisions, how we calculate the policies that we make.”

Council Member Evan Glass put on his CNN journalist hat to investigate what happened. Glass asked council staff how the issue surfaced. Staff replied, “I did not read anything published that this was included,” and said the issue was uncovered through discussions with executive staff. Glass then asked budget director Rich Madaleno why the administration proceeded with it. Madaleno defended the executive’s proposal as an appropriate calculation of the charter limit and said the executive would have discussed this upon release of the budget but that event was canceled because of COVID-19 concerns. Madaleno also said this:

Council Member Riemer is correct that in the final iteration of the budget book the piece that explained this was taken out for revision and did not make it back in before it went to the printer. For that I am profoundly sorry but other than that there would have been deep conversation and of course many of you have heard the county executive say over and over that he thinks the charter interpretation is wrong and has been talking about that for months.

Glass acknowledged that he had heard Elrich express various opinions at forums. (Remember those back in the good old days?) But he replied, “To say something in a forum but then not convey it to the council or not to, as you noted, not to even include the cover page in the budget for whatever reason is a problem.”

Even Council Member Gabe “Mr. Rogers” Albornoz had nothing nice to say about the process for considering the tax hike. When Mr. Rogers is unhappy, there is a problem.

Riemer proceeded to claim that the executive’s proposal was actually illegal because it allegedly violated the charter. The charter’s exact language on the property tax charter limit says:

Unless approved by an affirmative vote of all current Councilmembers, the Council shall not levy an ad valorem tax on real property to finance the budgets that will produce total revenue that exceeds the total revenue produced by the tax on real property in the preceding fiscal year plus a percentage of the previous year’s real property tax revenues that equals any increase in the Consumer Price Index as computed under this section. This limit does not apply to revenue from: (1) newly constructed property, (2) newly rezoned property, (3) property that, because of a change in state law, is assessed differently than it was assessed in the previous tax year, (4) property that has undergone a change in use, and (5) any development district tax used to fund capital improvement projects.

So the charter applies the rate of inflation to adjust “the total revenue produced by the tax on real property in the preceding fiscal year” to calculate the charter limit. The methodology used by the finance department for the last 30 years uses actual taxes paid on real property, including partial-year taxes on newly constructed property which was in use for only part of the year, to calculate current year total revenues. The executive’s new methodology would use taxes that new construction would have paid if billed on an annual basis to calculate current year revenue even though full-year taxes on those properties were not actually collected.

Riemer alleged that the use of hypothetical revenues rather than actual revenues to calculate the charter limit violates the plain language of the charter and asked a council attorney for his opinion. After explaining the technical issues and the possible steps for analysis by the courts, the council attorney replied, “My opinion is that the courts if asked – the court of appeals if asked – would ultimately rule for all the reasons I explained that this provision means actual revenue received during the relevant year for newly constructed property and not the potential revenue you could have received had everything been online for a full year.”

Riemer was bothered by both the transparency issue and the legal risks of the executive’s proposal and he linked the two.

The fundamental issue here is, given how risky it is, the fact that the county council and even more importantly, the public was not informed of this proposal is highly problematic. If you look at the county executive’s budget, you will not find an explanation of this decision. It’s not there. The county executive did not present a budget explaining this method of calculation. The fact is it is a $5 million increase in property taxes from all payers of property taxes in the county. But there is no explanation of that in the county’s budget. It is unthinkable to me that we would have a tax increase that has not actually been transparently presented to the community and, what more, is actually illegal. It is a violation of the charter. The combination of those two aspects of this proposal are just profoundly troubling.

Let’s remember that the principal charter limit activist in the county – Robin Ficker – is an attorney who has sued the county before and prevailed multiple times. A legal challenge to a change in charter limit administration is far from a hypothetical thing.

It’s not clear that a majority of the council agrees with Riemer on opposing the merits of the executive’s proposal. But there was obvious discomfort in dealing with this issue both late and without public input. That goes on top of other tensions with the executive branch on the budget and issues ranging beyond that. Add in stir craziness during the lockdown and these are strange times in Rockville.

After 40 minutes of discussion, the council killed the executive’s hidden tax hike on a 9-0 vote.

Share

Elrich’s Hidden Tax Hike

By Adam Pagnucco.

One month ago, I roasted the Montgomery County Republican Party for inaccurately claiming that the county was trying to “sneak in” a tax hike. At that time, the issue was a state notice requirement and not actual intent – at least not by the county council – to raise taxes. But it turns out that there actually was a hidden tax hike embedded in the budget on top of the executive’s open recommendation to raise property taxes. No one reading the budget would have found it. But county council staff did find it and now the matter is exposed.

Folks, I have been reading county budgets for almost 15 years and I don’t remember seeing anything like this.

The issue at hand is how the county calculates the charter limit on property taxes. In concept, it’s a simple procedure. The county’s finance department uses two data points: the estimated amount of real property tax revenues collected in the current fiscal year and the percentage growth of the consumer price index from the previous calendar year. Tack on inflation to the current fiscal year’s property tax revenue and that’s the charter limit for the next fiscal year. (The county can collect additional property tax revenues on a few other categories of property outside the charter limit.)

Sounds easy, yeah? But what about taxes collected from properties newly built during the current fiscal year? For the last 30 years, the county’s finance department has included the actual taxes paid on those properties in its calculation of current year revenues. So if a property was built halfway through the fiscal year, half of its annual tax bill is included in current year revenues. If a property was built nine months into the fiscal year, then one-quarter of its annual tax bill is counted. And so on. Add in these pro-rated tax bills to full-year tax bills for existing properties and that’s the current year property tax collections. Tack on inflation and that’s the charter limit.

The Elrich administration used a new methodology to calculate the charter limit in its FY21 recommended budget. Instead of using the actual tax bills paid by newly built properties in the current fiscal year, it included full-year tax bills in its estimate of current revenues even though those bills were not actually paid for the full year. That allowed the administration to calculate slightly higher current year property tax revenues. Tack on inflation and the charter limit is slightly higher. And so there is more room to raise the property tax rate than there would be otherwise.

In other words, it’s a tax hike.

It’s not a very large tax hike. Council staff estimates that the new methodology allows the county to raise an extra $5.1 million in the FY21 budget, or 0.24 cents per $100 of assessed value. (By contrast, the executive’s openly recommended tax hike was 3.18 cents.) But if this new methodology is adopted, it will compound over time and eventually raise tens of millions of dollars more than under the old methodology.

Basing tax estimates on taxes not actually received is a questionable practice at best, but let’s set aside the merits of the policy for now. The disturbing thing about this is that it was not disclosed to the public through the budget. Search the county’s 831 page budget for “charter limit” and you won’t find any discussion of this methodology change. Instead, the matter first surfaced in a council staff memo released late last week. The council held a closed session to discuss the legal ramifications of the change on Wednesday. The council will now decide the matter today.

Regardless of how one feels about taxes, let’s agree that decisions concerning them are important and warrant public scrutiny and participation. The issue was not publicly known when testimony was heard on the budget, so residents were denied the opportunity to weigh in. That is a direct result of the administration’s failure to disclose the issue in its published budget.

We deserve better.

Let’s see what the council makes of this.

Share

County Screw-Up Led to Tax Hike Proposal

By Adam Pagnucco.

Buried in the fine print of County Executive Marc Elrich’s recommended FY21 operating budget is a shocking revelation: the executive claims that a mistake made by county revenue estimators two years ago has caused tens of millions of dollars in losses for the county.  One reason why the Elrich administration is proposing a tax hike now is to recover that money.

To understand what happened, we have to understand how the county’s charter limit on property taxes functions.  Here is the exact text of the charter limit.

Unless approved by an affirmative vote of all current Councilmembers, the Council shall not levy an ad valorem tax on real property to finance the budgets that will produce total revenue that exceeds the total revenue produced by the tax on real property in the preceding fiscal year plus a percentage of the previous year’s real property tax revenues that equals any increase in the Consumer Price Index as computed under this section. This limit does not apply to revenue from: (1) newly constructed property, (2) newly rezoned property, (3) property that, because of a change in state law, is assessed differently than it was assessed in the previous tax year, (4) property that has undergone a change in use, and (5) any development district tax used to fund capital improvement projects.

In plain English, what this means is that the county’s real property tax receipts (with a few exceptions) may not rise at an annual rate exceeding inflation unless the entire council votes to exceed it.

Calculating the charter limit involves three basic steps.  First, one must estimate the value of the assessable base subject to the charter limit.  Second, one must calculate the value of the many property tax credits offered by the county.  Third, one must calculate the levels of real property tax rates that, when applied to the assessable base and taking account of the credits, produce an increase in receipts equal to the rate of inflation.

Hence, estimating the size of the assessable base is critical.  If it is underestimated, property tax rates will be set too high and the charter limit will be violated.  If it is overestimated, property tax rates will be set too low and the county will not collect as much revenue as it could at the charter limit.  These are extremely technical considerations but this affects tens of millions of dollars (at least) for the county budget.

In his recommended budget, the county executive makes this statement:

I am proposing this supplemental tax rate this year to partially offset an unexpected underperformance of the property tax for the last two years. In preparing the FY19 County budget, the taxable property base of the County was overvalued. As a result, the property tax rate needed to generate revenues at the Charter limit for the past two years was set too low. This resulted in lost revenues of $80 million, now permanently embedded in our revenue projections.

The amount of revenue lost by this mistake was $35 million in FY19 and $45 million in FY20.  Because of compounding, the lost revenue will rise each year unless it is recovered.

It’s important to note that Elrich was not yet the county executive when the FY19 charter limit was estimated.  That was done by the finance department in former County Executive Ike Leggett’s last year.

Must the losses be stanched?  The county usually allows property tax receipts to rise up to the charter limit each year, but there is nothing in county law requiring that.  For example, in FY13, Leggett recommended level-funding of property tax receipts, which actually kept them below the charter limit.  The amount of forgone revenue was estimated at $26 million that year, which would have risen in subsequent years.  However, this was not the result of an estimation mistake.  The county had doubled the energy tax two years before and had not sunset it as was promised.  Forgoing a bit of property taxes was something of a consolation.

This issue must be frustrating for all concerned.  County leaders have a choice.  They can live with the mistake and move on.  Or they can tell voters, “We screwed up and now we need to raise your taxes.”

If option number two is selected, how do you think folks will respond to that?

Dear reader, if you are someone who is considering running for office someday, remember this story.  Something terrible could happen to you when you run.

You could win!

Share

Elrich Then and Elrich Now

By Adam Pagnucco.

The big news coming out of County Executive Marc Elrich’s recommended Fiscal Year 2021 budget is that he is proposing a tax hike.  As you might imagine, I will have something to say about the specifics of that tax proposal in future days.  But first, it’s worth remembering what Elrich said about taxes when he was running for executive two years ago.  Over and over, he made statements ranging from saying that he did not want to raise taxes all the way to flatly refusing to raise them.  Consider the following:

1.  In July 2018, Elrich told WAMU that he “doesn’t want to raise taxes, but would like to see developers pay a greater share of infrastructure costs in the county.”

2.  In a candidate forum in October 2018, Elrich said, “I’m not raising taxes and I’m not raising fees.”  Check out Elrich’s remarks at 1:25 of this video.

3.  In May 2018, Bethesda Beat reporter Lou Peck asked Elrich this question:

As county executive, could you foresee yourself proposing a property tax increase above the charter limit of the rate of inflation, requiring another unanimous council vote?

Elrich replied:

I would seriously hope not. I feel that before you go talk about a tax increase, I would have to demonstrate to people that I’ve done everything I can do to lean out the county, to make sure we’re as efficient as possible, that I’ve taken people and been able to repurpose them, rather than just going to taxes first. I think the days of going to taxes first are over.

4.  In November 2018, Elrich said the following to Source of the Spring:

“A lot of people ask me about taxes,” Elrich said. “One of the issues in the campaign, people said, ‘Oh, Marc is going to bring in all these massive numbers of social programs and raise taxes on everybody.’ And actually that’s not what we’re doing. We know that the budget is going to be constrained.

“We’re pretty committed to staying inside the box and trying to run the government more efficiently,” he continued. “I’ve been telling people I’ve got $5.5 billion or more in revenue, and if I’m going to look for doing new things and being creative, I’m going to look at the revenue I have [and] figure out how to use it better. I think we can do a better job.”

5.  Immediately after he was elected, WAMU asked Elrich about taxes.

Despite being Maryland’s largest county with more than a million people, Montgomery County tax revenues aren’t growing fast enough to keep up with rising costs, Elrich said.

But, he said, a tax increase is out of the question.

“If you don’t handle the money you have better, you’re gonna have a hard time doing what you’re doing today, let alone doing things that you need to [in the future],” Elrich said. “But I think it’s actually a good thing to have this decision that there’s not going to be additional taxes because it means you actually have to think about what you’re doing.”

As a candidate, Elrich proposed an alternative to tax hikes: restructuring the government to increase efficiency and save money.  In a November 2018 op-ed in the Washington Post, Elrich wrote:

Far from saddling taxpayers with higher bills, I will streamline county government. Unions and their members, our county’s workforce, know and trust me. That is why we announced our plan to restructure county government together. Our county is facing difficult financial times; without thoughtful changes, employees will face across-the-board cuts.

Elrich elaborated on his restructuring plans in his 2018 questionnaire response to the Greater Silver Spring Chamber of Commerce.

I have explained how I would begin to rethink government in my First 90 Days Financial To-Do List, which you can find on my website. In this list, I lay out how I would initiate a long-term financial plan, increase the net profit contribution from the Department of Liquor Control, begin a structural review of county departments in partnership with the county workforce, implement a labor-management partnership called gainsharing (in which both parties agree on targets for improving performance and reducing cost and everyone receives a share of the savings generated), leverage a business process improvement system called Lean, assess the appropriateness of county reserve levels, improve data practices, review non-competitive county contracts, establish an innovation fund, increase government accountability, and develop budgets that prioritize spending and ensure that the county meets financial commitments in a sustainable way.

After Elrich’s election, the Sentinel interviewed him and reported, “Elrich said he plans to restructure the County government to make it run more efficiently, saying that doing so will help pay for the new programs he proposes without needing to raise taxes.”

So according to candidate Elrich, there would be no need for tax hikes because he would work with the unions to restructure government and save money.  What is his actual governing record through his first two budgets?

1.  Elrich’s recommended FY20 operating budget contained an increase of 82 full-time equivalent (FTE) positions in county government.  This does not include position increases in other agencies like MCPS, the college or park and planning.  The personnel cost increase recommended for county government was $37 million.  For the three county government unions, Elrich negotiated contracts containing raises of up to 9.4% for some employees.

2.  Elrich’s recommended FY21 operating budget contains an increase of 189 FTEs in county government with a personnel cost increase of $21 million.  Again, this omits increases in MCPS, the college and park and planning.  Elrich’s negotiated contracts with the three county government unions contain raises of up to 8% for some employees plus lump sum bonuses of $1,000 and longevity increases for some employee categories.

3.  The county council trimmed Elrich’s contract with MCGEO last year but his contracts and increases for managers and non-union employees this year will cost a combined $27.4 million in FY21 and $37.7 million each year thereafter.

And so, if there has been any restructuring at all, it has not saved any money or created any obvious new efficiencies.  Instead of streamlining government – as he said he would do – Elrich just wants a tax hike.

Would anyone like to rerun the 2018 county executive election right about now?

Share

Is This the Worst Communications Debacle in County History?

By Adam Pagnucco.

As MoCo residents are just now starting to find out, County Executive Marc Elrich has recommended a property tax hike as part of his Fiscal Year 2021 budget.  And how did they find this out?  The first mention of it came from a county council statement released at 1:05 PM today opposing the tax hike.  As of this writing, the public knows little about the budget other than the fact that it contains a tax increase.

With the coronavirus spreading and the local economy on its knees, how do you think folks are going to feel about that?

Let’s set aside for the moment any analysis of the merits of the tax hike.  (That will come.)  Instead, let’s consider how a competent administration would try to roll this out.  In the past, administrations held press events with the council on the mornings of their recommended budget releases.  Right after those events, press releases went out containing loooooooong lists of all the goodies in the budgets.  More money for schools?  Check.  More social workers?  Check.  Increased numbers of police officers?  Check.  Big Macs for every girl and boy (or quinoa for the healthy eaters)?  Check.  Doug Duncan, Ike Leggett – it didn’t matter who it was, they all put on a Santa cap and handed out cookies from the chimney, at least when there wasn’t a recession.

But this budget contains a tax hike.  No problem, plenty of budgets in the past contained tax hikes.  You sell those tax hikes based on what they buy and other factors making them necessary.  Leggett, for example, sold his FY11 doubling of the energy tax hike as being the only way that he could preserve the bond rating.  In FY17, the county council sold its 8.7% property tax increase as an “Education First” budget.  It didn’t matter so much whether they were right.  The point is that they had an argument to make.

And now to today.  The administration was always going to face hurdles in selling a tax hike.  After all, the council just two weeks ago said that they didn’t want more taxing authority from the state because they weren’t interested in raising taxes.  So what do you do?  First, you line up advocates who benefit from the tax hike and forge them into an army.  That shouldn’t be so hard since the teachers, the service employees, MCGEO, the non-profits, the enviros and lots of other stakeholders are getting a piece of the new money either directly or indirectly.  Invite them to your presser.  If the coronavirus prevents that, get them in writing.  Have them make videos.  Include supportive quotes from them in your own communications.  Have them all up team up on an online petition.  (MCGEO already has one that they promoted through a mailer.)  Have them send out supportive blast emails and social media posts the very morning on which the budget is released.  And so on.  The point here is that this isn’t just the executive’s budget.  It belongs to all of these other groups too.  This makes the council members understand that they would pay a price by voting no.

The budget isn’t drafted overnight; it takes weeks to prepare.  That means the executive branch had time to get ready.  They should have lined everything up and beat the council (and everyone else) to the punch.  Yeah, the critics are going to cry about it, but let them go last so YOU can define this budget first.  Instead, the administration did… apparently nothing.  There was no morning press event, even a livestreamed one, and there were no preemptive communications – at least none that I saw.  The very first communication released from the county came from eight council members who opposed the tax increase.  As of this writing, other than a brief statement from Elrich defending the tax hike, there is STILL no comprehensive communication from the county listing all the benefits of the budget.  Is anyone other than Elrich out there defending it?

What a disaster!

So who should be upset about this?  It shouldn’t be the tax opponents.  The administration’s incompetence allowed them to define the budget around the tax increase.  Robin Ficker has to be bellowing in joy right now.

The folks who should be really upset are the ones who might benefit from the tax hike.  A proper communications effort should have been designed to get the council to hold off on expressing opinions about the increase, thereby buying time for the advocates to lobby them and start shifting some votes around.  Instead, eight council members said no immediately in the most public way possible.  (Council Member Nancy Navarro, who has chaired the council’s tax-writing committee for ten years, followed up with a hell no.)  It would be very hard for the council to move off that now.  As for the advocates, instead of waging a common battle for a bigger pie, they might have to fight each other for scraps as the council figures out how to reduce the executive’s increase in county expenditures.

And so, because of an epic communications debacle, a tough sell has become damn near impossible.

Congrats to the administration.  Or something.

Share

Elrich Defends His Tax Hike

By Adam Pagnucco.

Forty-five minutes after eight members of the county council released a statement opposing the property tax hike contained in County Executive Marc Elrich’s recommended budget, the executive has released a statement defending it. We reprint it below.

Montgomery County Executive Marc Elrich’s Statement on Release of his Recommended Fiscal Year 2021 Operating Budget

As required by the County Charter, I submitted my annual budget to the County Council earlier today. My staff and I have been working on this budget for more than six months. During that time, we received budget requests from the community, the school system, our departments and Councilmembers that help to shape this budget proposal. The three-cent increase is a special tax that is specifically designed for education and would help to fund the budget request from Montgomery County Public Schools.

At the time that we were developing this budget, COVID-19 was not on the horizon and now, during these unique and difficult times, we have to factor in its impact. I stand by the need for us to increase our investment in education, but I understand the unique situation that we are currently in. We have all known from the beginning that funding the school system’s request could not be funded within anticipated revenues and, as we have been working at the State level to increase school funding through the Build Act and Kirwan, I believe that we should make the additional investment in schools that they need today, even if it required a special tax increase dedicated to the schools.

I combined this proposed three-cent special schools tax increase with a $108 increase in the County’s property tax credit so that a homeowner with a $500,000 home would see about a $42 annual tax increase—the three cents would raise the taxes by $150, but combined with the County property tax, the net increase is $42. A one million dollar home would have a net $192 per year increase. 

As in every budget cycle, I have informed the Council that I will work with it to find ways to deal with the budget.

Dealing with today’s emergency situation and having a long overdue community conversation about the future we want to build for our County will be a challenge in coming weeks.  The challenges we face in areas such as education, economic development and transportation will still be there long after this crisis is over and we can’t take our eyes off the future no matter how hard those decisions will be. I know that in today’s context it is hard to determine what the future looks like, but we will balance addressing our present situation with planning for the future of this County. And we will do it together.

To learn more about the recommended operating budget, go to https://www.montgomerycountymd.gov/operatingbudget

# # #

Share

Elrich Recommends Tax Hike, Council Says No

By Adam Pagnucco.

County Executive Marc Elrich has proposed a 3.18 cent property tax hike in his recommended Fiscal Year 2021 operating budget, which was released today. The budget does not state the exact size of the tax hike, but because state data indicates that the county collects almost $20 million per penny in real property taxes, the tax hike is probably in the vicinity of $60 million.

Soon after receiving Elrich’s budget, the entire county council except for Council Member Tom Hucker released a statement opposing the tax hike. Their statement is reprinted below.

Statement by Montgomery County Council President Katz and Councilmembers Albornoz, Friedson, Glass, Jawando, Navarro, Rice and Riemer on the County Executive’s Fiscal Year 2021 $5.9 Billion Operating Budget Recommendation

ROCKVILLE, Md., March 16, 2020—Montgomery County Council President Sidney Katz and Councilmembers Gabe Albornoz, Andrew Friedson, Evan Glass, Will Jawando, Nancy Navarro, Craig Rice and Hans Riemer, made the following statement on County Executive Marc Elrich’s proposed 3.18 cent property tax increase in the fiscal year 2021 Recommended Operating Budget:

“Our focus in the midst of an unprecedented health emergency must be on bringing together businesses and residents, nonprofits and government to address the immediate crisis we face. We also must provide as much certainty and support as we can for county residents who understandably fear what the economic realities of this global pandemic will have on their jobs, retirement savings, small businesses and families.

This is a time for cautious decision-making, not property tax increases. We look forward to working with the County Executive to address the initiatives in his budget recommendations.”

# # #

Share