Once again, the county council has expressed its displeasure at the administration of County Executive Marc Elrich. And once again, executive branch officials were invited to a Zoom thrashing that was less pleasant than most root canals. Chief Administrative Officer Rich Madaleno plays more defense now than beloved former Washington Capitals goalie Braden Holtby.
Right or wrong, this is turning into a regular thing.
One of the more troublesome revelations from the inspector general’s report was that managers at the Department of Permitting Services deliberately violated county policy in handing out undeserved COVID pay to employees. Madaleno’s first response in the Washington Post was to characterize it as an “unfortunate mistake.” He walked that back in discussion with the council, but then his deputy chief administrative officer and the current permitting services director both told the council that it was a mistake. It was not. The inspector general said that the managers who awarded the extra pay “decided to allow inspectors to claim front facing differential for their entire workday rather than ‘nickel and dime’ them by asking that they account for individual hours.” This was not a mistake. It was insubordination.
Council Member Andrew Friedson lays out remedies for the conduct found in the inspector general’s report.
Several council members called for an independent investigation, but if the administration continues to believe that this was a mistake rather than insubordination, whether accountability occurs is an open question. Other managers are watching. So are employees who may be thinking of calling the inspector general because of issues going on in their departments. If no one is held to account, why bother?
County spending is within the purview of the county council. If the council is dissatisfied with the executive branch’s management of it, the council must step in. The council may not be able to do much about money that has already been spent, but it can pass legislation governing it in the future. Such legislation should define emergency pay, specify who gets it and who does not, set its levels, specify the conditions under which it is paid, establish an approval process, establish a fixed duration with a possible extension process and mandate regular reporting. If county managers refuse to obey their chief administrative officer, let’s see if they will refuse to obey county law. More than that, let’s see if county leaders can reestablish respect for taxpayer funds rather than allowing them to be treated as “other people’s money.”
Complain all you want about this, council members. But in the end, if you think it’s a problem, you must fix it. Or own it.
Council calls for immediate Executive action to stop improper differential pay and an independent investigation across Montgomery County Government
ROCKVILLE, Md., Nov. 6, 2020—Today the Office of the Inspector General issued a Report of Investigation revealing that Department of Permitting Services inspectors improperly received COVID-19 differential pay. The Council will have an oversight meeting about this issue on Tuesday, Nov. 10 with Inspector General Megan Limarzi and Chief Administrative Officer Rich Madaleno. The Council made the following statement about the report.
The Council is outraged by the differential pay issues identified in the Department of Permitting Services by the Office of the Inspector General. We are calling for an independent investigation across all Montgomery County Government departments and immediate action by County Executive Elrich to stop improper differential pay. Every dollar that was improperly paid needs to be recovered immediately, and those who committed these egregious acts must be held accountable.
The Council thanks those who reported their concerns to the Office of the Inspector General. We also appreciate the ongoing diligent work of Inspector General Limarzi and her team to provide objective oversight and protect the integrity of county government operations and programs. The Council will continue to take legislative and budget action to empower the Office of the Inspector General with the resources needed to protect our taxpayers.
MoCo Inspector General Megan Davey Limarzi, who previously uncovered an overtime scam in the fire department, has done it again. She has issued a new report detailing COVID emergency payments to employees of the Department of Permitting Services (DPS) who were not entitled to receive them under county policy. Moreover, she hints that this may be happening in other departments too. The whole thing is a massive scandal due to – at the very least – poor management in county government.
COVID emergency pay was set in three collective bargaining agreements with the police, the fire fighters and MCGEO in early April. Two categories of emergency pay were established:
Front facing onsite: work that cannot be performed by telework, involves physical interaction with the public, and cannot be performed with appropriate social distancing. This work would receive an additional $10 per hour.
Back office onsite: work that cannot be performed by telework and does not involve regular physical interaction with the public. This work would receive an additional $3 per hour.
Work performed through telework was ineligible for emergency pay.
In May, the Office of Inspector General (OIG) received complaints that DPS was allowing inspectors to receive front facing emergency pay ($10 per hour) for work performed at home. The complaints alleged that employees were “defrauding the system” and “taking advantage of undeserved hazard pay.”
That’s exactly what the OIG found was occurring in four out of five DPS divisions. The OIG wrote:
Our investigation uncovered that DPS management enacted a COVID differential pay policy that was contrary to the Administration’s policy, resulting in overpayment of front facing COVID differential pay to DPS inspectors from approximately March 29 to August 29, 2020. We also found that DPS inspection data on its website, the Data Montgomery website, and in internal records is incomplete and not entirely accurate.
The reason for the overpayments was that work performed remotely was allowed to be paid an extra $10 per hour as if it had been performed in physical interaction with the public. That violated county policy, which held that each hour of work had to be evaluated separately to determine whether it was eligible for an extra $10 per hour (front facing), $3 per hour (back office) or nothing (telework). The violation occurred because DPS management allowed it. The OIG wrote:
The former Acting DPS Director and the four Division Chiefs stated that collectively they decided to allow inspectors to claim front facing differential for their entire workday rather than ‘nickel and dime’ them by asking that they account for individual hours.
Notably, Fire Prevention and Code Enforcement inspectors correctly followed County policy and did not claim front facing differential for their entire workday. The Division Chief told us that he did not know that the former Acting Director interpreted the policy differently. He also did not know that the other divisions were allowing their inspectors to claim all their workhours as qualifying for front facing differential.
The OIG could not figure out how much of the emergency pay was ineligible under county policy. That’s because “we were not able to obtain accurate information on the number of inspections conducted by DPS inspectors, how inspections were conducted, and their duration.” The OIG did note that when DPS finally adjusted its policy to match county policy, front facing differential hours claimed fell by 27% and the number of DPS employees claiming 80 hours of front facing pay per pay period fell by 90%.
Finally, the OIG made this ominous statement. “Additionally, we found that other County departments may also be misapplying the COVID differential pay policy and possibly paying undeserving employees COVID differential pay.” The report does not present evidence to back this up but one senses that this may ultimately be only the beginning of a much larger investigation.
The OIG recommended that the executive branch review DPS and all other county departments to ensure that COVID pay was being administered in compliance with county policy. The OIG also recommended that the county not use CARES Act money or apply for FEMA reimbursements for COVID emergency pay until all payments had been verified as complying with county policy. Chief Administrative Officer Rich Madaleno replied that county departments would review the pay and follow the collective bargaining agreements and regulations which established the pay. He also said that the county would “make all appropriate adjustments” to any FEMA reimbursement requests or uses of CARES Act money.
So let’s review this astonishing report. Top management in one of the county’s most important departments was willing to disobey county policy and overcharge taxpayers rather than have work hours properly reported. Management also lacked complete or accurate records on the actual work performed by its employees. The county’s budget monitoring processes failed to catch this and it would probably still be going on if it weren’t for the OIG. The county’s ability to seek FEMA reimbursements for this pay could be endangered. (Let’s remember that the total amount of COVID emergency pay is projected to be $100 million over the course of a calendar year and currently has no fixed end date.) And the county’s response is not “heads are going to roll and we will get our money back,” but rather that they will follow regulations and collective bargaining agreements.
Who knows what will happen now, but here’s a prediction: the county council’s review of this report is going to be must-see TV. A preview appears below.
Moody’s Investors Service, one of the three major Wall Street bond rating agencies, has released an issuer comment characterizing the passage of Question A as a “credit positive” for Montgomery County. The comment is reprinted below.
Montgomery (County of) MD
Voters amend limits to property tax revenue collections, a credit positive
On November 3, voters in Montgomery County (Aaa stable) approved a charter amendment on property tax limitations which enables the county to raise property tax rates without revenue constraints, a credit positive.
The approved measure (Question A) replaces the existing limit and enables a unanimous vote by County Council to adopt a tax rate on real property that can exceed the rate from the previous year. The amendment is credit positive for county operations because property tax revenue is not subject to any restrictions based on inflation, and revenue growth can be captured through tax base expansion in addition to any approved rate increases. The county’s previous charter limit, a self-imposed tax cap that was enacted in 1990, limited property tax revenue growth to the rate of inflation (CPI index) and an amount based on new construction.
A second charter amendment on the ballot (Question B) was rejected, which aimed to remove the county’s ability to increase revenue above inflation. The failure of the measure is also positive because it enables the county to retain flexibility to increase this revenue source when needed to balance the budget, particularly as its income tax rate is already levied at the maximum state cap of 3.2%. Montgomery County is just one of five counties in Maryland with a charter amendment limiting property tax revenue increases, and the ability to adjust the tax rate accordingly is important, particularly as most of the county’s debt is secured by its limited ad valorem tax and full faith and credit pledge.
Income taxes are the county’s primary general fund revenue source (43.5% of total fiscal 2019 revenue), followed by property taxes (36.6%) and other local taxes (7.8%).
The county demonstrated willingness to override its prior charter limit in May 2016 when it approved a 9.9% increase in property tax revenue to support rising debt service and insurance costs, as well as an increase in the Maintenance of Effort (MOE) for K-12 schools and the community college, mandated by the State of Maryland (Aaa stable). Without the increase, the county faced a $178 million budget gap in fiscal 2017 (ended June 30, 2017).
There are a lot of reasons to pay attention to the races for president and Congress: social justice, climate change, the pandemic, the economy, the fate of planet Earth… you get the idea. Here’s one more reason. If you’re a MoCo taxpayer, the fiscal fate of your county government might depend on what happens in Washington. And right now, that fate is not looking great.
4. The county executive has entered into open-ended agreements with county employee unions to give them emergency pay which could total $100 million over the course of a year. (Employees at MCPS, the college and park and planning are not covered by these agreements.) MoCo’s emergency pay is far more generous than offered by any other jurisdiction in the region.
6. The county’s own emergency management director has expressed skepticism in public that FEMA will reimburse the county for a meaningful share of its COVID expenses.
7. The county has ended its hiring freeze and is filling positions across many different departments, including ones not directly related to the pandemic emergency.
But who needs fiscal discipline when a blue wave sweeps over Washington, giving the Democrats total control of the federal government? And then they can solve all of MoCo’s financial problems with the biggest state and local government aid package in U.S. history. Right?
As anyone not hiding on Mars has noticed, the federal elections have not gone as planned for Democrats. Three scenarios seem plausible, all with troubling consequences for MoCo.
President Donald Trump wins reelection. This is obviously awful for many reasons. One of them is that Vice-President Mike Pence can break ties in the U.S. Senate, giving GOP Senate Majority Leader Mitch McConnell extra latitude in his chamber.
Biden wins and Democrats get razor-thin control of the Senate. Even if Democrats win the Senate, McConnell could use the filibuster to block or reduce more federal aid. Would Democrats repeal the legislative filibuster with control of the Senate hanging on a vote or two?
MoCo’s bailout bet was always a bad one. At the very least, a bit of restraint was in order. But we are now one-third of the way into the current fiscal year and any budget adjustments made now will be more severe than if they were put into effect months ago. The mess is getting harder to clean up, not easier.
Is anyone going to bring order to the budget or are we headed for another tax hike?
As I have previously written, MoCo government is in the throes of a dire budget crisis that rivals the near-death experience it suffered during the Great Recession. The county is looking at an estimated revenue shortfall of $522 million from FY20 through FY22. In response, the county executive announced back in March that he had “already instituted a hiring and procurement freeze for all programs not engaged in direct response to COVID-19.” The idea was to clamp down on all but the most necessary types of spending to weather the county’s pandemic-fueled budget downturn.
Nothing has improved since then. However, it’s apparent that the hiring freeze is over.
Today, I received this notice from the county’s Office of Community Partnerships that they are hiring for three community outreach positions and a program manager position.
That’s not all. The county’s online hiring system shows 43 open positions for which the county is soliciting applications, of which 22 were posted this month and 9 were posted in the last week. These positions include an adoption counselor in the Office of Animal Services, an administrative specialist in the environmental protection director’s office, a manager in the retirement plan office, a policy analyst in the budget office, a warehouse position at the liquor monopoly and three positions at the county council. It’s hard to argue that any of these positions are “engaged in direct response to COVID-19.”
Governor Larry Hogan is hopping mad about Question 1, a statewide constitutional amendment on the ballot that would curtail some of his massive budget powers. That’s understandable – any politician (and most of the rest of us) would be upset about having any of our powers taken away. But Hogan’s critique of Question 1 has careened into the territory of outright lies and he deserves to be exposed.
Question 1 has its roots in a state budget crisis way back in 1915. In those days, the state government was considerably less professional than it is now. In Fiscal Year 1915, the state ran up a general fund deficit of $1.4 million. That was pretty bad considering that the state recorded revenues of just $12.1 million.
The crisis resulted in the incorporation of an executive budget system into the state’s constitution, which gives the governor enormous powers to set the operating budget. The General Assembly is prevented from adding to or rearranging the governor’s proposed operating budget under most circumstances. The legislature can cut certain items from the governor’s budget and also fence off money, designating it for use only under certain circumstances. The governor can release the money for those purposes or save it. Over the years, the General Assembly got around the restrictions by mandating future funding for some items through statute (especially education). But in an operating budget for an upcoming fiscal year, the governor – any governor – has awesome power which dwarfs the ability of the legislature to check it.
No other state gives such budgetary authority to its governor.
In the past, the governor and the General Assembly lived with each other by negotiating (to an extent) what would appear in the governor’s budget. But Hogan and the current General Assembly tend not to negotiate with each other all that nicely. Last spring, General Assembly Democrats got fed up and passed SB 1028, a constitutional amendment that would junk the executive budget system and balance budgetary power between the governor and the General Assembly. That is now Question 1 on this year’s ballot. Here is the exact language of Question 1.
Constitutional Amendment (Ch. 645 of the 2020 Legislative Session) State Budget Process
The proposed amendment authorizes the General Assembly, in enacting a balanced budget bill for fiscal year 2024 and each fiscal year thereafter, to increase, diminish, or add items, provided that the General Assembly may not exceed the total proposed budget as submitted by the Governor.
(Amending Article II Section 17 and Article III Sections 14 and 52 of the Maryland Constitution)
Additionally, the bill creating Question 1 grants the governor authority to veto any line items added by the General Assembly to executive departments. Furthermore, the bill makes clear that the changes will take effect in Fiscal Year 2024, after Hogan has left office.
Hogan despises this constitutional amendment and set up a website to oppose it. The website says, “Question 1 would upend the Maryland constitution to give career politicians in the legislature unchecked power over the budget, denying governors the chance to hold them accountable and to protect taxpayers.”
Hogan also made this video in which he claimed that Question 1 would lead to higher taxes.
Here’s the lie: Question 1 does not give the General Assembly “unchecked power over the budget.” The very language of the amendment makes clear that the legislature “may not exceed the total proposed budget as submitted by the Governor.” That means the governor still gets to set a budget ceiling that the legislature cannot exceed. Furthermore, the bill gives the governor line item veto authority over appropriations for state departments. What the bill actually does is establish a balance of power between the governor and the General Assembly that resembles the arrangement in most other states.
If Hogan wants to make an honest argument against Question 1, he can claim that the current system has worked well enough over the past century and has prevented a recurrence of the kind of budget crisis that it was designed to stop. But it’s a lie to say that it will result in higher taxes when the governor still gets to set a budget ceiling.
Readers, please take this into account when voting on Question 1.
Here are two things that almost everyone inside and outside of county government will agree on.
The needs of residents and businesses for financial assistance to deal with the COVID crisis are immense.
The $183 million in CARES Act grant money the county has been allocated by the federal government is helpful but is far from adequate to cover all the above needs.
With those two things said, representatives of the executive branch told the county council yesterday that they have not spent all the federal money appropriated by the council yet. And facing an end-of-year deadline to get the money out the door, there is now doubt as to whether the county will spend all of the federal money or forfeit some of it.
The council’s response to this was nothing short of nuclear.
The fissile material was prepared by council staff, whose memo to the council listed major appropriations of federal assistance and its actual expenditure by the executive branch. Six federal money appropriations mentioned in the memo and passed by the council months ago include:
Resolution 19-439: Emergency Assistance Relief Payment (EARP) Program Adopted by council: 4/30/20 Funds appropriated by council: $5,000,000 Funds spent by executive branch: $0
Resolution 19-499: 3R Program (Reopen, Relaunch, Reimagine) – Economic Development Adopted by council: 6/16/20 Funds appropriated by council: $500,000 Funds spent: $142,500 (Note: the county’s economic development corporation is responsible for spending this money.)
Resolution 19-506: Food Assistance/Security Adopted by council: 6/23/20 Funds appropriated by council: $10,300,000 Funds spent by executive branch: $5,052,209
Resolution 19-523: Reopen Montgomery Initiative Adopted by council: 7/7/20 Funds appropriated by council: $14,000,000 Funds spent by executive branch: $1,431,538
Resolution 19-535: Business Assistance for Medical and Dental Clinics Adopted by council: 7/21/20 Funds appropriated by council: $3,000,000 Funds spent by executive branch: $0
Resolution 19-557: Rental Assistance and Eviction/Homelessness Prevention Adopted by council: 7/28/20 Funds appropriated by council: $20,000,000 Funds spent by executive branch: $607,508
The above six appropriations total $52.8 million, of which the largest chunk ($20 million) is assistance to renters. Of that amount, the executive branch has spent $7,233,755. If the executive branch does not spend the remaining $45.6 million of federal money by December 31, it risks forfeiting the money.
That’s not all. Eight additional appropriations of federal money passed more recently by the council total $12.1 million, of which the executive branch has so far spent just $30,492. The two largest portions of this money are assistance to school age child care providers ($7.7 million) and assistance to distressed, affordable common ownership communities ($2 million). If this money is not spent by December 31, it might also be forfeited.
What’s the problem? First, the county just can’t spray checks around; it has to design the assistance programs, publicize them to potential recipients, process the applications and distribute the funds. Those things take staff and time. Second and more seriously, the county has had problems complying with FEMA paperwork requirements to get reimbursed. The process is nightmarish and time-consuming with FEMA changing the rules at least once (so far). County homeland security director Earl Stoddard told the council that the county had obtained just $20,000(!) in reimbursement from FEMA so far and that took more than two weeks and dozens of staff hours to process. Stoddard and Chief Administrative Officer Rich Madaleno made no defense of the feds and were clearly frustrated.
None of this mollified the council, who proceeded to nuke the executive branch from orbit. Here are just four quotes from MANY angry statements by council members.
Council Member Andrew Friedson This is a really frustrating conversation and clearly there are a lot more questions than answers. Some of that is understandable when in the midst of a crisis and there are a lot more questions. We don’t know what the future will hold, we don’t know what this virus will do, we don’t know what the impact on our community will be, we can’t control what the federal government… and how they will respond. But the idea that our residents and our businesses are struggling more than they ever have and are more vulnerable than they’ve ever been, when the needs are as challenging as they currently are, with an economic crisis and a public health emergency, that our issue right now is not whether or not we will run out of money too quickly, but whether or not the clock will run out before these programs will have been able to help the businesses, help the residents, help the vulnerable members of our community who desperately need it. And I can’t tell you how frustrating that is for me. I believe it’s frustrating similarly for colleagues and I can’t imagine how frustrating that is for the 1.1 million residents who are desperately trying to get through the most challenging time in our lifetimes.
Council Member Nancy Navarro For that list of special appropriations that we started, some of them, all the way back in April, the amount of money that has not been spent translates into residents not receiving that assistance. Residents who we interact with on a daily basis that I know I have said, “Oh no, we have this program, we have that program,” we all did, all these different places and interviews and social media, pushing all this out and I keep getting feedback that, “Well no, we have not really been able to access this and we have not received that,” thinking OK, we’ll keep working on it. So number one, I’m just super disappointed that so many of these amounts, these special appropriations, these funds that are specifically to address the needs of some of the most vulnerable people in the county, and when I see how little has been spent, I just don’t even know what to say…
There is no excuse for the fact that so much of this money has not been out there.
Council Member Gabe Albornoz I’m not confident at all that a month from now, when we have another update, that things will be significantly improved from where we are right now. And we’re setting everybody up for failure right now. And it’s not fair. It’s not fair to the county employees who are working diligently and around the clock to address these issues. We need stronger strategic leadership to be able to provide them with the support that they need to be able to get their jobs done. And I’m not seeing that and I’m not hearing that right now.
Council Member Will Jawando The thing that is totally unacceptable to me is that we can’t get money out of the door that we’ve appropriated for rent and for food and for emergency assistance. So we just have to do better on that.
Council Members also called out County Executive Marc Elrich directly.
Navarro I apologize to you, Dr. Stoddard, because this is not directed at you, because you’re not the executive. And I will say, the executive should be here talking to us about what is happening because this is really, really critical.
Council Member Tom Hucker [To Madaleno] Do you know where the county executive is? I would just expect the county executive to be coming in and making this presentation. This is not one, this is like five or six of the most important issues facing the county. It’s hard enough to tell our constituents, “We don’t have money to keep your business open, we don’t have money to keep you in your apartment,” but it’s heartbreaking to tell them, “We have the money, we appropriated it, and it’s in a bank account, we just haven’t given it to you yet. And we may not be able to.” And I would just think, if there would be one thing he’d be on top of, it’s this. I don’t want to be unfair to him, I’m happy to tell him that himself, but I’m a little shocked that he’s not here to make this presentation and that it also wasn’t made months ago.
Council Member Craig Rice This lies firmly in the county executive’s lap. And look, I have been incredibly complimentary to the county executive in terms of how I think we’ve responded to the pandemic, and so now, I can also equally be critical of the fact that we failed. We dropped the ball. And it does rest in his court. That’s just the reality…
We cannot work as a county if we have a disconnect between the county executive and the county council on something that is so important as keeping people in their homes, putting food on their tables and making sure that they can continue to be employed. I mean, these are basics. And if it’s not happening, then there’s a serious problem ahead…
[To Stoddard] I just want to say I appreciate you falling on your sword, but sir, it’s not your sword to fall on.
Friedson With all due respect, I heard earlier about the county executive and his frustration. We don’t need frustration from the county executive, we need leadership. And thus far on these issues, we have not seen it, and we need to.
On top of all that, Stoddard made this grim observation.
The FEMA reimbursement process is going to be incredibly difficult, not just for us, but also for FEMA. And as I think I have alluded to before, my experience with FEMA is generally that if they can find a reason not to reimburse you for something, they’re going to find it. And they’re going to utilize that as a rationale to not reimburse.
Back in July, I wrote a post about the county budget titled “Crash!” The post discussed the county’s revenue writedown of $522 million for Fiscal Years 20-22, with more shortfalls to come later. That post was soon followed by another titled “MoCo is Praying for a Federal Bailout,” which described the county’s cream-puff savings plan and desperate desire for more federal money (which so far has not arrived). Three months later, an eye-opening memo from county council staff contains more details of what is becoming one of the most serious budget crises in recent county history.
Consider the following.
CARES Act Funding
The county has received $183 million in federal aid under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Of that amount, $100.6 million has been used for special appropriations, $82.2 million has been allocated for county operations (some as placeholders) and $10 million has been allocated for municipal and outside agency reimbursements. If the placeholders (totaling $85.9 million) are included, the county will have overspent its CARES Act money by $9.4 million.
I have previously written that County Executive Marc Elrich agreed to distribute COVID pay of up to $10 per hour at a cost of $3.2 million per pay period indefinitely. According to the council staff, the initial cost estimate was low. The cost is now roughly $4 million per pay period. Through 9/26/20, $49.2 million has been paid out, far in excess of any savings the council achieved through canceling collectively bargained raises. The total cost of the extra pay is projected to total $72 million through the end of the calendar year and approximately $100 million if paid for an entire year.
The executive branch expects to get FEMA reimbursements for most of this pay but that is not assured. Council staff wrote:
Previously, the Executive Branch had indicated that the pay differential would likely be eligible for FEMA reimbursement – meaning that the County might only be required to cover 25% of the total cost. However, the County has yet to apply for or receive FEMA reimbursement for these costs. In preparation for this briefing, the Executive Branch provided the following update on the status of FEMA reimbursement for the pay differential: “These remain pending. There were changes in the FEMA reimbursement guidelines on September 15 and other reimbursement rulings that created significant questions about some personnel cost eligibility. We met with FEMA representatives on Monday, October 5 to clarify some of these questions and are proceeding with data collection for reimbursement. We have added a large number of staff to this effort to address the increasing data collection burden.” Based on the updated guidance from FEMA, even in the best-case scenario, it is likely that the County will need to cover much more than 25% of the total cost of the pay differential.
In other words, who knows whether the feds will come through, leaving the county stuck with tens of millions of dollars in liabilities.
Council staff also compared the extra pay negotiated by Elrich to other jurisdictions. Maximum payouts per pay period are $140 in D.C., $200 in Baltimore City, Baltimore County and Frederick, $250 in Anne Arundel and $350 in Prince George’s. Howard County paid one-time bonuses of $600 to $1,500 and Fairfax County does not have COVID pay at all. MoCo’s maximum payout is $800 per pay period, by far the highest in the region.
Spending from Reserve
This fact is not contained in the council staff memo but is nonetheless relevant to the county’s budget issues. Since the start of the calendar year, the council has appropriated amounts totaling $28 million from general fund reserves. This does not include another $28 million taken from reserves that were reimbursed with federal CARES Act money.
These appropriations might be understandable if the county had undertaken a deliberate strategy of dipping into its reserves to fight the recession. But no such strategy has been announced. The county has not officially diverged from its policy of setting aside 10% of its revenues into reserves, a policy originally devised ten years ago. What happens if we have a bad winter and the county must dip into reserves some more to pay snow removal costs, a common practice of the past?
During the Great Recession, County Executive Ike Leggett and the council of that era adopted very tough measures combining brutal spending cuts, an energy tax hike and a 10% reserve policy to save the county from financial disaster. Both the county employee unions and the business community were outraged at these tactics but they worked. When Leggett retired, he bequeathed a large reserve, a 96% pension funding ratio and a gold-plated AAA bond rating to his successor.
The county’s elected officials are united in opposing Question B, the tax cap charter amendment from Robin Ficker that they say would endanger the county’s AAA bond rating. They’re right to oppose Question B. But the actions described above, occurring in the context of a huge revenue writedown, might be at least as big a threat to the bond rating as anything Ficker’s proposal would do. The council must heed the warnings of its staff and get control of the budget.
One of the key claims made by some opponents of Question B (Robin Ficker’s latest charter amendment on taxes) is that it will harm schools by limiting growth in property tax revenues. For example, former County Council Member Bruce Adams wrote on Maryland Matters: “Ficker’s amendment would not let even a unanimous council act to preserve our quality schools and services.” Former County Executive Ike Leggett also told MCM in an interview that it could “certainly impact schools.”
Is that true?
First, let’s remember what Question B would actually do. Right now, the county charter limits annual growth in property tax receipts to the rate of inflation (with a few exceptions) unless the county council unanimously votes to go over the limit. The last time that happened was in 2016, when the council voted to increase property taxes by 8.7%. Question B would remove the ability of the council to exceed the limit, thereby imposing an absolute cap on property tax revenue growth at the rate of inflation. (Question A, a competing tax limit charter amendment authored by Council Member Andrew Friedson, would raise far more revenue than Question B over time.) Because of Question B’s limit on revenue growth, some opponents criticize it for potentially damaging many different kinds of county services, including schools.
But school funding is different from most other kinds of funding when it comes to charter limits. The reason for that lies in a fight between the counties and the state back in 2012. At that time, the counties were struggling with the budgetary effects of the Great Recession and several of them had cut local per pupil school funding below the floor established by the state. The state responded by passing SB 848, which made a number of changes to the state’s maintenance of effort law on school funding. One of them allowed counties to circumvent their charter limits to fund school budgets. (State law preempts county charters.) The exact language of this part of the bill, which is now contained in Md. Education Code Ann. § 5-104(d)(1), reads:
Notwithstanding any provision of a county charter that places a limit on that county’s property tax rate or revenues and subject to paragraph (2) of this subsection, a county governing body may set a property tax rate that is higher than the rate authorized under the county’s charter or collect more property tax revenues than the revenues authorized under the county’s charter for the sole purpose of funding the approved budget of the county board.
That means that a county can exceed its charter limit for the purpose of funding its school budget. A majority of county council votes are all that is required to raise property taxes for MCPS’s operating budget regardless of what MoCo voters put in the charter.
Five counties in Maryland have charter limits on property taxes: Anne Arundel, Montgomery, Prince George’s, Talbot and Wicomico. Since the maintenance of effort law was changed in 2012, three of them – Anne Arundel, Prince George’s and Talbot – took advantage of their new authority under state law to circumvent their charter limits and raise taxes for schools. (Talbot did it three times.) Montgomery County Executive Marc Elrich proposed doing the same in his FY21 recommended budget, but the council rejected his tax hike. (It’s not a coincidence that then-budget director and current Chief Administrative Officer Rich Madaleno was one of the architects of the school funding exemption when he was in the State Senate.)
There are two ways in which Question B would indirectly affect MCPS. First, property taxes are a major source of revenue to pay off debt service, which is required to finance bonds issued for school construction. If reduced growth in property taxes impacts debt service, MCPS’s capital budget could become tighter. Property taxes also generate cash that goes into some school capital spending (like technology modernization). Second, county departments outside MCPS contribute ancillary services that benefit the schools. Examples include health and human services (school health nurses, health room technicians, childhood wellness, linkages to learning), police (crossing guards and school resource officers), libraries (research and internet resources) and recreation (sports academies). These services are not inside MCPS’s local appropriation and would be impacted by Question B.
Over time, Question B if passed would probably result in two pots of property tax money – one exclusively for the MCPS operating budget requiring a majority of council votes to increase, and another for everything else with growth capped at inflation. Smart people like Madaleno and the county’s budget analysts can figure out how to move money around to avoid the worst effects of this. Question B would still be a challenge to the county’s finances, a distortion to its budget process and an impediment to funding police, fire service, parks, libraries, road maintenance and more. That’s reason enough to vote against it. But the bottom line is that Question B would do far less to hurt MCPS than the rest of county government.