Facing severe crises to public health, the county’s economy and its budget, County Executive Marc Elrich sent the letter below to the county council about the budget. The main takeaways are:
1. The executive has instituted freezes on hiring and procurement for functions not related to COVID-19 response. Overtime has also been restricted to COVID-19 response departments.
2. The finance department has begun estimating the crisis’s impact on county revenues.
3. The executive has begun talking to the county’s unions about “a range of compensation issues.” No further details were provided.
4. Office of Management and Budget Director Rich Madaleno has been designated as the liaison to the council on “issues related to fiscal response and recovery.” When Madaleno was a State Senator, he was a key player in working on the state’s budget problems during the Great Recession. Few people in Maryland understand the state budget better than Madaleno.
Last night, Council Member Nancy Navarro, who chairs the
council’s Government Operations Committee, wrote on my Facebook page that she
intends to introduce a council resolution on Tuesday calling for major spending
restraint in the county’s budget.
Specifically, the resolution calls for a same services budget for each
department and agency; holding Montgomery College and MCPS to maintenance of
effort (which is the state’s mandated minimum for local appropriations to those
agencies); and providing flexibility to assist residents and businesses as well
as to revisit spending after the coronavirus crisis ends. Navarro claims that Council Members Andrew
Friedson, Gabe Albornoz, Craig Rice and Hans Riemer are co-sponsoring her
It’s worth noting that Navarro is the only current
council member who was on the council during the budget crisis of 2010.
SUBJECT: Options for the Approval of and Appropriation for the FY 2021 Operating Budget Background
1. As required by Section 303 of the County Charter, the
County Executive sent to the County Council the FY 2021 Operating Budget on
March 16, 2020.
2. As required by Section 304 of the County Charter, the
Council must hold public hearings on the proposed operating budget.
3. A new coronavirus disease, called Covid-19, has
spread extremely quickly, making its way to over 100 countries, including the
4. On March 11, the World Health Organization officially
declared the Covid-19 viral disease a pandemic.
5. The number of new cases in the United States is
growing quickly and has spread to each of the 50 States, the District of
Columbia, Puerto Rico, Guam and the US Virgin Islands.
6. To slow the spread of this communicable disease,
Governor Hogan issued several emergency orders closing all non-essential
businesses, restricting public transit, closing schools, prohibiting public gatherings
of 10 persons or more, and postponing the Presidential Primary Election in
7. Although County government operations are continuing
during this pandemic, County employees are using situational teleworking
wherever possible to perform their duties. Due to the need to limit person to
person contact, many County residents have lost paychecks and many County
businesses have lost revenue.
8. The Executive was required by the Charter to develop
his recommended FY2021 Operating Budget before the most recent events clarified
the full extent of the pandemic.
9. Considering this unprecedented global pandemic and
national state of emergency, the Council must move expeditiously to provide
continuity of operations in approving an operating budget for FY2021 that
provides additional flexibility to help County residents and businesses
The County Council for Montgomery County, Maryland
approves the following resolution:
1. The Council directs staff to develop viable options
to streamline our budget process, so that for FY 2021, the Council may adopt an
aggregate operating budget for our departments and agencies that reflects a
continuation of the services provided at the same level as FY2020.
2. These viable options must include funding the
Operating Budgets of the County Board of Education and Montgomery College at
the required Maintenance of Effort level and should avoid funding any new programs
unrelated to relief for County residents and businesses from the Covid-19 viral
3. These viable options should include flexibility for possible
a. to assist County residents and businesses to recover
from the Covid-19 viral disease pandemic; and
b. to provide additional resources for other County
programs and employee wage and benefit enhancements, if available, after the
crisis is over.
Wage losses in these industries are certain to show up in
reduced income tax receipts. Because of
the nature of these kinds of jobs, the affected workers will likely never
recover that income. All of this is
going to profoundly hit the county budget.
And it is coming in the middle of the county’s budget process, which
normally concludes in mid-May.
As Fred Sanford used to say, this is the big one!
We haven’t seen anything quite like the coronavirus pandemic in a century, but we have seen economic crises before. The last one MoCo encountered happened a decade ago. The Great Recession had been underway since 2008 but did not truly destroy the county’s budget until the spring of 2010. As required by the county’s charter, then-County Executive Ike Leggett released his recommended FY11 budget on March 15. Just ten days later, Leggett sent a memo to the county council explaining that circumstances had changed since his budget was transmitted. Leggett wrote:
I am sending this memorandum to recommend that we jointly take additional actions to strengthen the County’s financial position in the current fiscal year and for FY11.
There is no perfect time to formulate a budget. Since I recommended my budget earlier this month, we have already received more bad news that points to additional fiscal deterioration. This includes a dramatic increase in the County’s unemployment rate from 5.2% to 6.2% and may signal further erosion of income tax revenue. In addition, Anne Arundel County’s bond rating was recently downgraded from a AA+ to a AA rating due to several factors including the deteriorating condition of Anne Arundel’s reserves. At the same time, the Department of Finance has been in discussions with the bond rating agencies relative to an upcoming bond sale and is concerned about feedback they have received from the rating agencies on our fiscal position.
At that time, Leggett recommended increasing the energy
tax and transferring money from non-tax supported funds into the general fund,
which is the county’s main vehicle for funding most governmental functions.
On April 5, Leggett followed with a second memo explaining that the county’s March income tax distribution had fallen significantly and that Moody’s had placed the county on a watch list for a potential bond rating downgrade. Things were getting worse. Leggett wrote that he “asked the OMB and Finance Directors to meet with the department heads of all large County Government departments to identify outstanding, remaining purchases and reimbursements for FY10 or early FY11.”
On April 22, Leggett sent a third memo to the council outlining a $168 million writedown in income tax revenue and a resulting total fiscal gap of “approximately $200 million.” Leggett forwarded a long list of recommended spending cuts along with a larger increase to the energy tax to close the gap. By this point, Leggett had essentially re-written his recommended budget, which was released just 5 weeks earlier.
The resulting budget passed by the council in May was the ugliest budget in county history. It broke collective bargaining agreements, furloughed county employees, doubled the energy tax and spent 4.5% less money than the prior year’s approved budget, the first actual dollar spending cut that anyone could remember. But it did not resort to mass layoffs and the county kept its AAA bond rating. For all its fiscal brutality, this budget saved the county from financial disaster. It was Leggett’s greatest achievement and it was shared by a county council that did its job.
Today’s policy makers should heed the lessons of
2010. (The only current elected
officials who were in county office that year were Council Member Nancy Navarro
and then-Council Member Marc Elrich, who is now the executive.) Chief among them are that teamwork, honesty,
speed, an absence of finger pointing and political courage were all crucial to
success. No one was trying to score
points. Everyone was trying to do their
best. Amazingly, it all happened in an
Here is what must happen now.
1. Elrich must
stop defending his recommended budget.
It no longer matters whether it was a good budget or not. It’s not going to happen now. The actual revenues generated from the
county’s emaciated economy will not support it.
And once the council starts making changes, he has to be constructively
involved, as Leggett was. Standing aside
and taking potshots from the sidelines would be a failure of leadership.
2. The finance
department must revise its revenue estimates, especially for income taxes. Leggett’s finance department was able to see
a deterioration in income tax receipts within three weeks of the release of his
recommended budget. Today’s finance
department must react with the same speed.
3. The office of management and budget must prepare a menu of savings options for the council. Everything – Elrich’s collective bargaining agreements (which now contain raises of up to 7-8%), hiring freezes, attrition and more – needs to be on the table. The council must know what number it needs to hit and they need to have choices on how to get there.
4. A discussion must take place about the county’s reserves. As of FY20, the county’s reserves (including its agencies) were estimated to be more than $500 million, or 10.5% of revenues. That’s a lot higher than the 6% reserve level possessed by the county in 2010 and is a direct result of Leggett’s long-term plan to bolster reserves and maintain the bond rating. It’s a great goal to have a 10% reserve, but that money is kept available for emergencies – and that’s exactly what we have now. County leaders should discuss whether we need to maintain reserves at that level or if they can be used to plug government spending holes and/or to fortify the economy. Comptroller Peter Franchot has already recommended that $500 million be allocated from the state’s rainy day fund to assist small businesses.
5. With public participation in the budget process limited by the coronavirus, the county must keep residents and businesses informed of the latest budgetary and economic developments. The county has a large media apparatus that it can tap for doing so.
Ike Leggett proved that he was up to the task of dealing
with a crisis. Now it’s time for today’s
elected officials to show that they are too.
Montgomery County Board of Education President Shebra Evans and Montgomery County Public Schools Superintendent Jack Smith released the following statement in response to County Executive Marc Elrich’s recommended Fiscal Year 2021 Operating Budget:
“We are in unique times facing an unprecedented challenge. We greatly appreciate County Executive Marc Elrich’s understanding of the need to face the challenges of today while planning for the future for our children and community. His recommend budget nearly equals the Board of Education’s requested budget and is more than $35 million over Maintenance of Effort. This investment is especially significant given the financial uncertainty our county and country face as we combat the COVID-19 pandemic. It is important to remember that investments in our students now will ensure a strong future economy for our county that will thrive in good times and can weather crises. The County Council has had enduring support for public education in our county. We look forward to working with the councilmembers in the coming weeks to discuss how our operating budget will continue to meet the unique needs of each of our 166,000-plus students.”
In February, The Board of Education voted unanimously to adopt a $2.805 billion budget for Fiscal Year (FY) 2021. This includes an increase of $124.1 million from FY 2020. The budget will allow Montgomery County Public Schools (MCPS) to manage significant enrollment growth and focus on strategic investments to address disparities in student achievement.
The budget includes funding to expand and implement strategic key bodies of work. This includes:
Additional English for Speakers of Other Languages teachers and counselors;
The expansion of prekindergarten seats;
Increasing exposure to language opportunities;
Creation of three new regional International Baccalaureate centers to provide more access to rigorous coursework;
Addition of mental health support staff to support student mental health and well-being;
Opening of upcounty career readiness hub at the new Seneca Valley High School;
Providing additional support for language and science, technology, engineering and mathematics programming;
Equity and innovation initiatives; and
An expansion and enhancement of teacher recruitment and retention efforts to ensure all classrooms have highly qualified teachers from a diversity of backgrounds.
Additional positions based on student enrollment adjustments;
Accelerators for Learning, Accountability and Results and Operational Excellence strategies;
Blueprint for Maryland’s Future legislation-directed grants; and
Additional identified savings.
The Montgomery County Council will hold public hearings on the county budget in April before passing a final budget on May 21, 2020. After the County Council’s action, the Board of Education will vote on June 11, 2020, for final adoption of the FY 2021 operating budget.
The following is the overview from the $5.9 billion budget proposed by Montgomery County Executive Marc Elrich. You can find the full budget proposal below:
This budget is focused on providing our youngest residents with a great start to life. To that end, I have proposed funding of $2.8 billion for the Montgomery County Public Schools (MCPS). I am also proposing $10.4 million for our Early Care and Education Initiative so that we can continue to expand and improve early education services.
This budget contains a
modest 0.8 percent increase in tax-supported spending for County Government,
which is directed primarily at increasing affordable housing and addressing
structural gaps in our fire service and transit budgets. This budget provides
our residents with a great amount of detail about my entire $5.9 billion
This budget also ensures
that we attain our fiscal policy goal of holding 10 percent of our adjusted
gross revenues in reserve in FY20, and we maintain that level in FY21. This is
of particular importance now as we face uncertain times.
As I finalize the details
of my recommended budget, I am keenly aware of the public health emergency
facing our community and the nation. I am proposing this budget with a focus on
both the next few days and weeks, as well as the next year and beyond. As we
respond to this global health emergency, the economic situation of our
residents and our nation are changing rapidly. While this budget reflects my
view of County Government on March 16, we all need to be flexible to respond to
changing conditions and needs. These conditions may result in me submitting
revisions, supplementals and amendments to alter this proposal as conditions
As we address the immediate
needs of our residents and plan for the future, one thing has become abundantly
clear to me – our County Government’s revenue structure has reached the
breaking point and must be fundamentally altered.
Our County Charter includes
a provision that limits the growth in property tax revenue – not property tax
rates – to the growth in the Consumer Price Index (CPI) for all consumers in
the Baltimore-Washington Region from the December 1 to November 30 of the
preceding year. Since the Federal Government no longer publishes this index, we
have been using the CPI for just the Washington Region. For the period of
December 1, 2018, to November 30, 2019, the CPI for the Washington region was
only 1.27 percent. No matter how much assessments increase, the total amount of
property tax revenues cannot grow by more than 1.27 percent.
It is important to note
that this revenue limit does not mean the average property tax bill will only
increase by 1.27 percent. Quite the opposite. Most individual bills will
increase (or decrease) by the change in one’s taxable assessment. Since County
law limits growth in assessments to 10 percent in any given year, a property
with such an increase in value will see its tax bill go up by roughly 10
percent. The Charter revenue limit only redistributes the tax burden from
properties with little to no increased value to those properties with the
greatest increase in value. This has meant that some residents in modestly
priced homes have faced 10 percent increases while some high-value properties
actually saw their tax bill cut.
When the County Council
proposed to the voters our current Charter limit on property taxes in 1990, few
people could have foreseen the dramatic changes that would take place in
Montgomery County and around the globe. In the past 30 years, our school
population has grown by 65 percent and our overall population has grown by 40
percent. The services we provide are now more complex and seek to address a range
of challenges, from traffic congestion and climate change to health care
disparities and linguistic diversity. And over the past four decades, our
property tax rate has declined by 35 percent.
We have all witnessed other
local governments regionally and nationally experience generational decline due
to conflicting, irreconcilable fiscal policies. Montgomery County is at the
precipice of such a decline if we cannot get ourselves out of this cycle of
self-enforced structural deficits and inequitable, unpredictable revenue caps.
Therefore, I will be sending the Council a proposal for a Charter amendment
that will revise our revenue cap to provide certainty to homeowners. This
proposal will eliminate our old, cumbersome revenue cap and replace it with a
three percent cap on the increase in any homeowner’s taxable assessment. This
will give our taxpayers real protection from unexpected increases in property
values. It will also provide the County Government with a higher degree of
predictable tax revenues like every other jurisdiction in our region.
Without such a change in
the Charter, our community could be facing a situation in FY21 where a
recession and deflation cripple our ability to provide emergency services and a
quality public education system. This perfect storm would threaten lives and
diminish the value of properties in our County. I will not stand by and let our
community be harmed by the ghosts of voters from four decades ago.
In order to meet the
challenge of our rapidly growing school system over the next year, this budget
proposal also calls for the creation of a 3.1 cent supplemental property tax
rate. State law provides each county with the authority to establish a
supplemental property tax rate exclusively for its public schools. While this
will be the first use of this State authority in our county, three other
counties have already established a similar supplemental tax for their public
schools. Even with this additional funding, we will still be providing the
school system with less support per pupil than in 2010. A decade of slow growth
nationally, unpredictable tax policy changes at the Federal level, and our
severe Charter limit has left our schools playing catch-up on funding while
absorbing an enrollment growth of more than 25,000 new students.
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. Fortunately, the income tax has overperformed estimates during FY20 to offset this loss. However, even before the current COVID-19 crisis developed, we were forecasting income tax revenues to drop to a lower level. With this supplemental tax rate, we will be back to the rate set for FY17. We will remain significantly lower than other Maryland counties and in line with the residential rates in Northern Virginia. It is also important to note that the Northern Virginia counties charge higher rates for commercial properties with even higher rates for commercial properties in business districts like Tysons and Crystal City.
Three of the top four counties on a per capita basis –
Baltimore City, Baltimore County and Prince George’s County – are among the
most urbanized jurisdictions in the state.
The other county in the top four – Worcester – has an unusual amount of
pedestrian activity on the Ocean City boardwalk. MoCo ranks 7th of 24 counties on crash rate
but its average annual crash rate per 1,000 residents (0.44) is below the state
average (0.54). Admittedly, the state
average is skewed upwards by Baltimore City.
It’s interesting that MoCo’s pedestrian crash rate is similar to less urbanized jurisdictions like Wicomico, Dorchester and Washington Counties. Urbanized counties should have greater volumes of pedestrian activity because of a greater abundance of walkable districts. MoCo certainly has more of those than Wicomico, Dorchester and Washington Counties. That suggests that MoCo isn’t a relatively bad performer on this measure given its substantial (and increasing) urbanization.
One thing MoCo does is spend significant amounts of capital money on pedestrian projects. The table below compares capital budget spending on pedestrian and bikeway projects (the two are one category) to total capital spending excluding the Washington Suburban Sanitary Commission in the last 16 Capital Improvements Program (CIP) budgets.
MoCo’s spending on pedestrian and bikeway projects
steadily accelerated from $44 million in the FY7-12 CIP to $225 million in the
FY19-24 CIP. Major projects like the
Metropolitan Branch Trail, the MD-355 BRAC crossing and the Capital Crescent
Trail are partially responsible for these increases. However, the FY21-26 executive recommended
budget is a step back. The six-year
total pedestrian and bikeway spending of $181 million is the lowest since the
FY13-18 amended budget. So is the
percentage of the total capital budget accounted for by pedestrian and bikeway
All of this gives rise to two questions.
1. MoCo spends a lot of money on pedestrian projects, but is the county getting a good return? A 2007 county council press release states that the county averaged 430 pedestrian collisions per year from 2003 through 2006. The Maryland Department of Transportation estimates that the county averaged 459 pedestrian crashes from 2014 through 2018. Between the two periods, the county’s population rose by 13% while its pedestrian crashes rose by 7%. Is that a sufficiently positive result from the enormous sums the county has spent in recent years? Given the significant needs in this area and the limited resources in the capital budget, the county may wish to study the most cost-effective ways of promoting pedestrian safety and direct its funding accordingly.
2. As noted above, the executive’s new recommended capital budget decreases pedestrian and bikeway spending to its lowest level in seven years. One reason for that is that the overall level of capital spending is declining. (That’s a subject for a future series.) With all areas of the capital budget under stress and the looming possibility that school construction delays will trigger residential moratoriums, it’s extremely difficult to add or even maintain funding for any program, not just pedestrian and bikeway projects. That said, county elected officials will look terrible if they declare pedestrian safety to be a “public health crisis” but then cut funding for pedestrian and bikeway capital projects.
Overall, MoCo’s record on pedestrian safety is not a bad
one when compared to the rest of Maryland.
But funding constraints could hinder its prospects for improvement.
Potentially, imposing more moratoriums on housing
County development rules require moratoriums on housing construction inside school clusters or individual school service areas when projected public school enrollment accounts for 120% or more of capacity five years into the future. Additionally, elementary schools must be 110 students over capacity and middle schools must be 180 students over capacity to trigger moratoriums. Projects that are already approved are not halted by moratoriums but new project approvals are not granted.
The problem with stopping residential development is that school impact taxes collected from new units can be a major source of revenue for school construction. As recently as the FY15-20 amended capital budget, school impact taxes accounted for 15% of MCPS’s school construction budget. Unfortunately, that is no longer the case.
In a memo to the Montgomery County Planning Board, planning staff noted that the county executive’s new recommended FY21-26 capital budget underfunds MCPS’s construction request by $61 million in FY21, $93 million in FY22, $93 million in FY23 and $57 million in FY24. One of the biggest reasons for the underfunding is that school impact tax receipts have fallen by more than half since FY14. The planning staff indicates that if the underfunding results in delayed projects, nine elementary school service areas (Bethesda, Clarksburg, JoAnn Leleck, Rachel Carson, Strawberry Knoll, Summit Hall, McNair, Page and Burnt Mills), one middle school service area (Parkland) and seven high school clusters (Quince Orchard, Richard Montgomery, Albert Einstein, Montgomery Blair, Blake, Northwood, Walter Johnson) may be at risk of moratoriums. For the Blake, Blair, Einstein and Walter Johnson clusters, this would be the second straight year of moratorium, threatening projects in North Bethesda and Downtown Silver Spring.
The cruel fact here is that reducing residential construction has historically had little if any impact on MCPS enrollment increases. The chart below shows MCPS enrollment (red line and left axis) and residential units permitted in Montgomery County (blue line and right axis) from 1994 through 2018. MCPS enrollment comes from the county executive’s recommended budget while permitted units comes from the U.S. Census Bureau. Over this 24 year period, housing construction has been falling while MCPS enrollment has been rising. The contrast between the two trends has been most pronounced in recent years. Housing units permitted has fallen from 3,981 in 2012 to 1,947 in 2018 while MCPS enrollment has grown from 146,497 to 161,470. It defies logic to blame school crowding on housing construction when homebuilding is in an era of decline.
And so here is the effect of MoCo’s moratorium policy. Housing construction drops, causing school impact tax payments to plummet and depriving school construction of needed funding. The county reacts by delaying school projects, triggering moratoriums. That causes housing construction to decline further and the cycle continues. None of this helps more schools get built but it definitely constrains housing supply, thereby driving up home prices and making the county even more unaffordable to live in than it already is. Another effect is that it makes the county radioactive to the real estate and investment communities, thereby pushing them into competing jurisdictions. It’s no wonder that Prince George’s County Executive Angela Alsobrooks is celebrating her county’s passing of Montgomery County in job creation.
Using residential moratoriums to prevent school crowding
is like treating lung cancer by amputating the patient’s legs. The treatment does nothing to solve the
original problem but it definitely causes new problems to arise!
If you wanted to stop economic growth and make it harder
for people to live here, it would be difficult to devise something more attuned
to such goals than MoCo’s insane moratorium policy. The county must bring it to an end.
County Executive Marc Elrich and his biggest critic, Council Member Hans Riemer, are feuding once again. This time, the subject is affordable housing. Elrich says his new recommended capital budget includes a record sum for affordable housing. Riemer says there are in fact no new resources.
Who is right?
Let’s consider the statements from each of them. First, here is Elrich.
Affordable housing is one of my top priorities. It is vital to our County’s future success. We must maintain and expand our stock of affordable housing and we are taking this critical issue head on in the capital budget. That is why I am recommending we add $132 million for affordable housing to the capital budget over the next six years.
This is a record level of funding for affordable housing projects for our capital budget. These funds will be used by the Affordable Housing Acquisition and Preservation Project to facilitate efforts to preserve existing stock and increase the number of affordable housing units in the County. But that is not all.
In this Capital budget, I am proposing a new Affordable Housing Opportunity Fund to leverage funding from other partners that will support short-term financing while affordable housing developers arrange for permanent project financing.
On affordable housing, I was initially encouraged by the Executive’s speech about increasing funding levels. Indeed, I am intrigued by his proposal to create a new housing preservation fund. However, while he claims to have added more than $132 million in the affordable housing fund, after further examination it became clear that the annual amount is unchanged at $22 million. Under the last Executive, affordable housing funding was only programmed for the first two years of the six year budget, but additional funding was always added in the subsequent years. We need to increase our affordable housing fund to at least $100 million annually. This change in accounting will not result in increased resources. In combination with his resistance to the Council’s affordable housing goals, developed with and agreed upon by all the local governments in Washington region, the County Executive’s housing policy continues to be a matter of serious concern.
These two like each other about as much as Popeye and
Bluto. (Which one is Popeye depends on
your point of view!) But how can their
statements be reconciled?
Since Fiscal Year 2001, the county’s primary affordable housing vehicle has been its Affordable Housing Acquisition and Preservation program, which appears in the county’s capital budget. The program enables the county to buy or renovate, or assist other entities to buy or renovate, affordable housing. It is financed by several sources including but not limited to loan repayments and the county’s Housing Investment Fund (which is mostly supported by recordation taxes).
The capital budget, which includes the Affordable Housing
Acquisition and Preservation program, is a six-year budget. In even years (like 2020), it is written anew
and in odd years, it is amended.
Projects in the capital budget can have up to six different years of
funding in them (with more scheduled outside of the budget’s six year
horizon). In the past, the affordable
housing program has only shown funding for the first two years of the capital
budget with zero money programmed in the last four years. But since the capital budget is rewritten
every two years with affordable housing money renewed in each successive
budget, that has not mattered.
The table below shows funding for the Affordable Housing
Acquisition and Preservation program in the last 16 capital budgets. Each budget covers six years. Budgets labeled with an “A” are amended
budgets programmed in off years.
At first glance, Elrich appears to be right. His new recommended capital budget includes
$132 million for Affordable Housing Acquisition and Preservation, which is far
higher than any previous capital budget.
But let’s remember what Riemer said about the annual amount of
spending. All the previous six-year
budgets included funding during the first two years only. Elrich’s new capital budget shows funding for
the Affordable Housing Acquisition and Preservation program in all six
years. Riemer is correct: an accounting
change caused the apparent increase in this program.
But the story doesn’t end there. Elrich created a new program in the capital budget called the Affordable Housing Opportunity Fund. This program is dedicated to acquiring affordable housing in areas at risk of rent escalation, such as those near the Purple Line and other transit corridors, and is intended to use public funds to leverage private funds in acquiring and preserving affordable housing. This new program provides $10 million in each of the new capital budget’s first two years for this purpose. That money comes from recordation tax premiums which are normally used to finance transportation projects, so it’s not “free” money. But it is more money for affordable housing.
Combining the existing Affordable Housing Acquisition and
Preservation program and Elrich’s new Affordable Housing Opportunity Fund, the
table below shows the annual expenditures for affordable housing in the capital
budget since FY05. Annual expenditures
are drawn from the first two years of every amended capital budget with FY21
and FY22 drawn from the executive’s new recommended capital budget.
Combining the two programs, Elrich recommends spending
more capital money for affordable housing in FY21 and FY22 than any annual
expenditure in the preceding published budgets.
When adjusting for inflation, Elrich’s FY21 and FY22 spending amounts
are roughly equal to the Leggett administration’s peak affordable housing years
of FY09 and FY10, so one can quibble about whether Elrich’s spending is truly a
record. But when Elrich’s new Affordable
Housing Opportunity Fund is included, the first two years of his new budget
definitely show an annual increase for affordable housing over the prior
The county’s capital budget has been shrinking due to cutbacks in general obligation bond issuances and declining projected school impact tax receipts. That’s a dire subject for another time. But given the county’s budget difficulties, Elrich’s financial commitment to affordable housing is meaningful. Friends and foes alike should give him credit for it.
It’s election season and that means it’s time for lots of promises from politicians. And boy are they promising a lot, especially on the county’s two big issues of education and transportation. The mailbox’s “progressive leaders” have “plans” to guarantee every child a great school, invest in transportation – especially transit – and to do all of the above without raising taxes. Sounds great, yeah?
Time to get real, folks!
Education and transportation each have two virtues. First, each of them generates direct economic returns. Education spending yields a return on human capital while transportation spending yields a return on physical infrastructure. Both are important for attracting and retaining residents and jobs. Second, each of them is popular with voters. For as long as anyone can remember, education and transportation have been two of the top issues in our elections – and they might possibly be THE top two. Happily, on these two issues, good policy and good politics come together!
Paying for them is another matter. MCPS accounts for a greater percentage of the budget than any other agency with a $2.5 billion budget in FY18. Montgomery College received more than $300 million. The Department of Transportation’s operating budget was $56 million. Funding increases with meaningful impacts on these agencies need to be in the tens of millions of dollars – at least. That kind of money far exceeds a spreadsheet rounding error.
And yet, there is a way to increase spending on MCPS, the college and transportation without massive tax hikes. The catch is that it’s not quick or easy.
Let’s do a simple (and yes, admittedly simplistic!) exercise with the operating budget. First, let’s identify the combined local dollar spending on MCPS, the college and the Department of Transportation (DOT). Next, let’s segregate out intergovernmental aid, which plays an important role in the budget but is not controlled by the county government. Then let’s segregate debt service. Yes, over long periods of time, the county can adjust debt service. But much of the debt service is being paid on capital projects already completed, and furthermore, a huge chunk of it goes to school construction and transportation projects. Boosting education and transportation operating budgets by cutting their capital budgets is not the best idea in the world! Finally, let’s subtract out local dollar education and transportation spending, intergovernmental aid and debt service from total spending and what we get is a great big category that we shall creatively name “Everything Else.”
Here’s what happens when we do that for FY11, the trough budget year of the Great Recession, and FY18, the budget that ends on June 30 of this year.
What the above data shows is that the total county budget grew by 28% over this period. Intergovernmental aid grew by 26% and debt service rose by a whopping 58%. (We have previously written about the county’s rapidly growing debt.) Now let’s contrast the two remaining broad categories: the local dollars spent on MCPS, the college and DOT and everything else. The education and transportation budgets grew by a combined 18%. Everything else grew by 37%.
That’s right folks – spending on everything else has been growing twice as fast as local dollar spending on education and transportation operating budgets. That’s a strange fact in a county in which education and transportation are arguably the top two political issues.
Now what would have happened if the everything else side of the budget was restrained to grow at the same rate as inflation? The average annual growth rate of the Washington-Baltimore CPI-U since 2011 has been 1.3%, meaning that prices have grown by 9.8% over that period. When we hold the total budget, intergovernmental aid and debt service constant and assign a growth rate of 9.8% to the everything else category, here’s what happens to local dollars available for education and transportation. For the purposes of discussion, let’s call this Scenario 1.
In Scenario 1, $2.4 billion is available for education and transportation because of spending restraint on everything else. That’s $383 million more than the $2 billion that was actually available in the real world FY18 budget.
Holding a big chunk of county government to the rate of inflation for seven straight years is tough medicine and very unlikely. So let’s create a Scenario 2 in which the everything else category is restrained to twice the rate of inflation, or 19.5% growth since FY11.
In Scenario 2, $2.2 billion is available for education and transportation, $244 million more than the real world FY18 budget.
For the sake of comparison to both of these scenarios, let’s recall that the 9 percent property tax hike was supposed to raise $140 million a year. (It probably raised a little less than that.) So under both scenarios, the county could have avoided the giant tax hike and still had lots of money left over for more education and transportation spending.
Yes folks, we understand the radical nature of what we are proposing – namely that liberal Democrats should deliberately and strategically restrain the growth in some forms of spending to boost growth in other spending. This is likely to be an unpopular concept in a county that has multiple jam-packed budget hearings every year with groups of all kinds requesting money. But here’s the benefit to concentrating on education and transportation: both forms of spending are investments that generate returns for the economy. And when those returns boost economic growth, they generate tax revenue that bolsters the entire budget.
What is necessary to pull this off? Simply put, this requires strategy, discipline, patience and leadership. Without those traits, given the huge number of constituencies that want their piece of the budget, it would be impossible to focus it on education and transportation. The natural outcome of a budget process without strategy is that everything gets funded, a tax hike follows, voters tire of it and then they pass restrictive charter amendments and vote for politicians like Larry Hogan.
So what are we going to get? Spending on everything followed by tax hikes? Or a budget that is strategically focused on generating economic returns from education and transportation?
Folks, that depends on your decisions in the voting booth.
These programs are the very essence of the best of progressivism: protecting people from discrimination, funding arts and humanities, paying for community grants to non-profits, helping those with special needs and creating affordable housing. All were gutted during the recession.
Believe it or not, the above understates the impact of revenue absence. Consider county employees. Their collective bargaining agreements were broken and they went without raises for three straight years. In FY11, they were furloughed. In FY12, their benefits were cut. MCPS employees were not immune as the county cut its local contribution per pupil for three straight years.
Perhaps cruelest of all was the county’s cut in its local earned income tax credit (EITC). MoCo is one of the few counties in the U.S. that has its own EITC and it was once set to match the state’s credit under county law. During the recession, the county changed its law to allow its EITC to vary and it was cut by almost a third. How bad is it to cut a tax credit for the working poor during a recession? Your author’s former employer, Council Member Hans Riemer, later introduced a bill to restore the EITC to its full amount. After a tremendous fight, he passed it.
We don’t intend to criticize the County Executive or the County Council for making these cuts. The economy went south and they didn’t have any money. That’s the whole point here: without economic growth there is no money.
We are no longer in a recession but revenue growth is not as strong as it once was. Consider the history of county revenue growth, excluding intergovernmental aid, since FY98. Red bars in the chart below refer to years in which tax increases were levied.
From FY98 through FY09, revenue growth excluding intergovernmental aid rose by an annual average of 6.1%. In the years since, it has grown by just 2.7% a year – and that includes the year in which the county implemented a 9% property tax hike. The County Executive’s recommended FY19 budget includes a scant 1.3% growth in revenue excluding intergovernmental aid. How much more spending on progressive programs can be financed with that?
Tax revenue is the fuel in the engine of progressivism. That’s because nearly everything that progressives want to do costs money, like funding schools, colleges, youth programs, senior services, social workers, support for vulnerable people, affordable housing and the like. Conservatives don’t have this problem. They think government is incompetent at best or evil at worst, so in their view, money given to government is bound to be wasted. Progressives actually need tax revenue from economic growth MORE than conservatives do because it is essential to the success of their policy agenda.
Here’s the bottom line: you can’t say you’re a progressive and then oppose the growth in tax base needed to pay for a progressive agenda. Any candidate with that position will be unable to implement progressive priorities if elected.
Progressives need economic growth. Because without it, they can’t be very progressive at all.