Montgomery County Executive Marc Elrich has announced that the county’s Phase 2 reopening will begin on Friday, June 19 at 5 PM. His press release appears below.
Montgomery County Executive Marc Elrich Announces Phase 2 Reopening Date For Immediate Release: Monday, June 15, 2020
Montgomery County Executive Marc Elrich and County Health Officer Dr. Travis Gayles today announced the County has achieved its benchmarks and will officially enter Phase 2 of reopening on Friday, June 19 at 5 p.m.
The County plans to continue with an incremental reopening, based on public health data. Phase 2 allows additional businesses and activities to start and/or increase modified operations under specified guidelines. The guidelines include:
Retail – curbside and limited in-store; one patron per 200 sq. ft. of sales space; Restaurants – outdoor/patio seating and limited indoor dining with requirements; up to 50 percent capacity maximum indoors if social distancing can be maintained; Childcare – childcare programs can reopen with a maximum of 15 individuals per classroom; Gyms – fitness centers, and other indoor physical activities; open with requirements; one patron per 200 sq. ft. of fitness space; Houses of Worship – virtual, drive-in, and limited indoor and outdoor services with requirements – one congregant/family unit per 200 sq. ft. of service space; Indoor and Outdoor Gatherings – limited to a maximum of 50 or one person/family unit per 200 sq. ft., whichever is lower Salons/Barbers/Nails – all personal services allowed by appointment only; one patron per 200 sq. ft. of service delivery space; Car Washes – open for internal and external cleaning with requirements; Office Spaces and Multi-tenant Commercial Buildings – limited use for nonessential personnel with requirements; telework strongly encouraged where applicable; Indoor and Outdoor pools (public and private) – open with capacity restrictions; Outdoor Day Camps – expanded opening with requirements; Outdoor Youth Sports – expanded for low-contact sports with requirements; Parks & Playgrounds – parks open for personal fitness and fitness classes with requirements; playgrounds open with requirements; only low-contact sports allowed; and Ride On Bus Service – expanded schedule; expanded routes. Certain outdoor recreation activities and facilities are already permitted: golf courses, archery, shooting ranges, marinas, campgrounds, horseback riding facilities and tennis courts.
The following businesses and services will remain closed in Phase 2:
Concerts and theaters; Senior centers; Libraries; and Recreation facilities. Protective measures such as maintaining physical distancing, careful cleaning and disinfecting, and face coverings being worn by employees and customers, are just some of the measures being required of businesses that are in this second phase of recovery.
Activities allowed in this phase of reopening are based on metrics the County established with progress overall in decreasing daily numbers of new cases, increasing testing capacity, implementing a large-scale contact tracing effort with the State, decreasing hospitalizations and use of the emergency room by patients with COVID-19 related symptoms, and positive trends in the death rate and test positivity. The COVID-19 Data Dashboard can be viewed on the County’s website.
That’s a tripling of Maryland’s unemployment rate in one month.
Here are BLS’s estimates for the components of the unemployment rate in March and April, as well as in 2019.
Perhaps the most interesting estimate from BLS is that of the 415,359 people who lost their jobs in April, more than half (220,230) left the labor force entirely. That means they are without jobs and, according to BLS, not currently seeking work. In contrast, BLS defines unemployed people as having “no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week.”
As high as the April unemployment rate may be, it’s bound to be lower than the state’s unemployment rate today. That’s because BLS’s reference week for a monthly estimate is the week containing the 12th day of the month. State data indicates that 296,842 unemployment insurance claims were filed in the four weeks ending on April 11 while 310,946 more were filed in the five weeks thereafter. That means that May’s unemployment rate will be significantly higher than April’s.
Maryland’s labor force is not the only casualty of the COVID-19 crisis. BLS reports that D.C.’s unemployment rate rose from 6.0% in March to 11.1% in April. In Virginia, unemployment rose from 3.3% in March to 10.6% in April. Nationally, unemployment rose from 4.4% in March to 14.7% in April. The bright side for Maryland, D.C. and Virginia is that they all have unemployment rates significantly below most other states.
To put April’s unemployment rate in perspective, I pulled Maryland’s annual unemployment rate numbers from 1976 to 2019 and charted them below. Unemployment varies with the business cycle and peaked in 8.3% in 1982, 6.8% in 1992 and 7.7% in 2010. In each of those instances, the unemployment rate took three years to reach its peak. This time, the acceleration of unemployment took one month. What will next month look like?
BLS has not yet released county-level data for April. When it’s available, I will post it.
When Governor Larry Hogan announced a phase 1 reopening of Maryland’s economy on Friday night, several local jurisdictions (including MoCo) declined to go along. County Executive Marc Elrich said, “If there’s an uptick in cases, our hospitals can’t withstand an uptick… We will change the rules as soon as the science says we can change the rules. When that happens, we will start down the road of reopening things.” Elrich issued an executive order maintaining the current shutdown at the county level and the council approved it.
Elrich’s interest in protecting public health is understandable and commendable but there is a problem: the economy. Everyone understands that the economy has taken and will take collateral damage from COVID-19 restrictions. That said, the chief enemy of job creation is uncertainty and there is tons of that now. June 1 is coming and with it will be rent and mortgage payment deadlines. Many tenants and property owners will miss those deadlines in whole or in part just like they did in the prior two months. Worse yet, it’s hard for tenants and owners to work out flexible payment arrangements when no one knows when reopening will occur. That may cause many businesses to throw in the towel and cease operations permanently.
Given the above, how can the county reconcile the competing objectives of protecting public health and restarting the economy?
The executive has not set a date to ease restrictions. Instead, he has proposed the following 12 criteria that would guide any phased-in reopening:
Sustained (14 days) decreases (rolling average) in: i. The number of new cases in the setting of increased testing; ii. COVID-19 related hospitalization rate; iii. COVID-19 related ICU rate; iv. COVID-19 related fatalities; v. COVID-19 like and influenza like illnesses presenting to the health care system; vi. Percentage of Acute bed usage by COVID-19 related patients; vii. Percentage of ICU bed usage by COVID-19 related patients; viii. Percentage of emergency/critical care equipment by COVID-19 related patients (e.g. ventilators);
A sustained capacity to test 5% of population per month;
A sustained flattening or decrease in test positivity;
Sustained, robust system in place to contact initial interviews within 24 hours, and initiate contact tracing process within 48 hours of initial lab notification; and
Initiated and created meaningful infrastructure to identify and begin addressing demonstrated COVID related inequities in health outcomes, access to social support services
Let’s assume for the sake of discussion that these are the right criteria. (I may revisit that.) At the moment, only one of them – the number of cases – appears on the county’s COVID-19 page. The state’s COVID-19 page has more data, including cases, fatalities and hospital bed usage, but even the state’s page has nowhere near the data referenced by the county executive’s criteria.
At present, the public has no way to judge how close the county is to reaching the criteria the executive considers key to reopening. That must change.
The county should publish data series on every one of its criteria on its website. Each series should include an easy-to-understand chart explaining what the series is and what its trend is. Here is one example I constructed for new cases, which is the only series currently published by the county.
At the end of the 12 data series, the county should state how many of the executive’s 12 criteria are trending up, trending down or are stable. The county should also clearly indicate how many of the criteria need to be trending down or remaining stable for phase 1 reopening to begin.
Furthermore, the county should update the public via blast email and social media every day on this data.
Implementing this system accomplishes a number of criteria simultaneously. First, it bases the decision to reopen on science. Second, it makes the decision transparent to the public. And third, it provides real guidance to businesses, tenants and property owners on how close the county is getting to reopening. That will help everyone make the decisions they need to make on the basis of real information, not rumor and fear.
The county must implement this as soon as possible. The alternative is to leave residents and employers in the dark on how long the shutdown will last, thereby risking further permanent destruction of jobs and businesses.
Left largely undiscussed during the debate over MoCo’s recently passed rent stabilization bill was the overall condition of the county’s rental market. Yes, Council Member Andrew Friedson brought up our recently published data showing that rents are declining in MoCo and are projected to continue falling for the rest of the year. But there’s a lot more to this issue, especially when considering the long-term needs of tenants and the associated implications for the county’s economy.
The bottom line is that MoCo is emerging as one of the most unattractive places in the D.C. area to build rental units.
Put yourself in the shoes of a regional developer, real estate investor or creditor and consider the following facts.
1. MoCo’s rental market is one of the slowest growing in the region.
This is the first sign that not all is right in the county. MoCo has a relatively affluent population, 11 Metrorail stations, a nationally recognized school system, a new light rail route (the Purple Line) under construction and is planning several bus rapid transit routes. Developers should want to build here, but disproportionately, they are not. If Downtown Bethesda were removed from the county’s unit statistics, one wonders how poorly the rest of the county would rank in the D.C. region.
2. Rents in MoCo are also growing slowly.
With the exception of Loudoun County, every other major jurisdiction in the region has seen more growth in average rent than MoCo. That’s good for tenants but not so good for investors looking for an adequate return. That is especially the case given the level of uncertainty in MoCo’s real estate market, which would normally demand higher returns to compensate investors for dealing with it. More on that in a bit.
Here is an interesting fact. Loudoun, Arlington and Howard have been the three fastest-growing large jurisdictions in the area in terms of renter occupied units. They are also three of the four slowest-growing jurisdictions in terms of rents. That’s how a market should work – rapidly expanding supply should keep prices down even with substantial demand, and Loudoun has been one of the fastest growing counties in the nation. But MoCo has seen slow growth in both construction and rents, making it an outlier.
3. No other major jurisdiction in the area has experienced a larger increase in rental vacancy since 2010 than MoCo.
You might think that with MoCo’s relatively stagnant construction demand for housing would push vacancy down. Instead, it’s gone up – by more than any other jurisdiction in the region. In 2010, MoCo’s rental vacancy rate was 2.7%, the second-lowest of 10 large area jurisdictions. In 2018, MoCo’s rental vacancy rate was 4.9%, tied for the third-highest rate. The vacancy rate gain (2.2 points) was the largest in the area. This is going to get worse as vacancy rates for Class A and Class B units are projected to approach 7% in coming years.
4. Evictions in MoCo are time consuming and expensive.
In 2018, the county’s Office of Legislative Oversight (OLO) studied evictions in MoCo and stated, “The Montgomery County Sheriff’s Office reports that on average it takes 12-13 weeks to evict a tenant for nonpayment of rent, though the process can sometimes be significantly longer.” OLO also found that the cost to evict a tenant can range from $5,700 to $16,600, landlords “are often unable to recover lost rent” and “costs and process delays discourage small property landlords from renting out.”
Landlords with lots of units and market power might be able to spread these costs to other tenants in the form of higher rents. Other landlords might choose to avoid the county altogether if they believe its procedures are more onerous than its neighbors.
5. The county executive is an open housing skeptic.
7. The county just passed temporary rent stabilization.
The council made major changes to Council Member Will Jawando’s rent control bill, allowing rent increases up to the county’s voluntary guidelines and extending the bill’s duration to 90 days after a catastrophic health emergency. The direct economic impact of the bill may be mild because it is temporary, allows small increases and takes effect in an environment in which rents are declining. But it could be extended at a later time, a possibility that adds to the uncertainty of investing in MoCo. It also has tremendous symbolic importance. Let’s remember that Takoma Park has had rent stabilization for decades and has suffered absolute losses of rental units.
Consider this. It’s hard to find two terms that are more hated by the residential rental industry than “moratoriums” and “rent stabilization.” At this moment, MoCo is the only jurisdiction in the Washington region that has both of them.
MoCo is still seeing residential construction from projects that were approved before the current downturn, before the current round of moratoriums, before the approval of rent stabilization and before the current executive took office. But after that wave (a rather small wave) of construction wraps up, what will come next?
Imagine that you are a regional developer, real estate investor or creditor and you are evaluating a jurisdiction that has had slow rent growth (and now falling rents), slow unit growth, rising vacancy, expensive and time consuming evictions, a moratorium policy, temporary rent stabilization that could be extended and a county executive who is an open skeptic of housing construction. Right next to that jurisdiction are several others with fewer or none of those drawbacks.
Given all of the above, why would anyone want to build rental units in MoCo?
One applicant who completed the county’s form described the process to me as lasting less than 10 minutes. She encountered no problems and said she was “very impressed.”
Another applicant tweeted that he applied roughly 45 minutes after the application went live and was assigned application number 721.
That’s important because, according to the county’s regulations, the first tranche of $10 million will include individual awards of $10,000 each. That implies that only the first qualifying 1,000 applicants will get initial assistance awards. Conceivably, the county could get 1,000 qualifying applications in just a couple hours – or less.
One glitch in the rollout involved an email signup shown on an earlier version of the website. (It’s no longer available.) I signed up a couple days ago and received notification of the application at 4:30 PM. By that point, the queue may have filled up.
Intense interest in assistance will result in the county’s initial funding being claimed RAPIDLY. Those who waited for email notification or other official notice from the county will no doubt raise process protests if they indeed lose out because of application timing.
The process has been far from perfect as I have previously written. But let’s also acknowledge that even with a perfect process, this was going to be very tough sledding.
At 9:09 PM last night, I published a post on the county’s $20 million COVID-19 small business assistance program noting that no regulations governing its disbursements had yet been sent to the county council or published for the public. Roughly 20 minutes later, the regulations were sent to the council and forwarded to me by multiple sources almost immediately. The regulations appear below.
There are many details of interest to applicants, who should read every word of these regulations. The provisions that stand out to me are the ones setting aside $10 million for near-term disbursement and reserving $10 million for later. Consider these specific provisions.
Section 4 (b). $10,000,000.00 of funds appropriated for this Program are reserved for businesses or nonprofit organizations that demonstrate Significant Financial Loss. The initial grant award disbursed under this component of the Program is $10,000. The remaining amount of Significant Financial Loss demonstrated by these businesses and non-profit organizations may be disbursed subsequently, subject to the availability of funds.
Section 5(e)(B)(6). Business that have suffered Significant Financial Loss will be eligible for an immediate disbursement of up to $10,000. If the Percentage Decline is 50% or greater, Subtract the Adjusted PHE Revenue from the relevant historical average (Monthly Historical Average for monthly Adjusted PHE Revenue, Quarterly Historical Average for quarterly Adjusted PHE Revenue) to get the Recommended Grant Amount, up to a maximum of $10,000.
Section 5(e)(B)(7). Subtract the Adjusted PHE Revenue from the relevant historical average (Monthly Historical Average for monthly Adjusted PHE Revenue, Quarterly Historical Average for quarterly Adjusted PHE Revenue) to get the Recommended Grant Amount, up to a maximum of $75,000.
Section 5(e)(B)(8). Subject to the availability of funds, once the initial $10,000,000 reserve has been committed, applicants who qualified for more than an initial disbursement of $10,000 and applicants who qualify for a grant that have not received funding will be evaluated and the remaining balance will be disbursed.
And so $10 million will be disbursed sooner and $10 million will be disbursed later. Instead of the full $75,000 maximum grant provided in the legislation passed by the council, applicants will get a maximum of $10,000 in the first round and may get a chance for more money later. When will the second $10 million go out? That’s not clear, but the caveat of “subject to the availability of funds” in Sections 4(b) and 5(e)(B)(8) is not encouraging. Given the volume of paperwork required in the application process, it could take a while.
The county has announced via press release that COVID-19 assistance for small businesses will be open for application tomorrow (April 15). But questions arise both from the release and what is not in the release.
1. The application process is supposed to open in the “mid-afternoon.” No exact time is given in the press release. Will business owners be refreshing their browsers for hours waiting for the application to go live?
2. According to the press release, “The County will host webinars to answer questions and provide updates on the PHEG program starting at 9 a.m. Mondays through Saturdays. The first webinar will be held on Thursday, April 16.” In other words, the first Q&A webinar will not take place until THE DAY AFTER applications open.
3. As of this writing, multiple sources in the council building report that the council does not have final regulations governing the disbursement of the money. How is the administration going to make decisions on who gets the money? Why have these criteria, in the form of a regulation or otherwise, not been publicly released – or at least sent to the council – prior to the start of applications?
4. The legislation passed by the council authorized grants of up to $75,000. At the time of passage, council members stressed their interest in rapid disbursement. Today, a phone call was held by representatives of the executive branch with representatives of the business community in which some details were shared about the administration’s plans. According to an individual present on the call, “We heard that the 1st wave was the first 1,000 qualified recipients would receive $10,000 as a start. They may receive more later TBD.” Furthermore, only losses in March will be considered and priority will go to businesses with losses of more than $50,000. An earlier requirement that applicants apply for federal and state assistance first has been dropped. So it appears that $10 million will be disbursed first and that $10 million will wait for later – at least as of this writing. If there is indeed a hold on part of the money, why is that? What will happen to it and when will it get released?
This would be a lot easier to figure out if the administration simply released its regulations on how they are making these decisions, or even a simple guidance document. Instead, in the absence of published documentation, rumor rules the day.
Let’s be clear: the executive branch is in a tough spot here. They had to stand up a $20 million assistance program on short notice (although D.C. did the same in half the time). If they disburse small checks to lots of businesses, the money may not be enough to help any of them. If they disburse large checks that might be helpful, MANY businesses will be left out. So there are choices to make.
The problems are that the executive branch is diverging widely from the intent for speed of the legislation passed by the council, is forcing applicants to sit next to a browser and refresh it potentially for hours, is not offering aid for completing the application until the day after it goes live and has not published details of how it intends to spend $20 million.
This process is in need of improvement.
The press release is reprinted below.
For Immediate Release: Tuesday, April 14, 2020
Montgomery County Public Health Emergency Grant (PHEG) Program Applications Will Be Accepted Starting Mid-Afternoon on Wednesday, April 15
Montgomery County will begin accepting applications to its Public Health Emergency Grant (PHEG) program beginning mid-afternoon on Wednesday, April 15. The PHEG initiative is designed to help for profit and nonprofit businesses with 100 employees or fewer during the current public health crisis.
A sample of the application is now available in English and Spanish on the PHEG program web page. The website provides information for businesses on how to prepare their grant applications. The sample applications will guide businesses in pulling together the information and documents required to file their applications.
A fact sheet describing eligibility and document requirements also will be available in Spanish, Amharic, French, Korean, Mandarin and Vietnamese.
The $20 million PHEG initiative is a collaborative effort between County Executive Marc Elrich and the Montgomery County Council. In addition to for-profit and nonprofit businesses, the program is open to businesses with no employees including sole proprietors and independent contractors.
Montgomery County’s PHEG program is intended to provide financial assistance to establishments that have experienced a significant reduction in revenue as a result of the current public health emergency. The County is encouraging businesses and nonprofit organizations to review other assistance programs and apply to those for which they are eligible.
The County will host webinars to answer questions and provide updates on the PHEG program starting at 9 a.m. Mondays through Saturdays. The first webinar will be held on Thursday, April 16. For links and instructions, visit www.montgomerycountymd.gov/biz-resources/pheg.
More information on the PHEG program is available at www.montgomerycountymd.gov/Biz Resources/pheg/. Questions about the program should be directed to BizinfoCovid19@montgomerycountymd.gov.
For the latest updates, visit the County’s COVID-19 website and follow Montgomery County on Facebook @MontgomeryCountyInfo and Twitter @MontgomeryCoMD.
As complaints mount on MoCo’s not-yet-functioning process for distributing COVID-19 grants to small businesses, let’s contrast our performance to the District of Columbia.
The D.C. City Council passed a bill creating a $25 million grant program for small businesses impacted by the COVID-19 crisis on March 17. The bill also contains a number of delays on taxes and regulations that were not part of Montgomery County’s relief package, although some similar measures have been adopted by other counties in Maryland.
The D.C. government opened the applications process for the grants on March 24. The applications were closed on April 1.
That means 7 days elapsed between the creation of the program and the start of applications. The total time between creation of the program and the closing of applications was 15 days.
The Montgomery County Council passed a bill creating a $20 million grant program on March 31. On April 8, 8 days later, 7 council members wrote a letter complaining to the county executive that the grant process was nowhere close to being ready. That same day, the county published a document list for the grant process but had no application available.
Today is April 14. D.C. opened its applications within 7 days of its council creating its grant fund. MoCo has gone 14 days since creating its fund and, as of this writing, no applications are online. It has been almost two weeks since D.C. closed its application process and we don’t even have one yet. Small businesses in D.C. had a chance to apply for assistance in time to pay rent and bills due on April 1. Small businesses in MoCo did not have that chance.
On March 31, the county council passed Bill 16-20E, which established a $20 million Public Health Emergency Grant Program to assist businesses and non-profits with 100 or fewer employees that have been damaged by the coronavirus crisis. The idea behind the bill was to get relief to small businesses quickly before they go under.
Unfortunately, the county bureaucracy may have other ideas.
Yesterday, seven council members released a blistering letter to the county executive slamming the administration for taking too long to implement the grant program. The letter stated in part:
This lack of urgency is beyond disappointing and directly contradicts the Council’s clear intent to get this funding to our local employers as quickly as possible. While the County’s capacity to help may be limited, our ability to move quickly should not be, especially as the level of government closest to our residents and employers. For the businesses struggling to keep their lights on and for the employees who depend on them, this program is only effective if it can get funds out in time to provide help when it’s desperately needed. Without question, that time is now.
We must move with the urgency that this moment requires because our small businesses and nonprofits are counting on us. The only thing that will help businesses right now is getting them the relief money already approved and appropriated by the Council. We urge you to get the Public Health Emergency Grant Program up and running immediately. We cannot afford to wait for some other support to come first. If we fail to act in time, our local businesses won’t be able to afford to stay open. The County Council stands ready to support your administration however we can.
We reprint the letter below.
Shortly after the letter was written, the administration published a required document list for businesses applying for assistance. (As of this writing, the application itself is not finalized.) The documents include a dizzying array of tax statements, bank statements, interim monthly or quarterly financial statements, corporate articles and invoices and quotes for telework software (if applicable) as well as a requirement that businesses verify their good standing on a state website. Most crucially, the document list states in bold: “You must apply for any applicable State and Federal programs to qualify for County assistance.” It then requires applicants to submit “evidence of application to Federal and/or State COVID-19 assistance programs, including award or denial letters.”
There is no requirement in the legislation passed by the council that applicants for county assistance must first apply for state or federal assistance. The council considered an amendment making county assistance “secondary” to state and federal assistance and allowing it to be used as a “supplement” to such aid but decided against it. This requirement has been added by the administration in direct contradiction of the will of the council.
MoCo is insisting that its businesses jump down these bottomless state and federal rabbit holes to get county assistance. Again, this requirement simply does not appear in the legislation that the executive branch is charged with implementing.
So which businesses will be best able to navigate the process set up by the administration? Naturally, they will be the ones who are the most financially sophisticated, have the best accountants and have the most familiarity with government business assistance programs. Those who lack those assets – especially those with limited English language skills and less entrepreneurial experience – will be left behind. And so a county that prides itself on progressive values might actually wind up directing assistance disproportionately to the most privileged elements of the business community while the others will face extinction.
It’s not too late for the county to streamline its process. But it has to act fast. As in, NOW.
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.