Category Archives: Economy

MoCo’s Giant Tax Hike, Part Six

By Adam Pagnucco.

Montgomery County’s giant tax hike will have consequences.  Here are a few of them.

1.  Term limits are more likely to pass.

There are several reasons why Robin Ficker’s newest term limits amendment will probably pass if he gathers enough signatures to place it on the ballot, but the tax hike is one of the biggest.  The last time the council broke the charter limit in 2008, voters responded by passing Ficker’s charter amendment to make tax hikes harder.  With a new tax hike in place, voters may be tempted to respond with term limits.

Ficker has taken notice.  He regularly runs Facebook ads linking term limits, the tax hike and the council’s 2013 salary increase like the one below.  Commenters respond predictably.

Ficker vs Elrich

Ficker may have a new ally in his quest to evict the council: MCGEO President Gino Renne.  After the council voted to abrogate his union’s collective bargaining agreement, Renne told the Post, “I’m tired of these clowns,” and said his union might support term limits.  An alliance between Gino Renne and Robin Ficker would be one of the strangest events in the history of MoCo politics.  Whoever can produce a picture of these two smiling and shaking hands will be awarded a gift certificate from Gino’s beloved Department of Liquor Control.

2. Outsider candidates could be encouraged to run for county office.

If term limits pass, two things will happen.  First, the County Executive’s seat and five seats on the County Council will be open in 2018.  Second, the tax increase will be blamed for the success of term limits.  Both factors could lead to the entry of outsider candidates with a message like this: “We need new leadership.  We need to do things differently.”  Translation: we need to run the government without giant tax hikes.

Some of these outsiders may use the county’s new public financing system to run.  But the strong performance of David Trone, who started with zero name recognition and won many parts of CD8, will encourage self-funders.  This being Montgomery County, there are a LOT of potential self-funders, including those who have previously run for office.  Candidates in public financing can raise as many individual contributions of up to $150 each as they are able to collect, but the system caps public match amounts at $750,000 for Executive candidates, $250,000 for at-large council candidates and $125,000 for district council candidates.  A wealthy self-funder could easily overwhelm candidates who are subject to these caps and make a mockery of public financing.

3.  More charter amendments on taxes are possible.

Ficker’s 2008 property tax charter amendment, which instituted the requirement that all nine Council Members must vote to override the charter limit on property taxes, was a mild version of his previous ballot questions on the subject.  His 2004 Question A, which would have abolished the override provision entirely, failed by a 59-41 percent margin.  Now that the 2008 amendment has been proven ineffective, Ficker could be encouraged to bring back his more draconian version soon.  In the wake of this new tax hike, would voters support it?

Passage of a hard tax cap would have very grave consequences for the ability of county government to deal with downturns.  In 2010, the County Council responded to the Great Recession by passing a tough budget combining cuts, furloughs, an energy tax increase and layoffs of 90 employees.  When the next recession comes, if the county has no taxation flexibility, it might have to pass a budget laying off hundreds of people and gutting entire departments.  If the levying of giant tax hikes in non-emergencies causes the voters to abolish the possibility of levying them in true emergencies in the future, it would be a serious calamity.

4.  Governor Larry Hogan is a big winner.

One of Governor Hogan’s favorite political tactics is to play the Big Three Democratic jurisdictions against the rest of the state, with the City of Baltimore being his prime target.  But he can also point to Prince George’s County, where the County Executive (and a potential election opponent) proposed a 15% property tax hike, and also to Montgomery County, where the council passed a 9% increase.  His message to the voters will be a simple one.

“Look, folks.  This is what you get when you allow liberal Democrats to have one-party rule: giant tax hikes.  That’s why you need people like me in office to stop them.”

How many MoCo Democrats will ask themselves this question: “What is easier for me to live with? Larry Hogan or nine percent tax hikes?” What do you think their answer will be?

Hogan received 37% of the vote in Montgomery County in 2014.  He had a 55% approval rating in MoCo according to a Washington Post poll last October.  A Gonzales poll taken in March found that registered voters in the Washington suburbs (defined as MoCo, Prince George’s and Charles) gave Hogan a 62.6% job approval rating, with 35% strongly approving.  If Hogan can use the tax issue to run in the low 40s, or even as high as 45% in MoCo, he will be very difficult to beat for reelection.

Reelecting himself is not Hogan’s only priority.  He would also like to elect enough Republicans to the General Assembly to uphold his vetoes.  That task is easier in the House of Delegates, where Democrats hold 91 seats, six more than the 85 votes required to override vetoes.  If the GOP can pick up seven seats, as they did in 2014, they can uphold the Governor’s vetoes on party line votes.  That would cause serious change in how Annapolis operates.  Could big tax hikes in Democratic jurisdictions like Montgomery help the GOP get there?

5.  It will be harder to get more aid from Annapolis.

In 2007, former Baltimore State Senator Barbara Hoffman commented to the Gazette on Montgomery County’s ultra-wealthy reputation in Annapolis.  “They have to overcome the view that they’re rich and trouble-free. … That’s not true anymore.”  She was right then, and she is even more right now.  The county has massive needs for transportation projects and both operating and construction funds for the public schools.  But when the county levies giant tax hikes on itself to pay for these needs, is it letting the state off the hook?  State legislators from other cash-strapped jurisdictions that lack wealthy tax bases like Bethesda, Chevy Chase and Potomac are perfectly happy to let MoCo tax itself while they ask the state to tax MoCo even more to pay for their needs.  (Remember the 2012 state income tax hike, of which MoCo residents paid 41% of the new revenue?)  As a result, the next time the Lords of Annapolis are asked to help Montgomery County, they could very well reply, “Tax yourselves to pay for it. You always do.”

6.  A major argument in favor of the liquor monopoly has been proven hollow.

County officials predicted that if the liquor monopoly was lost, annual property taxes would have to rise by an average $100 per household.  Instead, the monopoly was preserved and the council passed a property tax hike that will cost an average $326 per household.  The tax hike was in the works since at least January 2015, long before small businesses and consumers launched their campaign to End the Monopoly.  And the $25 million in new spending added by the council to this year’s budget actually exceeds the $20.7 million that the liquor monopoly is projected to return to the general fund.  This proves once and for all that liquor monopoly revenues do not prevent tax hikes!

7.  There will be pressure in the future for another tax hike.

As we discussed in Part Three of this series, the U.S. Supreme Court’s Wynne decision, which requires counties to refund taxes paid on out-of-state income, was one reason for the current property tax hike.  Senator Rich Madaleno’s state legislation extended the time that counties had to pay for refunds from Fiscal Year 2019 to 2024.  Below is a table showing the fiscal impact on all Maryland counties combined, of which Montgomery accounts for roughly half.  While the legislation enables counties to spend less in FY 2017-2018, it requires them to spend more in FY 2020-2024.  MoCo will have to spend around $20 million a year in most of the out years.

Madaleno Wynne Bill Fiscal Impact

Given its $5 billion-plus annual budget, Montgomery could easily afford the out-year payments by slightly slowing the growth rate in its annual spending.  But instead, the council added $25 million in new spending on top of the Executive’s FY 2017 budget, and unless it is cut, that spending will continue in future budgets.  The cumulative impact of that new spending plus future Wynne refund payments will start to be felt in three years.  At that point, the council could very well face a choice between trimming back their added spending or raising taxes.  What do you think they will do?

8.  Economic development will now be harder.

Despite the wealth in some of its communities, Montgomery County struggles with the perception that it is not business-friendly.  While its unemployment rate is low by national standards, its real per capita income fell steeply during the recession, much of its office space is obsolete and it lacks Northern Virginia’s two major airports and its new Metro line.  The chart below shows the county’s private sector employment from 2001 through 2014.  Despite recent sluggish growth, the county had fewer private sector jobs in 2014 than it did in 2001.

MoCo Private Employment 2001-2014

And while the county lost private sector jobs, the Washington region as a whole grew by 9.5% over this period.

Washington Private Employment 2001-2014

There may be a variety of factors explaining MoCo’s weak economic performance, but consider this: in the last 15 fiscal years, the county has seen six major tax increases.  The county broke its charter limit on property taxes in FY 2003, 2004, 2005, 2009 and 2017 and it doubled the energy tax in FY 2011.  (Most of the latter increase is still on the books.)

Good government is an exercise in balancing needs.  Education, transportation, public safety and public services are valuable and require resources, at times necessitating tax increases.  But all of that is impossible without a vigorous private sector that creates jobs and incomes and pays the government’s bills.  Those priorities must be balanced, and when they are, progressive policies can be afforded.  But if they are not, economic growth will fail, government services will be harder to sustain, taxes will fall increasingly on a shrinking base and a downward spiral could begin.

In the wake of its long-term stagnant economy and its Giant Tax Hike, how close is Montgomery County to that tipping point?

Housing Initiative Partnership Responds

HIP Logo

Last week, I published a blog post on the conundrums facing the Purple Line Compact effort to preserving affordable housing and commercial rents in areas around new Purple Line stations. At the end of the piece, I wrote that I’d welcome hearing more from Compact proponents about “creative ideas to ease the collision of fundamental economic forces with real social needs.” I appreciate that Maryann Dillon, Executive Director of the Housing Initiative Partnership, took up this public invitation. Here are her thoughts:

In his article on October 2, “Fair Development Compact Pipe Dream”, David Lublin rightly argues that a “central goal of the Purple Line is to improve transportation connections” and that, as a result, “the land around the stations should become more desirable and valuable”.

He cites Bethesda, Silver Spring, Ballston and Clarendon as successful examples of places that have become more desirable given their access to transportation including Metro. These places boast stronger tax bases that help local governments provide better services. I think we all can agree that these are four of the most desirable and attractive destinations in the DC metro area, and that, as a result, they naturally have increased in value.

What David fails to note, however, is that all four of these locations are beneficiaries of progressive housing policies by the Montgomery and Arlington County governments put in place well before revitalization occurred.

Forty years ago, Montgomery County pioneered the concept of “inclusionary zoning”. Called Moderately Priced Dwelling Units (MPDUs), Montgomery County’s program requires developers of over 20 residential units to include 12.5% of the units as affordable to working families earning less than 80% area median income ($85,600 for a family of four). The MPDU program has created thousands of homes affordable to moderate income renters and homebuyers scattered in every neighborhood of the County. In this way, a broader range of residents can live near transportation and jobs, reducing the burdens on our roads from long-distance commutes. A mix of housing types makes it easier for employers to find workers for their restaurants, hotels, offices and local services that make these communities special, let alone the teachers, fire and police personnel necessary to maintain their high quality of life. Montgomery County commits around $50 million annually from its own general revenue to support affordable housing development in its most desirable communities.

Likewise, the Arlington County Affordable Housing Ordinance offers developers seeking additional density in the site plan process the choice of providing affordable units or contributing to the Affordable Housing Investment Fund. The Special Affordable Housing Protection District (SAHPD) as outlined in the General Land Use Plan identifies existing affordable housing sites within the County’s two Metro Corridors that are planned for site plan projects of 3.24 FAR or higher. Existing affordable housing units are to be replaced on a one-for-one basis, again with the goal of protecting and preserving the mix of housing types and prices that can help keep these corridors dynamic and diverse. Arlington has committed $13 million in the current fiscal year to support its Affordable Housing Investment Fund.

Last year, the Prince George’s County Council passed inclusionary zoning legislation and charged the County Executive with recommending areas of the County in which this zoning would apply. While the recommendations have been made, County Council has not yet taken any action on them. Unlike its neighbors, Prince George’s County does not dedicate any of its own resources to develop or renovate affordable housing.

On August 30, 2014, the Washington Post published a story, “Affordable rents fading away in DC’s housing picture” which described the imbalance between the overbuilt “luxury” rental market and the continued loss of more affordable and moderately prices apartments. Montgomery and Prince George’s Counties share the distinction of having 50% of their renters “cost burdened”, where they spend more than 50% of their gross income on rent. Another surprise… both the District and Montgomery County have a higher number of households earning less than 50% of the area median income than does Prince George’s County, despite perceptions to the contrary.

Surely we all understand that the Purple Line will be an economic boost for the neighborhoods along its way. But, as higher density is introduced into some of these redevelopment corridors, our State and Counties should take measures to protect the residents and small businesses that have kept many of these areas thriving, despite the lack of investment in properties for so many years. These residents kept the faith in the bad years. They should share in the rewards once the good years finally come.

Fair Development Compact Pipe Dream?

compact1

The rally for a compact to promote fair development in relation to the Purple Line will occur on October 6th. What is the compact according to its promoters?

compact2

In essence, the key purposes of the compact are to prevent the displacement of affordable housing and small businesses currently located near Purple Line stops.

I look forward to seeing how they plan to square this circle.

Obviously, a central goal of the Purple Line is to improve transportation connections. And if people can more easily get from one place to another, the land around the stations should become more desirable and valuable, which will make it harder to afford to live and more expensive to operate a business near the stations as rents for housing and commercial space rise.

Indeed, proponents claim that the Purple Line will propel economic development around the stations. If successful, the spike in land prices will be far stronger than caused by faster transportation alone. It should also cycle in a positive way.

Think about places like Bethesda, Silver Spring, Ballston and Clarendon. As more businesses open and more people travel to the area, it becomes more desirable to locate businesses there. Similarly, more people will want to live near jobs and the commercial establishments in the area.

Just as improvements to the educational system or reductions in crimes make a place more attractive to open a business or establish a residence, ease of access both in terms of transportation and customers has the same effect.

Land prices will rise, as will rents for housing and businesses. Of course, the State and the County want this to happen. It’s not just a side effect but the point of spending $2.5 billion to build the Purple Line.

And hardly for nefarious reasons. As Montgomery County Councilmember George Leventhal has often explained correctly, economic growth generates jobs–not to mention the taxes that pay for services.

Local and state governments are always looking for ways to increase the tax base because the demand for services naturally exceeds the monies available. Moreover, if growth doesn’t occur, the demand for services rises even as funds dry up.

[And let’s avoid for now the political dynamite surrounding the benefits to the County’s budget balance–if not moral deficit–of attracting wealthy residents or displacing poorer ones to other jurisdictions. For our purposes, we’ll just assume that they stay in the County even if they have to move.]

In short, the proposed compact is likely to have success only to the extent that it tilts against the economic goals of the Purple Line. Some stations may attract much less growth than others–just compare the Metro stops in Prince George’s to those in Montgomery. In these areas, prices will rise comparatively less and they will remain more affordable.

Squaring the circle of displacement and growth seems all but impossible. If the County somehow prohibits or slows rents from rising on housing or businesses, it inhibits the growth of its tax base and undermines a central rationale for building the Purple Line.

To an extent, the inevitable concentration of growth around some stations but not others may provide some relief. But probably not in some areas that deeply concern Casa de Maryland like Langley Park, which is a natural prime target for redevelopment as middle-class residents get displaced from other more expensive areas.

It will not all be bad. Economically rising residents who have managed to acquire properties will benefit if they end up making a tidy profit if and when they decide to sell their land. Small businesses who have longer terms leases will see their customer base rise. And many will relocate successfully, though others will not.

And perhaps the proponents of the Compact have creative ideas to ease the collision of fundamental economic forces with real social needs that development around the Purple Line will not address.

If so, I look forward to hearing more about them. Engagement of an interested public and government on the problem may provide real benefits. But it’s not going to be easy.

 

Contemplating Life Inside An Economic Engine

Political and business leaders often refer to Montgomery County as the “economic engine” of Maryland. Interesting words, “economic engine.”

In the 1950s and 1960s, Montgomery County was transforming from farmland to suburbia. I doubt that any of my neighbors in those years imagined that the county would ever be called an economic engine.

In 1950, the county population was 164,000. By 1970, population more than tripled, to 525,000. People were moving to Montgomery County by the thousands because it was a good, safe place to live, with excellent schools. And they could have a yard for the kids and the dog.

The fast pace of growth continued through the 1970s, 1980s and 1990s–not only residential development, but construction of shopping malls and industrial parks. The county became a place to work, as well as a place to live. Looking back on those decades, Montgomery County was an engine of constant real estate development.

By the turn of the century, Bethesda was on its way to becoming an “edge city,” with tall office and residential buildings. Cutting-edge industry emerged along the I-270 corridor in Rockville and Gaithersburg, and residential development extended to Germantown.

2014 And The Future

Now, in the year 2014, with a  population of one million, and more jobs than any other jurisdiction in Maryland, we’re not sure if Montgomery County is destined to be a city, a suburb, or something in between. Jobs are a critical concern, but housing is also essential, especially a range of affordable housing for everyone from retail and service workers, to teachers and police officers, to the very affluent.

Taking stock as we approach the 2014 election, and looking to the future, residents might ask the following question:

Do Montgomery County voters want to live inside a constantly growing economic engine?

My own instinctive answer is, “No, Montgomery residents want to preserve, as much as possible, a more bucolic, suburban sense of place.”

At the same time, I wonder, “Maybe we’re too far down the road to urbanization to turn back. We have more jobs than any other place in Maryland. Our population is diverse and multilingual. Wouldn’t it be cool to become a 21st century, cosmopolitan city.”

Imagine a prosperous urban center, combining the best of Montreal and Silicon Valley.

Montgomery County residents and leaders haven’t had much time to catch their breath and fully consider the choices. Growing from 165,000 to one million in six decades, it’s been a constant challenge just for basic infrastructure to keep up with population and job growth.

Past economic growth has been truly impressive, but we have no reason to project that kind of growth into the future. We can’t predict whether future development will overwhelm us, or go elsewhere.

For one thing, the federal government remains the most important economic influence in the Washington, D.C., region. If the federal government did not exist, Montgomery County would still be farmland.

The federal government remains the largest single employer in Montgomery County. But consider that federal job growth has probably peaked. Many workers in both public and private sectors will be replaced by computers and robots. We may well lose jobs faster than we can create them.

No matter what politicians say at election time, it’s not within the power of any one local leader, or even all local leaders acting together, to create private sector jobs.

If economic and job growth is Plan A, we should also have a Plan B. Plan A only works if the American economy returns to the status quo ante 2006. If not, if there’s been an economic paradigm shift, we’ll need a Plan B. What that plan would involve is beyond the scope of this article.

21st Century Infrastructure

Based on geography and infrastructure in the Maryland-D.C.-Virginia region, it looks to me like the economic engine of the future might be the I-95 corridor.

It’s shaped like a barbell, anchored in the south by the federal government and major universities in Washington. In the north it’s anchored by major universities and medical centers in Baltimore, and the Port of Baltimore. In between, along the highway and railroad infrastructure linking the two cities, there’s the University of Maryland at College Park, the National Security Agency at Fort Meade, and importantly, BWI Airport.

Now look west, to Montgomery County. The county is not far from the I-95 corridor, but it’s not exactly at the center of the action. You might almost say — in fact, I will say it — Montgomery County looks perfectly located to be a major bedroom community for the Baltimore-Washington corridor, particularly at the southern end.

Historically, major cities developed around transportation by water, railroad or airport. In the 21st century, can Montgomery County expect to be a major economic player without an airport? The county also does not have a professional sports team, or a major research university, a medical school, law school, or even a four-year college.

We’ve had our hands full in Montgomery County building a basic suburban infrastructure of schools, highways, and mass transit.

If we aspire to be a cosmopolitan center with population density and economic growth, we need to commit ourselves to building other kinds of infrastructure, such as a major airport and a university.

The growing Baltimore-Washington region is going to need another modern airport eventually, I’m thinking. Dulles is far to the southwest and BWI is to the north. Reagan National is reduced to boutique-VIP  airport status for obvious security reasons.

But finding a site for a major airport in Montgomery County is a problem that boggles the mind. It would be an epic battle. Possibly Frederick County would like an airport to support the economic growth of both counties. Or possibly not. All in all, an airport to serve the western part of the metro area seems like an unlikely dream.

Besides an airport, it’s hard to imagine a city of  one million, a center of innovation and scientific development, without a university. Lack of affordable, local higher education is a problem for both middle-class families and business development.

Montgomery College and the Universities at Shady Grove fill part of the need, but they’re less than a shadow of the excellent higher education available in Baltimore and Washington.

So what does Montgomery County have to attract businesses? A great public school system, relatively high costs of land, and inconvenient airport access. Seems to me the I-95 corridor might be a better choice for many companies.

Housing, Business and Jobs

It doesn’t make sense for jurisdictions within the region to compete for all types of development. No one can predict the future, but we’ll probably have more than enough growth to go around over the next 50 years. Might Montgomery add another half-million people? Another million? It’s impossible to say.

Since the pressures for growth are mostly beyond our control, wouldn’t it be best to allow the region to grow organically, rather than trying to rush growth, or block it?

Maybe the I-95 corridor has an advantage when it comes to development of business and commerce. Maybe Montgomery County has an advantage as an excellent place to live.

When good companies want to locate in Montgomery County, we should welcome them. But it doesn’t make sense to encourage growth on steroids, or to get into a bidding war with other counties.

Jobs are a critical need, but so is housing. The exact location of jobs is not critical, as long as they’re within commuting distance. Montgomery residents moved here because they want a good place to live and excellent schools. They knew from the start that they’d be commuting. They don’t necessarily need their jobs to be in the county.

Fortunately, the Intercounty Connector and the Purple Line will connect Montgomery County with the I-95 corridor in both north and south. The improved transportation network will make it easier for people who live in Montgomery to get to jobs in Prince George’s, Anne Arundel, and Baltimore, and vice versa. No need to treat our neighbors as rivals. A cooperative approach would enable the region to grow organically, with a balance of businesses for people to work in, and houses for people to live in. It’s a win-win.

Election year 2014 is an opportunity for decision-making. We only get this opportunity once every four years. But I’m afraid most residents are disengaged from politics.

Assuming that continued growth is virtually inevitable, the question is:  What kind of growth and development do the people who live and vote in Montgomery County prefer, and how much? And what do the candidates think?

Is Montgomery County home sweet home, or an economic engine. Perhaps it can be both. What do you think.

Contact: BJohnHayden@icloud.com