Category Archives: Economy

Lessons Learned from the Giant Tax Hike, Part Three

By Adam Pagnucco.

If the next County Executive and County Council want to prevent another Giant Tax Hike, they will have to do something that has not been done for years: seriously improve the county’s economy.  Otherwise, no budget reforms will be enough to pay for the county’s needs.

There are many ways to assess a local economy, but for the purposes of this column, let’s look at two big measures: jobs and income.  From 2001 through 2016, the U.S. Bureau of Labor Statistics (BLS) calculates that total employment in the Washington metro area grew by 393,048 jobs, a growth rate of 14.6%.  In Montgomery County, total employment grew by 14,086, a growth rate of 3.1%.  Of 24 local jurisdictions measured by BLS, Montgomery’s job performance ranked 20th.  Among the large jurisdictions, only Prince George’s County fared worse.

Montgomery fared well in federal employment over this period, growing its federal jobs base by 18.9%.  That beat the metro area’s federal employment growth rate of 13.2%.  The county’s employment problems are concentrated in its private sector, which grew by just 1.0% between 2001 and 2016.  Montgomery’s private sector had 374,115 jobs in 2016, below its peak of 386,626 ten years before.  Over the last fifteen years, Montgomery’s private sector employment growth ranked 19th of 24 local jurisdictions.

In terms of real per capita personal income, the Washington region enjoyed a long period of growth that peaked in 2007, the year before the Great Recession hit.  In the eight years since, the region’s per capita income has struggled to increase for the first time in more than three decades.  Montgomery has a higher per capita income than the regional average, but it has suffered from a similar pattern.

Of 19 local jurisdictions tracked by the U.S. Bureau of Economic Analysis (BEA), twelve had real per capita personal income gains between 2007 and 2015.  Montgomery was one of the seven jurisdictions that did not.  Its 1.7% drop is below the regional total of -0.2% and ranks 14th of 19 jurisdictions in the region.

In broad terms, the employment data and the income data agree: Montgomery County has still not recovered from the Great Recession.

The fragile state of the economy acts like a steel cage on the county’s budget.  The county’s needs in public schools, public safety, transportation, health and human services and countless other areas will not go away.  But unlike days past, the economy currently cannot generate the tax revenues to finance everything desired by those in office – and their constituents.  The county has passed four tax hikes since the Great Recession started – two property tax increases (FY09 and FY16), an energy tax hike (FY11) and a recordation tax hike (FY16).  Added to this is a series of recent laws imposing rising costs on employers.  While some local jurisdictions in the region (especially in Virginia) have passed tax hikes and the District of Columbia and Prince George’s have passed new employment laws, Montgomery County is the only local government that has passed both in significant magnitude.  There may be reason for that, but it has contributed to enormous competitive challenges for the county.

Progressive policies such as those favored by Montgomery County politicians cost lots of money.  That money can only be obtained over the long term through a robust economy.  Economic growth is affected by the totality of what the county does – its investments in education and transportation, its fiscal and taxation policies, its planning decisions and the nature of new laws and regulations it imposes on employers.  If any of these things negatively impacts economic growth, marketing programs, slogans and massive incentives for large businesses will not by themselves make up for it.

The Number One lesson from the Giant Tax Hike is that the next generation of county elected officials must prioritize job creation and income growth.  Failure to do so will result in more tax hikes and further long-term decline.

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Growing Our Local Economy and Shrinking Our Wealth Gap

By Ben Shnider.

To drive along Montgomery County’s I-270 corridor is to pass countless “For Lease” signs in front of near-vacant office parks. And to speak with service industry workers along this corridor is to encounter our community’s widening gap between the top 1% and other 99% — for whom it’s becoming harder and harder to afford living in the County.

How we address these twin challenges of affordability and economic development will define our community over the next decade. Thankfully, by proactively seizing every opportunity to prioritize smart growth, we can make significant progress on both fronts.

Consider the recent foreclosure sale of Lakeforest Mall in Gaithersburg. The mall was purchased for one-fifth of what the previous owner spent to acquire it in 2012. This drop in value coincided with, among other factors, the growth of the more walkable Crown Farm neighborhood about four miles down the road. The County is already studying a modernization of the well-used Ride-On transit center adjacent to Lakeforest Mall. A comprehensive mixed-use redevelopment of the property would complement this investment far better than retaining the dated mall by boosting foot traffic and economic activity. After all, the numbers are clear: walkable, transit-oriented areas in our region produce 80% more in retail sales than their auto-centric counterparts. And it’s these more walkable, transit-oriented neighborhoods that have recently drawn many regional employers.

Mixed-use redevelopment of properties like Lakeforest can also be an important tool in addressing the affordable housing crisis in Montgomery County. Over one-third of County residents now rent and half of those renters are cost-burdened. Those looking to buy are often forced to choose between inadequate options that squeeze prospective buyers for unnecessary space and/or acreage. Walkable and transit accessible communities provide an opportunity for a broader range of housing choices. They also provide additional opportunities for existing affordability initiatives like the County’s Moderately Priced-Dwelling Units (MPDU) — a program that Gaithersburg and Rockville have also adopted.

Of course, there are challenges involved when re-envisioning underutilized properties like Lakeforest, including adequate public infrastructure, individual property owners in need of an incentive to relocate, and developers who don’t want to contribute their fair share for infrastructure improvements. In this case, the City of Gaithersburg — a leader in smart growth — has wrestled with these hurdles for some time. And, of course, not every mall in the region is failing. For instance, Westfield’s Bethesda and Wheaton malls are doing relatively well.

But these challenges can’t be an excuse for running on autopilot and the fact that some indoor shopping malls are doing better than others shouldn’t distract us from the overall trend. Instead, we must embrace opportunities to reinvent dated properties in the County with a sense of urgency. Otherwise our economy will fall behind those of neighboring jurisdictions, our residents will lack adequate housing and employment opportunities, and our government will lack the tax revenue necessary for critical investments like pre-K and enhanced access to Montgomery College.

The County, therefore, must work with our municipalities and the business community to leverage every tool at its disposal to move away from shopping malls and cavernous office parks and toward more sustainable and affordable communities — from master plans and zoning text amendments (outside of cities, like Gaithersburg and Rockville, that have their own zoning ordinances), to reinvigorated and innovative economic development and affordable housing policies.

This overall approach will help uproot the “For Lease” signs along I-270 while extending more economic opportunities to the low-wage workers working in their shadows.

Ben Shnider is a Democrat who is running for Montgomery County Council in District 3.

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Has Montgomery County Lost Its Economic Strength?

By Dr. Tom Ferleman.

[Editor’s note: Seventh State is pleased to present guest blogs from candidates for office.  The views here are those of the candidate and not of David Lublin or Adam Pagnucco.]

When I was growing up, Montgomery County was one of the wealthiest counties in the whole country.  Many of us remember when Montgomery County’s transportation infrastructure was second to none. Our schools were always ranked number one. We were the envy of the nation. Today, we’re thrilled when we’re in the top ten on any list.

Even Councilmember Craig Rice admitted that the Council no longer holds the County in such high regard.

In March of 2015, it was reported that while stumping in Germantown for more funds for the education budget, Rice told an audience, “We did not want to acknowledge, for a very long time, the fact that we had poor people coming into Montgomery County and that Montgomery County was changing.”

As was reported by the Germantown Pulse on March 19, 2015: [Rice] contends that County leaders waited a long time before we changed the perception of Montgomery County as a being full of millionaires who could afford whatever they wanted. “That was never a reality. We just never acknowledged it.”

It’s as if the County Council doesn’t understand how government works. Montgomery County lags the region in recovering pre-recession job levels. Despite six consecutive years of positive job growth across the region, Montgomery County had 0.6 percent (2,964) fewer jobs in March 2016 compared to the same month in 2006, indicating that job losses sustained during the Great Recession have not been fully recovered. In contrast, the wider Washington, DC metro area added 191,718 new jobs over the decade. Three jurisdictions together accounted for 70 percent of the region’s job expansion: The District of Columbia (82,397), Loudoun County (32,081) and Fairfax County (19,550).

While average may be good enough for some Councilmembers, for me, it’s not a passing grade. We must take active measures to boost our competitive advantage in the region.

If elected to the County Council, I will work to develop the mechanisms to make it easier for businesses to operate in the County (i.e. lower taxes, easier permitting and licensing, less traffic congestion, and a favorable education pipeline). While growing jobs locally contributes to providing a better quality of life, it also creates an entrepreneurial culture that promotes economic development for everyone.

Dr. Tom Ferleman is a Republican candidate for Montgomery County Council in District 2.

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Has the Montgomery County Council Backed Our Community into a Corner?

By Dr. Tom Ferleman.

[Editor’s note: Seventh State is pleased to present guest blogs from candidates for office.  The views here are those of the candidate and not of David Lublin or Adam Pagnucco.]

The County Council has raised taxes, overspent the budget and failed to grow new jobs locally. Montgomery County lost jobs while everyone around us was gaining them.

The pace and scale of property-tax increases over the last decade in Montgomery County are overwhelming. Since 1990, residential property taxes here have grown more than twice as fast as the state’s median household income. Residential property taxes now eat up an average of 6.4 percent of a typical household income in Montgomery County. In 1990, that share was 3.6 percent.  In this growing bite of household income lies the pain currently felt by homeowners, whose family budgets have been thrown into disarray.

Montgomery County taxpayers are paying more for schools which are below historic standards, roads which are more congested, and services which are stretched to the point of breaking. What are we paying for?

More often than not, when citizens talk about cutting taxes, some Councilmembers argue, “but how are we going to pay for services…” This is a narrow-minded answer to a reasonable question. We don’t have to cut services in order to roll back the recent tax increases.  In most municipalities, taxable revenue is based on a 60/40 split. Communities often receive 60 percent of their budgetary revenue from residential property taxes and 40 percent from commercial or business-based taxes.

However, in Montgomery County, that taxable revenue is based on an 80/20 split. That is, a whopping 80 percent of our taxable revenue comes from residential properties and only 20 percent from commercial properties.

In the past three years, Germantown has lost over 1,200 jobs, while a disproportionately high number of women in Montgomery Village have lost jobs in the same time frame. Property tax increases, an anti-business climate, excessive regulations and gridlock have harmed families.

Our families are bearing the burden of Montgomery County government’s entire budget on their backs. Property taxes have become a second mortgage that homeowners can never pay off – and an endless expense that grows more costly each year. When I was growing up, the family home was a retirement asset; now it’s a county tax asset. My strategy focuses on building our commercial tax base by growing businesses so that we can reduce the weight of residential property taxes.

Dr. Tom Ferleman is a Republican candidate for Montgomery County Council in District 2.

 

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Has the Great Recession Returned to Montgomery County?

By Dr. Tom Ferleman.

[Editor’s note: Seventh State is pleased to present guest blogs from candidates for office.  The views here are those of the candidate and not of David Lublin or Adam Pagnucco.]

For a decade or so, I’ve grown increasingly concerned for our community. Every morning, thousands of people crawl down I-270 for jobs in Virginia and D.C., jobs that were once in Montgomery County. Those jobs aren’t here anymore. They’ve migrated mostly to Northern Virginia.  A commute that should take only 30 minutes now can take upwards of two hours.

Indeed, every jurisdiction surrounding Montgomery County, with the exception of Prince Georges County, has added jobs over the last ten years. Montgomery County, according to the County’s own Planning Department’s analysis of 2016 U.S. Bureau of Labor Statistics data, has lost almost 3,000 jobs.

While 3,000 jobs lost may not seem like a lot over ten years, compare that figure to the average number of jobs gained by the five surrounding jurisdictions over the same ten years. That number is 34,274; an average gain of 34,000 jobs including Arlington, Fairfax, Loudoun and Howard counties and the District of Colombia.

Since August 2013, the U.S. Bureau of Labor Statistics (BLS) has reported a rapid decline in employment and wages in Montgomery County. According to the data, Montgomery County lost more jobs from August 2013 to 2016 (an estimated 1,250 jobs) than it did during the Sub-Prime Mortgage Collapse leading to the Great Recession (an estimated 1,000).

Not only has Montgomery County lost jobs, clearly our current elected officials haven’t done much to attract new jobs either. Perhaps it has something to do with the anti-business ideology enacted by the County Council over the last decade?

The County showed just 1.1 percent job growth from 2015 to 2016 — the lowest of all area counties.

And how does the County Council respond? What do they do when thousands of jobs are lost across the County? They raise property taxes a dramatic nine percent last year, followed by another three percent increase this year.

As if that’s not enough, they increased the Recordation Tax; that’s a tax on buying and selling your home. And now they’re trying to do it again this year. Who does that?  The last thing you do when people are struggling is to take more money from them.

I will return homeownership to its rightful place as a family investment asset. I will work to reduce traffic congestion in order to return precious hours in the day to local families and I will fight to #BringJobsHome so that we can boost economic development and establish a work-where-you-live culture in our community.

Dr. Tom Ferleman is a Republican candidate for Montgomery County Council in District 2.

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How I Plan to Win District 2: Measurable Solutions to Real Problems

By Dr. Tom Ferleman.

[Editor’s note: Seventh State is pleased to present guest blogs from candidates for office.  The views here are those of the candidate and not of David Lublin or Adam Pagnucco.]

In order to #BringJobsHome to Montgomery County, we must actively recruit anchor companies and top-tier mid-size businesses that will help expand economic development in Science, Technology, Engineering, and Mathematics (STEM) while also fostering family-owned small business entrepreneurship and innovation.

GROW LOCAL JOBS

My five point Jobs Plan to #BringJobsHome to Montgomery County is one of the most significant ways to increase opportunity and decrease poverty. Both public and private stakeholders in the County must come together to reach agreement and take action to make the economy grow and create local income opportunities for more people.

We must make it easier for businesses to operate in the County. Otherwise they will continue to choose other locations to operate.  Advancing our competitiveness in the region is essential to giving people opportunities to increase their wages and strengthen their chances for meaningful and stable employment. Furthermore, growing jobs locally provides a better quality of life, increased lifestyle choices, better neighborhood engagement, healthier nutrition, fitness, and family -time and an overall culture that promotes local families and communities.

The number one uncertainty in business is time. While businesses can plan for cost, taxes, and fees, they struggle to plan for the time it will take to start and complete a project. We must reduce the time it takes to process permits, gain approval, and achieve a fair return on investment. These changes will strengthen business assurance and draw new smart growth jobs to our community.

ROLL BACK TAX INCREASES

My five point Tax Plan for rolling back tax increases will provide incentives to businesses that expand in Montgomery County and additional credits to residential homeowners, the elderly, and veterans. Families are feeling the pain as budgets have shrunk and flexible spending has diminished. It’s as if people are renting their homes from the government.

In order to return homeownership to its long-term investment value, I will submit a bill to establish a supplemental property tax credit for homeowners whose household income as compared to their tax bill puts an undue burden on their quality of life.  My plan will double the maximum property assessment amount used for computing property taxes and change the income formula to allow for eligibility at a higher income level.

As part of my #BringJobsHome Plan, I will introduce a ten-year sliding tax credit available to businesses that increase their square footage and the number of full-time employees. As businesses grow, the credit will increase to incentivize local growth. An additional “hometown” credit will be added for businesses that have been in Montgomery County for over ten years.

REDUCE TRAFFIC CONGESTION

My five point Transportation Plan calls for the County to adopt a culture of smart planning, innovation, rapid implementation and efficient execution that focuses on capacity management. Flexible, community-sensitive design should replace by-the-book engineering that inhibits rapid improvements. I will solve problems with innovation focused on results rather than time-consuming studies. Rapidly implemented on-the-ground fixes will be adjusted in light of experience, and we should move on quickly if they don’t work. Our primary concern should be to alleviate traffic congestion as both an economic and quality of life benefit.

We must integrate technology companies, land developers, regional partners and citizens to lead Maryland in innovative traffic management. We must prepare for the introduction of autonomous vehicles, traffic flow timing, sensor-based traffic lights, and adjustable self-governing speed limits for both mass-transit and individual car drivers to ensure community safety concerns are addressed and implementation is efficient, cost-effective, and first and foremost, reduces traffic congestion.

An investment in infrastructure is an investment in jobs. Therefore, I support research into building a second crossing over the Potomac and following through with constructing Mid-County Highway Extended (M-83).  Transportation improvements must translate to new business imperatives. Smart growth requires an economic and rural balance that maximizes the social-cultural diversity of our community and benefits every citizen equally.

FUND A ROBUST EDUCATION PIPELINE

My five point Education Plan focuses on preparing students for jobs in our community. A sustainable education pipeline begins with a well-funded school system. We must support strong, family-first early childhood education that prepares young children for success throughout their academic years. It continues with the highest-quality elementary, middle and high school education, all focused on preparing students for success in college and beyond.

We must think locally and act globally; the nations of the world are here. Montgomery County is a transient community. Many people move here for government jobs and eventually return to their homes. This varied culture has always ensured that we are a diverse, adaptable, creative and welcoming community. We must develop an education pipeline that maximizes our geographic uniqueness, sees diversity as an opportunity for creativity and allows students to grow as citizens of the world.

If we want the best schools, we must be willing to pay for the best talent, resources, and time. Across nearly all measures, our community ranks in the top ten in terms of education but we are rarely number one. We must leap to the front of the room and capture the flag of success by recruiting the best and brightest teachers in the world. Teaching is a calling not just a paycheck; our community understands that and is willing to support our teachers as they dream big and achieve greatness.

CONCLUSION

My plan for Montgomery County is challenging; some might even call it a “bridge too far.” Others will even say that it is too hard. I would respond that our elected officials are hired to do hard things. We expect them to forecast a measurable and emboldened vision and then carry it out. But that’s not what we currently have in District 2. I want to represent my community in measurable ways. Our future requires bold leadership that is willing to look beyond the election cycles and find ways to work across political, geographic, policy and budgetary constraints. I am that leader with a measurable plan for the future of our community.

Dr. Tom Ferleman is a Republican candidate for Montgomery County Council in District 2.

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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?

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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.

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Fair Development Compact Pipe Dream?

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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?

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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.

 

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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

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