Category Archives: budget

Adam Pagnucco, budget, MCPS, Montgomery County, Montgomery County Council, Property Taxes

MoCo’s Giant Tax Hike, Part Two

By Adam Pagnucco.

The County Council is calling its recently passed budget an “Education First” budget since it included an increase above the state-required minimum level for Montgomery County Public Schools.  Let’s evaluate that claim.

The council and the school system have had strained relations for a decade.  The problems began under former Superintendent Jerry Weast, who antagonized several Council Members with his hard-charging, overdriven style.  Nevertheless, Weast won several major budget increases for MCPS during his tenure.  Then came the Great Recession, which forced the county to make substantial spending cuts across all of its agencies.  One obstacle to cuts at MCPS was the state’s Maintenance of Effort (MOE) law, which sets a local jurisdiction’s per-pupil contribution to public schools as a base which cannot be lowered in future years unless a waiver is obtained from the state’s Board of Education.  In Fiscal Years 2010, 2011 and 2012, the county cuts its per-pupil contribution to MCPS, and in 2012, it did so without applying for a waiver.  As a result, the General Assembly changed the MOE law to force counties to apply for waivers or else have their income tax revenues sent directly to school systems.  At the same time, the General Assembly shifted a portion of teacher pension funding responsibilities, once solely the province of the state, down to the counties.  The combination of these two changes provoked outrage from county officials, some of whom vowed to never support a dime over MOE for MCPS in the future.

The chart below, which shows the recent history of Montgomery County’s local per-pupil contribution to the schools, illustrates the effects of these events.  After rising through FY09, the per-pupil contribution fell for three straight years and then was frozen for four straight years.  This year, the Executive proposed and the council approved an increased per-pupil contribution.  (Roughly $300 of the increase is accounted for by the county’s payment of teacher pensions.)  This is why the County Council is calling its budget an “Education First” budget.

County Per-Pupil Spending on MCPS Nominal

But three items of context apply here.

First, the above chart does not include the effects of inflation, which erode dollar contributions over time.  The chart below shows per-pupil contributions in real dollars using 2017 as a base.  (Inflation in 2016 and 2017 is assumed to be 2.1%, the average of 2007-2015.)  Adjusted for inflation, the county’s current per-pupil funding is nowhere close to what it was before the Great Recession struck.

County Per-Pupil Spending on MCPS Real

Second, while MCPS was living under austerity, other county departments were receiving sizeable funding increases.  The chart below compares funding increases across several county departments and agencies including MCPS between FY10 (the pre-recession peak year) and FY16.  In terms of county dollars only, MCPS’s budget was cut from $1.57 billion to $1.54 billion over this period, a 2% cut, while many other departments enjoyed double-digit increases.  Can one good year make up for seven years of austerity for the public schools?

Change in County Spending FY10-FY16

Third, while county officials criticize the General Assembly for tightening the MOE law and shifting teacher pensions, it is the state that has been pumping substantial funding increases into MCPS’s operating budget.  The chart below shows that while county funding for MCPS was cut by $33 million between FY10 and FY16, state aid to MCPS rose by $192 million.

MCPS Local Money vs State Aid

The bottom line is that the new FY17 budget does add $110 million in local money to MCPS, an amount which exceeds the state-required maintenance of effort by $89 million.  But this one funding increase comes after seven years of reduced and frozen per-pupil contributions, a period during which the rest of the government enjoyed double-digit increases.  Council President Nancy Floreen has described the budget as “a historic partnership with the Board of Education” and “a plan for the future.”  Does that mean that the council will continue to exceed maintenance of effort and give the school system increases that match the rest of the government in future years?  Or will this be a one-year respite, after which austerity will return?

We will have more in Part Three.

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Adam Pagnucco, budget, Montgomery County, Montgomery County Council, Property Taxes

MoCo’s Giant Tax Hike, Part One

By Adam Pagnucco.

As part of the Fiscal Year 2017 budget, the Montgomery County Council has voted to increase property taxes by 8.7 percent.  This is a landmark event that is drawing attention from a large number of people who hold differing views.  While it is a dramatic development, it is also the product of several factors that have been building for a number of years.  This series will explore those factors, explain how it happened, and look at the future.

First, a bit of background.  Property taxes are the number one source of revenue for Montgomery County Government, as they are for most, if not all, county governments in Maryland and Virginia.  In recent years, property taxes have accounted for 35-40% of the county’s total revenues, and the average household paid $4,154 in FY16.

In 1978, the nationwide property tax revolt that produced Proposition 13 in California came to Maryland.  That year, Prince George’s County voters passed the Tax Reform Initiative by Marylanders (TRIM) charter amendment, which placed a hard cap on property tax collections, and replaced it with a rate cap in 1984.  A 1996 referendum to repeal the cap failed.  Montgomery County voters also saw a TRIM charter amendment in 1978, but they voted it down by a 52-48% margin.  In 1990, Montgomery civic activist Bob Denny authored a charter amendment limiting growth in property tax collections to the rate of inflation, and county voters passed it.  But the charter amendment contained an override provision allowing the County Council to exceed the limit on a 7-2 vote.

By the 2000s, the charter limit’s constraint on the council began to evaporate.  The council voted to exceed the limit in FY03, FY04, FY05 and FY09, thereby prompting Robin Ficker to place one of his many anti-tax charter amendments on the ballot in 2008.  After years of failure, the same general electorate that voted for Barack Obama for President by 45 points approved Ficker’s amendment by 5,060 votes.  Ficker’s amendment did not convert the property tax limit to a hard cap, but it did require all nine Council Members to vote in favor of exceeding it.  The council has not done that until this year’s budget.

It’s worth understanding how Montgomery County’s charter limit works.  Section 305 of the charter states the following.

Unless approved by an affirmative vote of nine, not seven, Councilmembers, the Council shall not levy an ad valorem tax on real property to finance the budgets that will produce total revenue that exceeds the total revenue produced by the tax on real property in the preceding fiscal year plus a percentage of the previous year’s real property tax revenues that equals any increase in the Consumer Price Index as computed under this section. This limit does not apply to revenue from: (1) newly constructed property, (2) newly rezoned property, (3) property that, because of a change in state law, is assessed differently than it was assessed in the previous tax year, (4) property that has undergone a change in use, and (5) any development district tax used to fund capital improvement projects.

This is not a cap on rates.  It is a cap on collections, which are not allowed to grow faster than the rate of inflation with certain exceptions unless all nine Council Members vote to override.  Collections are a product of both rates and assessments.  If assessments grow rapidly, it’s possible for the county to cut the tax rate and still grow collections to the limit (or beyond).  Conversely, if assessments fall, the rate could rise and collections might grow slowly (or even shrink).  This distinction is key to understanding how the county makes decisions on this item.

In the new FY17 budget, County Executive Ike Leggett proposed increasing the property tax rate by 3.94 cents per $100 of assessed real property, an increase of 8.7 percent that would have raised $140 million more than the charter limit.  The Executive cited two main reasons for doing so: the challenge of dealing with the adverse consequences of the U.S. Supreme Court’s Wynne decision, which required large refunds to be paid to some county taxpayers, and the fiscal needs of the public schools.  We will look at both of those items as this series continues.

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budget, Larry Hogan, taxes

What Are You Doing with Your $5.99?

mcdonalds-Quarter-Pounder-with-CheeseAfter buying this McDonalds Quarter Pounder with Cheese ($4.78) with your tax cut, you likely won’t have enough left for fries or a soda.

Gov. Larry Hogan’s budget is remarkable for how little it appears to do, at least at first glance. For a governor who trumpeted his desire to cut taxes, the tax cuts are unexciting:

The proposal would also deliver $36 million in fee and tax reductions this year, partly by speeding up tax breaks already approved by the legislature and partly by making new cuts. . . .

Hogan has described his tax plan as “modest.” Legislative analysts suggest it would reduce revenues by more than $100 million a year when fully implemented.

Modest is indeed the word. This year’s tax cut amounts to $5.99 per Maryland resident based on last year’s population estimates. I suppose it’s a little more exciting at $16.02 per household.

Budget Director David Brinkley said that “Taxpayers would see ‘more money in their pockets.'” Just don’t try to take the family to McDonalds on the savings.

More commendably in uncertain times, the Governor is setting aside much of the projected surplus for savings:

The operating budget leaves about $450 million unspent, even after the state stashes more than 6 percent of its surplus in its ‘Rainy Day Fund.’ Bond agencies recommend saving 5 percent.

On the other hand, the Governor’s budget: (1) raises college tuition by 2%–nearly three times last year’s estimated 0.7% rate of inflation, (2) once again plans foolishly to take public money and give it to private schools, and (3) does not yet include any money for Baltimore to knock down vacant homes.

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budget, General Assembly, Governor

Changing the State Budget Process?

budgetbooks

Black is the New Orange: Hogan’s Budget is on the Right

Over at the Free Stater, Todd Eberly has a great post that unpacks exactly why governors of Maryland are considered the most powerful in the nation:

According to the constitution of Maryland, the Assembly cannot increase spending in the governor’s budget and it cannot move funds around in an effort to increase funding in one area by reducing it elsewhere. All the Assembly can really do is reduce the amount of spending proposed by the governor.  The Assembly can introduce legislation to provide funding for programs – but only if the legislation identifies a funding source (e.g. raising taxes). Certainly, members of the Assembly can work with Hogan and try to convince him to introduce a supplemental budget that provides more funding for programs they value, but failing that, Hogan’s budget will stand.

Senators Rich Madaleno, Guy Guzzone, and Roger Manno have introduced a constitutional amendment to give the General Assembly more power vis-a-vis the governor. As we approach the 100th anniversary of the amendment that established this system, it seems a good time revisit our choice.

 

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