Tag Archives: budget

How to Spend More on Education and Transportation Without Raising Taxes

By Adam Pagnucco.  

It’s election season and that means it’s time for lots of promises from politicians.  And boy are they promising a lot, especially on the county’s two big issues of education and transportation.  The mailbox’s “progressive leaders” have “plans” to guarantee every child a great school, invest in transportation – especially transit – and to do all of the above without raising taxes.  Sounds great, yeah?

Time to get real, folks!

Education and transportation each have two virtues.  First, each of them generates direct economic returns.  Education spending yields a return on human capital while transportation spending yields a return on physical infrastructure.  Both are important for attracting and retaining residents and jobs.  Second, each of them is popular with voters.  For as long as anyone can remember, education and transportation have been two of the top issues in our elections – and they might possibly be THE top two.  Happily, on these two issues, good policy and good politics come together!

Paying for them is another matter.  MCPS accounts for a greater percentage of the budget than any other agency with a $2.5 billion budget in FY18.  Montgomery College received more than $300 million.  The Department of Transportation’s operating budget was $56 million.  Funding increases with meaningful impacts on these agencies need to be in the tens of millions of dollars – at least.  That kind of money far exceeds a spreadsheet rounding error.

And yet, there is a way to increase spending on MCPS, the college and transportation without massive tax hikes.  The catch is that it’s not quick or easy.

Let’s do a simple (and yes, admittedly simplistic!) exercise with the operating budget.  First, let’s identify the combined local dollar spending on MCPS, the college and the Department of Transportation (DOT).  Next, let’s segregate out intergovernmental aid, which plays an important role in the budget but is not controlled by the county government.  Then let’s segregate debt service.  Yes, over long periods of time, the county can adjust debt service.  But much of the debt service is being paid on capital projects already completed, and furthermore, a huge chunk of it goes to school construction and transportation projects.  Boosting education and transportation operating budgets by cutting their capital budgets is not the best idea in the world!  Finally, let’s subtract out local dollar education and transportation spending, intergovernmental aid and debt service from total spending and what we get is a great big category that we shall creatively name “Everything Else.”

Here’s what happens when we do that for FY11, the trough budget year of the Great Recession, and FY18, the budget that ends on June 30 of this year.

What the above data shows is that the total county budget grew by 28% over this period.  Intergovernmental aid grew by 26% and debt service rose by a whopping 58%.  (We have previously written about the county’s rapidly growing debt.)  Now let’s contrast the two remaining broad categories: the local dollars spent on MCPS, the college and DOT and everything else.  The education and transportation budgets grew by a combined 18%.  Everything else grew by 37%.

That’s right folks – spending on everything else has been growing twice as fast as local dollar spending on education and transportation operating budgets.  That’s a strange fact in a county in which education and transportation are arguably the top two political issues.

Now what would have happened if the everything else side of the budget was restrained to grow at the same rate as inflation?  The average annual growth rate of the Washington-Baltimore CPI-U since 2011 has been 1.3%, meaning that prices have grown by 9.8% over that period.  When we hold the total budget, intergovernmental aid and debt service constant and assign a growth rate of 9.8% to the everything else category, here’s what happens to local dollars available for education and transportation.  For the purposes of discussion, let’s call this Scenario 1.

In Scenario 1, $2.4 billion is available for education and transportation because of spending restraint on everything else.  That’s $383 million more than the $2 billion that was actually available in the real world FY18 budget.

Holding a big chunk of county government to the rate of inflation for seven straight years is tough medicine and very unlikely.  So let’s create a Scenario 2 in which the everything else category is restrained to twice the rate of inflation, or 19.5% growth since FY11.

In Scenario 2, $2.2 billion is available for education and transportation, $244 million more than the real world FY18 budget.

For the sake of comparison to both of these scenarios, let’s recall that the 9 percent property tax hike was supposed to raise $140 million a year.  (It probably raised a little less than that.)  So under both scenarios, the county could have avoided the giant tax hike and still had lots of money left over for more education and transportation spending.

Yes folks, we understand the radical nature of what we are proposing – namely that liberal Democrats should deliberately and strategically restrain the growth in some forms of spending to boost growth in other spending.  This is likely to be an unpopular concept in a county that has multiple jam-packed budget hearings every year with groups of all kinds requesting money.  But here’s the benefit to concentrating on education and transportation: both forms of spending are investments that generate returns for the economy.  And when those returns boost economic growth, they generate tax revenue that bolsters the entire budget.

What is necessary to pull this off?  Simply put, this requires strategy, discipline, patience and leadership.  Without those traits, given the huge number of constituencies that want their piece of the budget, it would be impossible to focus it on education and transportation.  The natural outcome of a budget process without strategy is that everything gets funded, a tax hike follows, voters tire of it and then they pass restrictive charter amendments and vote for politicians like Larry Hogan.

So what are we going to get?  Spending on everything followed by tax hikes?  Or a budget that is strategically focused on generating economic returns from education and transportation?

Folks, that depends on your decisions in the voting booth.

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Why Progressives Need Economic Growth

By Adam Pagnucco.

For progressives, few issues should be more important than the need for economic growth.  Why do we say that?  First, let’s see what happens when there is no growth.

We have previously written about what happened to the county budget during the Great Recession but we may not have done it justice.  During that time, the evaporation of revenue required the county to implement a series of huge cuts.  Consider what happened to this sample of programs during the recession’s three worst budget years.

These programs are the very essence of the best of progressivism: protecting people from discrimination, funding arts and humanities, paying for community grants to non-profits, helping those with special needs and creating affordable housing.  All were gutted during the recession.

Believe it or not, the above understates the impact of revenue absence.  Consider county employees.  Their collective bargaining agreements were broken and they went without raises for three straight years.  In FY11, they were furloughed.  In FY12, their benefits were cut.  MCPS employees were not immune as the county cut its local contribution per pupil for three straight years.

Perhaps cruelest of all was the county’s cut in its local earned income tax credit (EITC).  MoCo is one of the few counties in the U.S. that has its own EITC and it was once set to match the state’s credit under county law.  During the recession, the county changed its law to allow its EITC to vary and it was cut by almost a third.  How bad is it to cut a tax credit for the working poor during a recession?  Your author’s former employer, Council Member Hans Riemer, later introduced a bill to restore the EITC to its full amount.  After a tremendous fight, he passed it.

We don’t intend to criticize the County Executive or the County Council for making these cuts.  The economy went south and they didn’t have any money.  That’s the whole point here: without economic growth there is no money.

We are no longer in a recession but revenue growth is not as strong as it once was.  Consider the history of county revenue growth, excluding intergovernmental aid, since FY98.  Red bars in the chart below refer to years in which tax increases were levied.

From FY98 through FY09, revenue growth excluding intergovernmental aid rose by an annual average of 6.1%.  In the years since, it has grown by just 2.7% a year – and that includes the year in which the county implemented a 9% property tax hike.  The County Executive’s recommended FY19 budget includes a scant 1.3% growth in revenue excluding intergovernmental aid.  How much more spending on progressive programs can be financed with that?

It’s not a coincidence that the slow years for revenue overlap with the years in which county employment has barely grown, higher-paying wage and salary jobs are being replaced by lower-paying self-employment, business formation has flat-lined and taxpayer income outmigration has hit record levels.  Stagnant revenues are a result of a stagnant economy.

This dynamic is playing out right now.  Some on the County Council would like to expand pre-k education, a huge progressive priority and a great idea.  The problem is that it would cost – at minimum – tens of millions of dollars to be meaningful.  And when the county is already relying on tens of millions of dollars in employee and retiree health insurance money just to fund its current budget, there is no way that’s going to happen.

Tax revenue is the fuel in the engine of progressivism.  That’s because nearly everything that progressives want to do costs money, like funding schools, colleges, youth programs, senior services, social workers, support for vulnerable people, affordable housing and the like.  Conservatives don’t have this problem.  They think government is incompetent at best or evil at worst, so in their view, money given to government is bound to be wasted.  Progressives actually need tax revenue from economic growth MORE than conservatives do because it is essential to the success of their policy agenda.

Here’s the bottom line: you can’t say you’re a progressive and then oppose the growth in tax base needed to pay for a progressive agenda.  Any candidate with that position will be unable to implement progressive priorities if elected.

Progressives need economic growth.  Because without it, they can’t be very progressive at all.

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This Has to Change

By Adam Pagnucco.

Going into this year’s budget deliberations, the County Council was told two important things.

First, county budget director Jennifer Hughes wrote the following on April 5.

The County Executive’s recommended budget, released on March 15, 2018, closed a $208 million budget gap, raising the cumulative amount of budgetary shortfalls resolved in County Executive Leggett’s proposed budgets to more than $3.7 billion. Due to many economic pressures, the shortfalls between projected budget demands and projected revenues will likely continue into the foreseeable future. Our income tax revenues are projected to grow only modestly and the economic recovery continues to be modest and fitful. Additionally, we have not yet adjusted our revenue projections to reflect the effects of H.R. 1, the Tax Cuts and Jobs Act of 2017 (TCJA). There will be an impact on our revenues due to TCJA although the magnitude of the impact is uncertain at this time.

Second, the council’s own senior legislative analysts wrote this on April 27.

FY18 tax revenue is now estimated to be $106.1 million below the FY18 approved budget, and $11.1 million below the estimate from December’s estimate. FY19 tax revenue projections are $76.8 million below the FY19 projections made less than one year ago.

So shortfalls “will likely continue into the foreseeable future” because the economic recovery is “modest and fitful.”  The GOP’s federal tax law could be a problem.  And next year is already projected to see a $76.8 million shortfall after this year’s shortfall, which was over $100 million.

Suppose you were an elected official reading that information.  What would you do?  Perhaps you might say, “Wow, things are kind of tight.  We need to cut back a little because if there is a downturn, we are going to have a problem.”

That’s not what happened.  Instead, the council tapped a total of $77.7 million in one-time fund transfers to finance ongoing spending both this year and next year.  Here are the one-shot revenue sources we know about:

$62.4 million in retiree health fund money (for FY18)

$4 million from the Public Election Fund (FY19)

$10.5 million from the Employee Health Benefit Self Insurance Fund (FY19)

$800,000 inter-fund from Park and Planning (FY19)

$77.7 million total

Believe it or not, there could have been more.  There were serious discussions of financing additional spending by tapping into retiree health money a second time.

The council was justified in taking money out of the Public Election Fund since its balance ($11 million) far exceeds the likely total cost of public financing this cycle.  But the $10.5 million transfer out of the county employees’ health insurance fund is problematic since it contains premiums paid by employees in addition to taxpayer money.  A group of employees has already sued to stop such transfers although both the Circuit Court for Montgomery County and the Court of Special Appeals have ruled against them.

This continues a pattern we have written about before: the council’s practice of using one-shot revenues to pay for ongoing spending on top of the Executive’s budget.  The council has used such methods to add many millions to the budget over the years, though it’s hard to tell exactly how much came from one-time sources because their financing methods are not posted along with the items that are added.  As a result, this is all rather opaque even for someone such as your author who used to participate in the council’s budget process.  (Yes, that makes me part of the problem!)

The council might reply by citing the fact that the county has enjoyed a triple-A bond rating for a long time.  That’s true.  There is much to recommend about the county’s financial practices, including its top-notch pension plan funding ratio (currently 92%) and its reserve ratio, now close to ten percent of revenues.  But the bond rating agencies care primarily about one thing: can bond issuers repay their debt?   Because the county contains a subset of very wealthy neighborhoods and has demonstrated a repeated willingness to raise taxes on them (along with the rest of us), we have a pretty low risk of default.  That probably allows us to get away with using band-aids a little more than some other triple-A jurisdictions that have less resources , like Prince George’s.

Ultimately, the bond ratings agencies’ interests are not identical to county residents.  The ratings agencies are perfectly happy to see more tax hikes that go to debt service.  They are less concerned with whether residents get better services to go along with higher taxes.  That’s our business.  And here is what is happening, folks.  The economy is not as great as our elected officials say it is.  Even Ike Leggett’s own budget director says, “the economic recovery continues to be modest and fitful.”  The county is resorting to band-aids, transfers and using money that is supposed to go to health insurance to add more ongoing spending.  Eventually, if it keeps doing such things, those options are going to dry up when the next recession comes.  And if the next downturn is bad enough, there will be three options on the table.

Raise taxes – again

Lay off county employees

Lose the bond rating

This has to change.  We need elected officials who can prioritize spending and exercise restraint now to head off problems later.  If you agree, remember that on Election Day.

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Leggett Threatens Line Item Veto on Budget

By Adam Pagnucco.

County Executive Ike Leggett is threatening to veto a line item in the Capital Budget just passed by the County Council related to his proposed stormwater reforms.  While the county’s charter grants the Executive line item veto power, we don’t recall the last time this was actually used.  He also expressed displeasure that the council added $14 million of new spending on top of his proposed budget.

We will have more to say about this, but for now, we reprint the Executive’s press release below.

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Statement by County Executive Ike Leggett on the Council Announcement of a Tentative FY19 County Operating Budget

May 17, 2018

“I appreciate the hard work and leadership the Council demonstrated on the FY 19 Operating Budget. The Council approved virtually all of what was initially recommended, including full funding for Montgomery County Public Schools — our shared top priority.

“I am concerned, however, that the Council has increased ongoing expenditures by $14 million over and above my recommended budget.

“In addition, by a 5 to 4 majority, the Council opposed the reform of our stormwater management construction program – a decision that threatens our ability to meet important environmental goals and will certainly delay projects designed to meet our State-mandated MS4 permit — I intend to veto this line item in the Capital Budget.

“We need to make this program more efficient and cost-effective. And we need to be responsive to County taxpayers who – without changes – will be paying more in stormwater management charges to get less. The status quo is unacceptable.”

# # #

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MoCo Diverts $62 Million of Retiree Health Money for General Spending

By Adam Pagnucco.

Remember the county’s $120 million budget shortfall?  While up to half of it may have been caused by tax planning by rich people, the rest was in broad shortfalls across a range of taxes.  The County Council approved a FY18 savings plan of $53 million in January, but what happened to the rest of the shortfall?  Nothing was published in the press.  In fact, the council did cut another $62 million last month and, it seems, no one noticed.

What happened?

One of the county’s long-term obligations is money it owes for retiree health benefits, also known as other post-employment benefits (OPEB).  These benefits are becoming rare in the private sector but they are still common in state and local governments.  In 2008, the Governmental Accounting Standards Board (GASB) told state and local governments that they had to begin accounting for OPEB and prefunding it in the same way that they do for pension benefits.  In other words, each government would have to publish a funding ratio and start saving for future benefits rather than simply paying as they went.  MoCo had a plan to ramp up OPEB prefunding, but the Great Recession hit and the county couldn’t contribute towards OPEB for a couple years.  Since then, the county has socked away $797 million to meet future OPEB benefits.

That sounds like a lot of money, but the county’s actuarial liability for OPEB is currently calculated at $3.3 billion, meaning that its funding ratio is 24%.  That would be terrible for a pension plan – consider that the county’s pension plan is currently 92% funded.  But 24% is actually decent for an OPEB plan considering that state and local governments have only been prefunding them for ten years.  The State of Maryland’s OPEB plan was just 3% funded in 2015 and MoCo’s ratio was better than 38 states.  Even so, the county has a lot of work to do to get its funding ratio up and it makes millions in contributions every year to get there.

In FY18, the county had budgeted $122 million for OPEB contributions.  But the county had a problem: less than half of its FY18 shortfall of $120 million had been eliminated.  As late April came around and the FY19 budget process was underway, the County Executive and the County Council had a choice.  They could cut over $60 million in current year spending two months out from the primary election.  Or they could find the money somewhere else.

You guessed it – in a resolution introduced and adopted on the same day, April 24, the council unanimously cut $62 million from the county’s FY18 OPEB contribution.  This fiscal year’s spending on services won’t take another cut, which is great news for incumbents running for reelection or higher office.  And as Bethesda Magazine reported, the council has proposed adding up to $21.6 million more to next year’s budget and has so far identified just $1.6 million in offsetting spending cuts.  How do you think they will make up the difference?

The County Council did not send out a press release headlining the diversion of $62 million of retiree health contributions to support general spending on April 24.  It was buried in a press release spotlighting a resolution on equity data.  As a result, the press totally missed it.

Now look, folks.  The county is good at saving money.  They are setting aside close to 10% of revenues as reserves, an important reform adopted during the Great Recession that helped save the county’s AAA bond rating.  The pension fund is in excellent condition at 92% funding.  And as stated above, the county has done a better job at prefunding retiree health benefits than most other places.

But grabbing retiree health contributions and using them for general spending is something that is normally done in a recession when the alternative is layoffs.  That’s what happened a decade ago and it was justified considering the financial trouble the county was facing.  Now, despite huge evidence to the contrary, county leaders are telling us that the economy is in great shape.  The Council President told Kojo Nnamdi a few days ago that we have “a very strong economy” and “this is a good time in Montgomery County.”  Well, if the economy is so great, then why redirect $62 million of retiree health money to prop up this year’s budget?

And if we are diverting retiree health money now when times are supposedly good, what will happen when the next recession comes?

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The View From 2007

By Adam Pagnucco.

A long time ago in a galaxy far, far away, a newish county blogger and professor named David Lublin reached out to a then-young civic activist who had just gotten involved in local politics to write about the county’s economy and budget.  The activist, who had only lived in the county for three and a half years and was already raising Cain about a new Metro entrance in Forest Glen, was still figuring out what was going on but – what the hell – he agreed.  This was the genesis of my second blog post ever, written in April 2007.  (The first was a piece on the Apple Ballot the year before.)

The county’s economic pressures, which have drawn substantial attention on Seventh State, were apparent more than a decade ago.  Then as now, the county was dealing with short-term budget issues.  But over the long term, I wrote that the end of the real estate boom – which would lead to the Great Recession – would result in three choices to balance the budget and preserve county services: large tax hikes, slowing the rate of budget growth or encouraging economic growth to fund the budget.  Many things happened over the ensuing decade: dramatic budget cuts, equally dramatic tax hikes, warfare with the school system and the state over education funding, breaking of union collective bargaining agreements and more.  But in the end, more a result of just muddling through rather than any strategy, the county picked options 1 and 2 – tax hikes and slower budget growth – and not option 3, which was encouragement of economic growth.  Indeed, because our economy has been so stagnant since the recession, we are now discussing pretty much the same things I wrote about eleven years ago.

Will the next decade be different from the last decade?  Folks, that is what this election is about.  It’s all up to you.

Here is the piece from 2007 reprinted.

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In Montgomery County local races, four issues regularly rise to the top: education, development, traffic congestion and the environment, in no particular order. In last year’s elections, all four issues were discussed by the candidates – especially development. But this spring a fifth issue has risen to surpass all of them: the county’s difficult choices on the budget. The budget is not only an unavoidable issue because it is central to the functioning of the government – it also affects the ability of county leaders to deal with each of the above four issues that are important to voters.

The county has a short-term problem and a long-term problem with its budget.

The short-term problem appeared in the first budget submitted by our new County Executive. While Ike Leggett’s proposal for $4.1 billion in county spending was 6.3% higher than last year’s budget, the increase was below the prior year’s rate of 9%. Leggett pronounced recent budget growth “unsustainable” and declared that no county agency, including the schools, would get its entire budget request. Despite an aggressive lobbying campaign by public sector unions – especially the Montgomery County Education Association – the County Council seems likely to uphold the broad outlines of the County Executive’s proposal.

Furthermore, Council President Marilyn Praisner has identified a $269 million budget deficit for the fiscal year starting in July 2008. The deficit margin is about 7% – which is close to the increase recommended for this year. The council may very well combine a small tax increase with careful maintenance of core spending to deal with this deficit. This may be enough to avoid modifying the county’s labor contracts with its employees as the Council President has recently discussed.

As serious as the short-term problem is, it does not compare to the county’s budget issues of 1991-92 when it suffered from an economic recession. At that time, 7,000 county employees were furloughed for four days. Public employees occupied the council chambers, teachers engaged in a work slowdown and some public school students walked out of classes to protest potential cuts. No one is predicting similar upheaval this time.

However, the long-term budget problem represents a significant challenge. Since 1990, the county’s population growth has averaged 1.4% per year while its budget has generally grown 5-10% per year. In recent years, the county has managed this by depending on big increases in property tax receipts driven by its real estate boom. That real estate boom has ended and property tax receipts will soon reflect that. The county faces three choices in the long run:

1. Large tax hikes to fund budget increases. The danger here is that those tax hikes may slow the county’s economic growth rate even further, worsening its fiscal problems in the future.

2. Slowing the rate of county budget growth to equal the rate of economic growth. This would mean county budget growth of 1-2% per year. This would be insufficient to meet the standards of service to which residents have become accustomed. School, fire, police and health care costs are all increasing at faster rates even if the size of the relevant county departments remains unchanged. This budget growth rate would also be insufficient to adequately compensate county employees, and that would gradually damage one of the nation’s best-educated, least-turnover-prone local government workforces.

3. Systematically encouraging enough economic growth to fund the county’s budget.

The third option reveals a naked truth that was not commonly discussed during the last campaign: budget policy and development policy are inter-related. Over the long run, limiting economic growth will limit the ability of local government to serve its residents. But as any resident of Phoenix or Las Vegas would observe, economic growth has consequences for quality of life. The question of the last campaign was, “Should we have development or not?” But the real question is, “How can we have enough economic growth to pay for government services we need without driving existing residents crazy?”

Economic growth comes from two sources: population growth and job creation. If one of these occurs without the other, or if they occur in different geographic locations, the result is traffic congestion. The two should occur together, at similar rates, and in nearby locations. This has direct implications for county development policy.

In general, the county has three kinds of developable areas: the agricultural reserve, the four downtowns (Bethesda, Rockville, Silver Spring and Wheaton), and the rest of the county. Most residents agree that the agricultural reserve should continue to be protected for cultural and environmental reasons. That leaves the other two areas for consideration.

The four downtowns are unique assets in the county because they each have residential density, concentrated office space and pedestrian-oriented retail space all within walking distance of each other. A resident of Bethesda’s central business district (CBD) who also works in the CBD does not have to use his or her car every day. That individual can walk to work and walk to the grocery store on the way home. The fact that all of the amenities of life are concentrated in a walkable radius cuts back on car use, which cuts down on energy usage, greenhouse gases and pollution. It also reduces the need for road maintenance.

But many residents may want to live in one CBD and work in another. This means that the CBDs should be connected, preferably through transit. Bethesda is connected to Rockville, and Silver Spring is connected to Wheaton through Metro’s Red Line. Bethesda could be connected to Silver Spring through the Purple Line. And a bus rapid transit route from Wheaton to Rockville is the county’s top transit study request of the state government. If both of those projects go through, the county will have four inter-connected downtowns.

How could the county encourage economic growth in downtowns rather than sprawl in non-transit-accessible suburbs? In the downtowns, the county could use zoning text amendments (or more ambitiously, coordinated and complementary updates to master plans) to encourage transit-oriented CBD growth. In non-CBD areas, project area transportation reviews and robust school capacity tests would limit development outside the downtowns. This combination of measures would channel economic growth to the CBDs while minimizing the consequences of traffic congestion and pollution. The side effect would be to encourage the creation of downtown entertainment districts, each customized to reflect the unique cultural identities of each CBD.

For those who are uneasy about growth in downtowns, keep in mind the other two budget options: large tax hikes or gradually deteriorating government services. No local area in this country – even Montgomery County – is immune to the negative long-run effects of either (or both).

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Placeholders, Indeed, Do Have a Place in the MCPS Capital Budget

By Glenn Orlin.

In a recent piece in Seventh State it was argued that so-called “placeholder” projects have no place in the Montgomery County Public Schools capital program. But there are very good reasons why the County Council has done exactly that for the past eight years.

First, some background.  The Subdivision Staging Policy (SSP) Public School Adequacy Test compares enrollment five years in advance—at each cluster and level (HS, MS, or ES), and at each school—against the budgeted capacity at each cluster/level and school five school years hence.  If the future enrollment exceeds the future capacity in a cluster by more than 20% at any level, then the cluster goes into a housing moratorium; that is, no more housing subdivisions can be approved until the capacity standard is met.  (Relocatable classrooms are not counted towards “capacity” under the School Adequacy Test.) If the future enrollment exceeds the future capacity in a MS service area by more than 20% and 180 students, then that MS service area goes into a housing moratorium.  If the future enrollment exceeds the future capacity in an ES service area by more than 20% and 110 students, then that ES service area goes into a housing moratorium.  The five-year rule was selected many years ago because, on average, that is how long it takes for a housing subdivision approval to morph into occupied housing units, many of them having kids of school age.

At the start of this decade the Council began the practice of budgeting generic “Solution” (i.e., placeholder) CIP projects in certain circumstances.  The rationale is that while a cluster or school service area might have enrollment that exceeds the moratorium threshold, in many cases MCPS is concurrently planning for a new school or addition that would provide sufficient capacity in time to avoid such a moratorium.  The Council has approved Solution projects only when all the following conditions are met:

  1. A cluster or school service area is projected to exceed the moratorium threshold;
  2. MCPS is concurrently—or about to start—planning for a capital project that would address the potential moratorium; and
  3. MCPS’s normal schedule for planning, design, and construction would have the project’s added capacity opening by the start of the school year five years hence.

The most recent application of the School Test was approved by the Planning Board on June 22, 2017.  The Board placed seven ES service areas into moratorium: Burnt Mills, Highland View, Kemp Mill, Lake Seneca, Rosemont, Strawberry Knoll, and Summit Hall.  At that time, while all of them met Condition #1, none of them met Conditions #2 and #3.  Eight other clusters or school service areas were not placed into moratorium because Solution projects were justifiable and programmed: they met all three conditions.  In the FY19-24 CIP several of these Solution projects will be replaced by specific projects that the Board of Education (BOE) is now officially ready to recommend.  This new CIP will include only four Solution projects.

It is important to note that the decision to budget a Solution project for a school has nothing to do with whether there are new housing applications in that area awaiting the Planning Board’s approval.  Condition #1 occurs either when projected enrollment growth due to turnover, already approved new housing, or both, will be over the capacity threshold.  Whether there are impending housing development applications simply doesn’t matter in the decision to budget a Solution project or not.  Now let’s turn to the examples raised in the earlier Seventh State piece.

Bethesda ES and Somerset ES.  The service areas for both schools in the B-CC Cluster are projected to be well over capacity (+25% and +27%, respectively) in five years, that is, by the start of the 2023-24 school year.  MCPS is initiating an elementary school capacity study for the B-CC Cluster, which would examine a range of options.  The study will be conducted during the 2018-2019 school year.  The Board of Education (BOE) will then be in position to propose a specific project in its FY21-26 CIP request; if that project’s funding were to begin in FY21, then, following the normal schedule for planning, design, and construction it could open at the start of the 2023-24 school year.  Because all three conditions are met—a projected moratorium, planning about to begin, and a path to project completion in five years—the Council is poised to fund Solution projects for Bethesda ES and Somerset ES.  The total amount to be budgeted for these two Solution projects is about $6.4 million.  When a specific project is ready to be budgeted, this $6.4 million will be used to help fund it.

Judith A. Resnik ES.  The current CIP has a fully funded addition at this Magruder Cluster school (which would bring its capacity up to 740), but the BOE deleted the construction funding in its request for the FY19-24 CIP.  Enrollment is trending downward, although in five years it is still projected to exceed the moratorium standard if there is no addition.  The BOE is continuing planning for an addition, however.  So, since all three of the above conditions are met, the Council is planning to fund a $2.7 million Solution project for Resnik ES.

The fourth Solution project is about $6.3 million for Einstein HS, which the Council had already initiated, and the BOE itself has recommended continuing it. Therefore, the sum of the four Solution projects is about $15.4 million.  All but $3.7 million would be programmed in the last three years of the CIP (FYs22-24).

Burnt Mills ES.  This school is projected to be 47% over capacity in 2023-24, so certainly Condition #1 is met.  However, MCPS is requesting the Council to set aside in the CIP $120 million (talk about your placeholders!) while it undertakes a thorough review of the prior revitalization/expansion program “in order to develop a multi-variable approach to determine the priority order of large-scale renovations, possibly including programmatic and capacity considerations” (Superintendent’s FY19 CIP Request, page 1-2).  Therefore, the Burnt Mills situation meets neither Condition #2 nor #3.  Once the BOE has determined a strategy for this school, its improvement would either be partially funded as a Solution project or fully funded from the outset.

Ashburton ES.  If the argument is being made that Solution projects are budgeted to meet the desires of new development, then consider the case of Ashburton in the Walter Johnson Cluster.  It is projected to be more than 22% over capacity five years from now, meeting Condition #1.  Just last fall the Council approved the Rock Spring Master Plan which allows for at least 2,300 more housing units than exists or is already approved.  Almost all the Rock Spring area is within the Ashburton ES service area.  Nevertheless, since MCPS is not undertaking planning for additional capacity that would further relieve Ashburton, its service area will go into a housing moratorium in July.

E. Brooke Lee MS Addition. When the Council approves the CIP, it assures that there is enough money to pay for the projects it is budgeting in each of the CIP’s six years.  The Council is approving a tighter CIP this year than in the past, because it recognizes that debt service on borrowing has grown too high.  (Debt service is an obligation that must be paid before anything else in the budget, including salaries.)  Earlier this year the Council asked for the Superintendent to provide it with a list of “non-recommended” projects that would be the first choices to be reduced or deferred, should the Council need them to meet the spending limits.

One of the projects on his list was to delay the construction funding for Lee MS by one year, although not to delay the first-year (FY19) design funds, which would allow the opportunity for the project to be reaccelerated next year.  In its worksession on April 17, several members of the Council expressed the desire to delay neither the design nor the construction funds for the Lee MS project.  To accommodate this desire, there is a shortfall of $8 million in FY20 and $9.5 million in FY21 for which funds must be found.  We will do our best to do that, but deleting the Solution projects would contribute nearly nothing to this effort; there is only $169,000 in Solution project funds in FY20, and only $3.6 million in FY21; the remaining $11.7 million is in FY22 and later.

Do Solution projects almost never get done in five years, as the Seventh State article claims?  In fact, almost every project does get done within five years, or, the BOE later decides that the project isn’t needed after all.   In the article, it is stated that most of the Solution projects added in FY15 did not translate into actual projects within five years, which would have been the 2019-2020 school year.  For FY15 the Council added Solution projects for five Downcounty Consortium elementary schools: Brookhaven, Glen Haven, Highland, Kemp Mill, and Sargent Shriver.  Two years later, however, the BOE retracted its request for these projects, noting that the projected seat deficits were no longer high enough for it to request funds for additions there (see the FY17 Educational Facilities Master Plan, pages 4-37 through 4-41).

Is “real money” being taken out of the MCPS for Solution projects?  In a word, no.  The Council never budgets all the money it could in the CIP.  This is because the Council needs to reserve funds for: (1) when construction bids come in over estimates; (2) for when projects that are in the planning stage are ready for construction funding later in the CIP period; and (3) for unanticipated opportunities or emergencies that arise.  For these reasons, the Council this year will probably set aside a capital reserve of about 9% of the funds available for budgeting, as has been recommended by the County Executive.  But, after all, a Solution project is but a designated reserve, so the Council—as it has in the past—will likely set an undesignated capital reserve less than the Executive recommended by the $15.4 million in these Solution projects.  Therefore, the Solution projects do not compete with other projects in the MCPS CIP, nor with those in the County Government, Montgomery College, or Park & Planning CIPs.  If anything, the Solution projects provide a first claim on the capital reserve.

In summary, Solution projects in the CIP in no way compete with other projects, and they avoid housing moratoria in certain situations where they are not warranted.

Glenn Orlin is the Deputy Director of the Office of the County Council.  He has been the Council’s CIP Coordinator for the last 26 years.

 

 

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Placeholders Have No Place in the MCPS Capital Budget

By Laura Stewart.

Have you ever heard of the term “placeholder” in the county budget? I never had, until as a PTA President, I started to advocate for an elementary school that had 9 portables. The terminology surrounding placeholders was confusing.  At first it sounded like a planning tool that might be helpful.  But as I have looked at the scenarios in front of us in this budget cycle, I believe that real solutions need to take place instead of placeholders.  I will explain by using two real life scenarios below, followed by a review of the consequences of the current County Council’s SSP (Subdivision Staging Policy.)

Scenario 1:

An elementary school has just received an addition due to housing turnover, new development, and a boundary change that was intended to address split articulation patterns and crowding at other schools.  After the addition was completed, the school immediately became over-crowded again and now has four portables. More development is underway in the area, and it will cause even more crowding at the school.

Due to county policy, future development goes into moratorium when a school is forecast to be over 120% capacity at year 5 in the budget, unless there is a “solution.” That solution can be a “placeholder,” money put in the budget that covers the extra seats a development will create, based on the County’s “student generation rates.”  This money is not tied to a specific plan. It is only there to prevent the area from going into moratorium. The school system promises to develop an actual project in time for the seats to materialize in the next 5 years.  This school gets assigned a “placeholder” by the Council since a capacity project is not included in the Board of Education’s recommended FY19 budget.

Scenario 2:

A school has been over 120% capacity since 2011 and is at 151% today.  A plan to address the overcapacity is not included in the Board of Education (BOE) Recommended FY 19-24 budget.  Since there are no pending development projects in this part of the county, no “solution project” is proposed by the County Council, and the area officially goes into a housing moratorium.

Scenario 1 is in Bethesda, scenario 2 is in East Silver Spring.  Neither community is happy with place holders!

I will first explain why the areas with development aren’t happy.  The scenario 1 school, Bethesda ES, is in an area where housing development continues.  In fact, there are an additional 11 buildings submitting applications in the area under a recently approved master plan. Somerset Elementary School is in a similar situation and the Council has proposed a placeholder for that school as well. There is no actual plan for another addition at the Bethesda school (which may not even be possible, given the small site size,) or a plan for a new elementary school nearby. New schools, even at properties MCPS already owns, are much more expensive than additions. Additions also can cost more than the placeholder price tag that is included in the budget. Placeholders are supposed to guarantee seats in 5 years, but the past has shown that projects almost never get done in that time period.  Of the last five placeholders that had a due date before 2018, only one project finished by the due date. Another 4 placeholders added in FY15 were postponed the following year. Continuing development with a placeholder causes schools to go way over capacity, often much more than the initial 120% threshold, by the time there is a real solution.

Now let’s look at Scenario two.  East Silver Spring does not have pending development. The school that is the most overcrowded in the area is Burnt Mills ES, at 151% and over 200 children are in portables. In fact, this school has been over the 120% threshold since 2011, when the feasibility study was done. No project for this school is in the FY2019-2024 CIP. They will be considered in the new renovation and expansion program in a future CIP, but there are limited funds and there are many schools that will be considered. There are no guarantees for this school. So this area is now officially in moratorium, and has been for a while.  Relief at Burnt Mills seems elusive without any project on the books. Parents feel like they do not get the attention that other areas with lots of development get.  They are not wrong. Even though placeholders aren’t solutions, at least the conversation about a possible solution takes place at the County Council.

Seven areas are in housing moratorium in Montgomery County, but only three had placeholders proposed to be added in this budget cycle, two in Bethesda and one in Gaithersburg. I’ve spoken to parents in Bethesda that would rather have a building moratorium take place so the County could take time to come up with a real planned solution. The Gaithersburg school, Judith A. Resnik ES, had an addition project scheduled with a completion date. The enrollment there is trending down slightly, but is still projected to be at 122% capacity within 5 years.  To avoid a moratorium, the County removed an actual project (the scheduled addition), and added a placeholder.

Real money is taken out of the MCPS budget for placeholders, instead of actually using those funds for planned projects. In fact, several projects that were proposed in the BOE Recommended FY19 Budget are slated to be delayed due to lack of funds, including Col. E. Brooke Lee Middle School. It is considered a “sick” building by many teachers and parents. Mold and other issues come up regularly. They were elated to have a project that had a completion date of September 2021, only to be deeply disappointed when they were included in the delay list. Placeholder money – used to avoid putting development in moratorium- could be allocated NOW to schools with greater needs than the areas with pending development. Placeholders compete for scarce funds in the CIP.

There is another unintended consequence of giving placeholder money to areas of higher growth. These areas tend to be more affluent. So the optics continues to perpetuate the perceived and the real divide between East County and West County. For instance, there are huge disparities in wealth in our two scenarios. Bethesda ES has a 7.3% Free and Reduced Meals Rate (FARMS.) Burnt Mills ES has 67.1% FARMS.  The affluent area gets the attention of councilmembers and solution/placeholder projects – that may or may not actually come to fruition – while poorer areas are left out. This policy also divides the County North and South too, because rural areas do not have the growth that down county areas receive.

I am in no way blaming Councilmembers or insinuating that they mean to ignore certain areas of the County. I know that many fight for scarce resources, and fight to bring economic growth in underperforming areas of the County. I am blaming the processes and policies that perpetuate inequalities and perception of inequalities in our school system. I propose changing the system.  We can come together as a community and find a better way forward. Let’s get developers, Council Members, the Board of Education, the MCPS Division of Long Range Planning, and the Planning Department together and come up with REAL solutions so we can finally build real classrooms for kids, no matter in which zip code they live.

Laura Stewart is the CIP Chair for the Montgomery County Council of PTAs.

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MoCo’s Skyrocketing Debt

By Adam Pagnucco.

Last fall, County Executive Ike Leggett proposed cutting the volume of new general obligation bonds issued by the county in future years and the County Council concurred unanimously.  Advocates for school construction fretted over the move as the county’s needs in that area, as well as in transportation investment, are enormous.  But Leggett and the council had a point.  The county’s debt has skyrocketed in the past twenty years and especially in the last decade.  It now presents a substantial challenge to the county’s fiscal well-being that the next generation of county leaders will have to deal with.

The county government does not use debt to finance its operating budget, but it does use debt to finance its capital budget, known as the Capital Improvements Program (CIP).  The CIP is a six-year budget that is fully renewed every two years and is adjusted in off years.  The Executive’s latest recommended CIP currently totals $4.5 billion, of which $1.8 billion is recommended for school construction.  The CIP has many funding streams for its projects, but the single largest one is debt.  As of June 30, 2017, the county had $4.1 billion of outstanding primary government debt, of which the largest category is general obligation (GO) bonds, which accounts for $2.7 billion.  GO bonds are backed by the full faith and credit of county government.  The fact that the county’s GO bonds have had a AAA rating assigned to them by the nation’s three largest credit agencies for many years is a substantial source of interest savings to the county.  Other major categories of debt are short-term bond anticipation notes ($500 million outstanding), taxable Build America Bonds created during the recession ($308 million) and revenue bonds which are backed by dedicated revenue streams ($222 million).  All of this is separate from the substantial liabilities the county has for pension funding and retiree health benefits.

There are two salient facts about the county’s debt.  First, it has been growing rapidly.  And second, it is paid off through debt service that is part of the county’s operating budget.  These debt service payments MUST be paid and they compete with other spending priorities.  Along with total debt, debt service has also been growing rapidly.

The chart below shows growth in total outstanding primary government debt and in GO bonds over the last twenty years.  While growth has occurred throughout the entire period, it has accelerated since the onset of the Great Recession.  From 1998 through 2008, GO bond debt grew by an average of 2.9% per year, about equal to growth in the Washington-Baltimore CPI (3.0% per year).  Total debt grew by an average of 5.2% annually over that period.  From 2009 through 2017, GO bond debt grew by an annual average of 8.1%.  Total debt grew by 8.4% annually.  The average rate of inflation in the Washington-Baltimore CPI was 1.5%.  Over the last eight years, the county’s debt has been growing by more than 5 times the rate of inflation.

Relative to the size of the population, the debt has been rising too.  When we compared the county’s total debt levels to population estimates from the U.S. Bureau of Economic Analysis, we found that total debt per capita has grown from $1,370 in 1997 to $3,768 in 2017.

As for debt service, it has risen from $140 million in FY97 to $408 million in FY18.  If debt service was a county agency, it would be the largest agency in county government other than MCPS.  Debt service payments are mandatory and cannot be cut like most other categories of spending during recessions.  The pit of the Great Recession came in FY11, when debt service was $258 million and the county slashed services, doubled the energy tax and furloughed its workforce.  Now that debt service exceeds $400 million a year, it will present a much greater impediment to the maintenance of county services when the next recession comes.

Let’s remember that debt is not an inherently bad thing.  It is the primary vehicle by which the county pays for core government functions like school construction and transportation projects.  The county’s needs in those areas are absolutely undeniable.  Also, construction costs were moderated during the recession, so the county was able to take advantage of that to build relatively cheaply in those years.  But over the long term, if you are going to have rapidly growing debt, you need to have a rapidly growing economy to pay for it.  And MoCo does not have that – instead, it has had weak growth in employment and incomes in recent years.  It saw 57 new business filings in 2015 and 19 new filings a year later.  It passed a 9% property tax hike and a year and a half later suffered a $120 million budget shortfall.

This is evidence yet again that an economic revival has to be a huge priority for the next generation of county elected officials.  Without it, debt service will consume larger and larger chunks of the budget and eventually lead to service cuts and/or tax hikes.  As for those who oppose economic growth or have worked to undermine it, the debt situation makes this clear: you cannot oppose growth and favor expanding school construction and transportation investment.  The economy and the credit markets won’t allow elected leaders to have it both ways.

Bear that in mind as we head to Election Day.

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Team MoCo

By Adam Pagnucco.

Yesterday, we wrote about the recent history of MCPS and it was not a pretty picture.  The recession, new state laws, political conflict and the erosion of a once-strong consensus around the public schools resulted in MCPS getting lower funding increases than most of the rest of county government, especially when measured in local dollars.  But the good news here is that change is coming to MoCo with the sheer number of open seats in county elected offices.  There is a better way forward.  And today, we will plot out what that way can be.

First, let’s steal a page from the playbook of former MCPS Head Coach Jerry Weast and recognize this: nothing brings folks together like a common enemy.  The Axis powers brought together America and the Soviet Union.  The New England Patriots brought together nearly all NFL fans without ties to the Greater Boston area to root for the not-quite-as-bad Philadelphia Eagles.  And Donald Trump may just bring together the feuding members of Crosby, Stills, Nash and Young, who hate Trump more than they dislike each other.

The various factions of MoCo’s education family do not have a common enemy, but they do have a common challenge: dealing with Annapolis.  The state capital poses three problems for MoCo’s public schools.  First, the state has a Governor who has cut education funding before (especially state aid for MoCo) and is doing it again.  Second, while the state has improved recently, it still short changes MoCo on school construction money and the county cannot keep up with capacity needs on its own.  And third, a consultant advising the state’s Kirwan Commission on education reform has recommended massive cuts to state operating aid to MCPS.  If all three of these things proceed in a baleful direction, MCPS’s funding issues will get a lot worse and the entire county – parents, students, school employees, residents and businesses – will pay a steep price.

When you get past the details of MCPS’s recent money problems, one root cause stands out: political division in the wake of Weast’s departure.  The County Executive, the County Council, MCPS leadership, the MCPS unions and the PTAs all have different priorities and different views on MCPS funding, and they often go in different directions.  That has to stop or things won’t change.  We need a Team MoCo.  And here’s what that looks like.

County Council

The council has one job when it comes to the schools: funding them.  And since the schools are both a critical public policy priority as well as a big political priority for the voters, their funding situation must improve from the last eight years.  The council largely got this right in its FY18 budget, which gave MCPS a modest (roughly $20 million) increase over the state’s Maintenance of Effort requirement.  The policy of regular, modest per pupil local dollar increases that will – at the very least – keep pace with MCPS’s costs and needs should continue.

The council must not get involved in sensitive internal MCPS issues, especially in pressuring the system on its collective bargaining agreements.  Blowing up the union contracts in 2016 was a major mistake and caused a serious breach of trust.  Let MCPS management and the unions decide what the agreements look like in the context of their total budget.  If the council does not stay out of this, Team MoCo will crumble and the entire arrangement will fall apart.

Superintendent and Board of Education

If the council gives MCPS leadership the funding it needs, then MCPS leadership must reciprocate by giving the council what it needs: fiscal stability.  The state’s Maintenance of Effort (MOE) law, which was rewritten in 2012, sets each year’s local dollar per pupil funding as a base for future years.  Every time the base goes up, it becomes a new base and can only be lowered by a waiver from the State Board of Education.  This is a major concern for the council and was partially responsible for several years of per pupil cuts and freezes.  Given the immense implications of this for the county’s budget and AAA bond rating, the council is right to be wary of going too far above MOE.

Fortunately, § 5-202 (d) (9) of the state’s education law specifies that the State Board of Education shall grant an MOE waiver “in the amount that has been agreed on by the county and county board that is attributable to reductions in recurring costs.”  In other words, if the county falls into another big recession and it has to cut costs in the school system along with all the other agencies, it can get a waiver if the school board agrees.  This deal must be honored by MCPS: if the council extends its trust by funding them, MCPS must agree to reciprocate by helping to relieve the county of financial stress in dire circumstances.  Both sides must stick to this or relations will revert to the bad old years.

MCPS Unions and PTAs

MCEA and SEIU Local 500 are two of the most powerful players in county politics.  The PTAs do not endorse candidates, but they have listservs that include thousands of parents and therefore – at least in theory – have a big voice.  These organizations should function as the muscle of Team MoCo.  They will be getting regular funding increases and, in return, they should help the Team pressure Annapolis to get what is needed for the county.

MoCo Delegation

If Team MoCo gets its act together and strikes an equitable deal for local funding for the schools, the remaining challenges lie in Annapolis.  Rockville does not understand Annapolis.  It does not fully appreciate the obstacles faced by the delegation in pursuing county priorities: the perception of MoCo by the rest of the state as paved in gold; the competing priorities of other population centers in the state; the constraining effect of the legislature’s leadership; and the fiscal constraints of the state’s own tight budget.  Given those hurdles, it’s a heavy lift for the delegation to bring back Big Bacon to MoCo.  But it can be done: witness the Baltimore City delegation’s victory in getting the state to pump a billion dollars into the city’s school construction program.  The city legislators are not smarter than MoCo’s legislators (although they are more parochial).  A big reason for their win was that the entire city stuck together, from the Mayor to the City Council to the city legislators to the folks back home who wanted the money.  Team Baltimore got a billion dollars.  We need a Team MoCo to do something similar.

The role of the county leadership and its constituent groups is to set a mark for the delegation and do everything possible to help them stay organized and succeed.  This is not easy; the other jurisdictions and the presiding officers won’t just roll over for us.  Every member of Team MoCo has to tell our delegation with one unified voice, “We have your backs.  We know it’s a lift, but if you come through for us, we will celebrate you like the heroes you are.  You will never have to buy a drink for yourselves in Rockville ever again.  And if you don’t come through, you will not be served a drink in Rockville ever again!”  Good performance must be rewarded.  Bad performance must be met with accountability.

One more thing: the delegation has an ace card.  Senate President Mike Miller and Speaker Mike Busch are not going to run the General Assembly for much longer.  Successors to their thrones are making the rounds and lining up votes, however quietly.  The MoCo legislators should tell all of them that whoever gives the county the best deal on schools will lock up all their votes.  It’s huge leverage that should not be wasted, but it will only be used if it pays off in political terms.  Team MoCo’s job is to make sure it does pay off so the Big Bacon gets served.

County Executive

This is the most critical person in this entire endeavor.  Every team needs a Captain.  In MoCo, that has to be the Executive.  This individual is the county’s spokesperson and the one everybody else will inevitably look to for leadership.  The Executive must be a troubleshooter who works out periodic squabbles between the different members of the family, charts out a general course on budgets and state action and makes sure everyone gets the credit they deserve.  Most of all, the Executive must be a LEADER.  The lesson from the aftermath of Weast is that without central leadership, everything can fall apart.  If we pick the right Executive, that won’t happen and Team MoCo can succeed.

And so if everything works out, everyone wins.  The county gets its fair share from the state.  MCPS stakeholders get the funding they need.  MCPS employees get fair compensation and the resources they need to do their jobs.  The elected officials get to be heroes.  And the county as a whole will maintain its status as one of the best places to live on Planet Earth.

We can do it, folks.  Yes we can!  If you agree, ask the candidates how they intend to play on our team and keep it in mind for Election Day.  Team MoCo will only come together if the voters demand it.

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