{"id":8632,"date":"2017-10-03T07:00:46","date_gmt":"2017-10-03T11:00:46","guid":{"rendered":"https:\/\/www.theseventhstate.com\/?p=8632"},"modified":"2018-04-26T10:34:17","modified_gmt":"2018-04-26T14:34:17","slug":"lessons-learned-from-the-giant-tax-hike-part-two","status":"publish","type":"post","link":"https:\/\/www.theseventhstate.com\/?p=8632","title":{"rendered":"Lessons Learned from the Giant Tax Hike, Part Two"},"content":{"rendered":"

By Adam Pagnucco.<\/em><\/p>\n

The untold story of last year\u2019s 9% property tax hike is that it was not merely the product of needed funding for public schools or the adverse consequences of a U.S. Supreme Court decision on income taxes<\/a>.\u00a0 It was also the product of an innate bias towards more spending built into the County Council\u2019s budget process.\u00a0 That bias created mounting pressure to fund ever-growing spending programs accumulated over many years which contributed to the tax increase.\u00a0 The next generation of county elected officials must reform this process or they too will eventually feel compelled to raise taxes.<\/p>\n

All state and local operating budgets must be balanced each year as a matter of law.\u00a0 At the state level, the General Assembly may cut spending items in the Governor\u2019s budget but they generally cannot add to them.\u00a0 (The legislature can and does pass laws mandating spending on certain items in future years.)\u00a0 Several counties with Executives follow the state\u2019s model, as does the City of Baltimore<\/a>.\u00a0 But the Montgomery County charter grants all final budgetary authority to the County Council, which can do almost anything it wants to the Executive\u2019s recommended budget.\u00a0 It can add, subtract or rearrange spending items subject only to requirements in state law, such as mandatory minimum funding levels for public schools and the college.\u00a0 Other than that, the only constraint on the council\u2019s power is that the budget it passes must be balanced for the fiscal year.<\/p>\n

Every March 15, the Executive is required by the charter to send a recommended budget to the council.\u00a0 The council then begins its process for reviewing and changing the budget that lasts roughly two months.\u00a0 The council\u2019s vehicle for altering the Executive\u2019s recommended budget is the reconciliation list (commonly called the rec list), which is a ledger of spending additions and deductions.\u00a0 Each council committee, and the full council itself, can post additions or deductions to the rec list.\u00a0 The last step in the process is figuring out how to finance some portion of the additions since they always exceed the deductions.<\/p>\n

In theory, there are two sound places to go to fund additions to the Executive\u2019s budget: new tax revenues or offsetting spending cuts.\u00a0 In practice, the council\u2019s use of these resources is limited.\u00a0 Tax increases are typically proposed by the Executive, who distributes the revenues they generate across spending items in the recommended budget.\u00a0 In such cases, the new revenue is not available for further spending desired by the council unless it alters the Executive’s choices.\u00a0 The council could also cut the Executive\u2019s spending items and use the money for its own items.\u00a0 But the Executive\u2019s spending proposals have constituencies who will squeal if they are diverted or cut.\u00a0 No one likes to be the bad guy at budget time!<\/p>\n

Page one of the council\u2019s final draft reconciliation list for FY18<\/a>.\u00a0 These are some of the new spending items the council wanted to fund last spring.\u00a0 The challenge was how to pay for them.<\/em><\/p>\n

\"\"<\/a><\/p>\n

If new taxes and spending cuts are insufficient to pay for new spending desired by the council, other funding sources must be identified.\u00a0 In the past, favorite sources for funding included setting aside less reserve money than proposed by the Executive, setting aside less money for retiree health benefits, occasional transfers of cash from the capital budget and other one-time fixes.\u00a0 In FY12, the Executive proposed $10 million for snow removal<\/a> and the council redirected $4.1 million of that for new spending on the reconciliation list<\/a>.\u00a0 Snow removal costs must be paid, so if they were to ultimately prove larger than budgeted funds, the council\u2019s action would be tantamount to a backdoor drawdown of the reserve.<\/p>\n

Since FY05, the council has added a combined $245 million to the Executive\u2019s budgets through its reconciliation lists.\u00a0 One does not have to be a certified public accountant to see what the effect of these additions will be over time.\u00a0 Many spending items added by the council are ongoing, such as hires of new employees and expansions of programs expected to continue indefinitely.\u00a0 But some of the funding sources for the new spending are one-time in nature, like capital budget transfers and reserve drawdowns.\u00a0 Repeated use of one-time funding sources for ongoing spending creates enormous long-term pressure on the budget.\u00a0 Eventually, especially when a downturn comes, the new spending must be trimmed or taxes must be raised.\u00a0 Guess which is more likely to occur?<\/p>\n

\"\"<\/a><\/p>\n

Why does this happen?\u00a0 It\u2019s not because elected officials are stupid.\u00a0 It\u2019s because of the incentives they face. \u00a0From mid-March through mid-May every year, Council Members are besieged by requests for more spending from the community.\u00a0 Every year, there are three nights of hearings jam-packed with constituents wanting more money for their favored programs.\u00a0 They are followed by dozens of meetings with groups who want even more than that.\u00a0 Aside from occasional admonishments from council administrator Steve Farber<\/a> and Executive Branch budget officials, there are almost no voices for moderation in the budget process.\u00a0 And here\u2019s the thing: whether it\u2019s hiring social workers, funding more childcare assistance, deploying more police officers in communities that need them, removing more tree stumps or much, much more, almost all the new spending proposals have merit.\u00a0 Given the incredible pressure brought to bear by groups with genuine funding needs, it\u2019s kind of a miracle that the budget gets balanced at all.<\/p>\n

All of this creates serious problems for the County Executive.\u00a0 The charter grants the Executive a line item veto over spending items, but this is never used because the council would simply override it.\u00a0 The Executive could abstain from including the council\u2019s new spending in next year\u2019s budget, but again, the council could just put it back in.\u00a0 For the most part, the Executive and his top aides grumble in private and put on a happy face for Wall Street, but they did go public in objecting to a $10 million draw from the reserve two years ago<\/a>.\u00a0 Instead of fighting the council, the Executive\u2019s staff simply tries to figure out how to retain and pay for the council\u2019s new spending in next year\u2019s budget.\u00a0 And each year, the job gets a little harder without new revenue.<\/p>\n

This process is a big reason why the county has had seven major tax hikes in the last sixteen fiscal years.<\/strong><\/p>\n

Next year, a new County Executive and at least four new Council Members will take office.\u00a0 This new generation of officials will have a choice.\u00a0 They can keep the existing budget process and eventually come under pressure for yet another tax hike, as happened last year.\u00a0 Or they can reform it by requiring that new ongoing spending be offset by actual ongoing spending cuts, not one-time measures.\u00a0 Failure to learn this lesson will mean repeating history.<\/p>\n

We will conclude with one last lesson from the Giant Tax Hike in Part Three.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Adam Pagnucco. The untold story of last year\u2019s 9% property tax hike is that it was not merely the product of needed funding for public schools or the adverse consequences of a U.S. Supreme Court decision on income taxes.\u00a0 It was also the product of an innate bias towards more spending built into the … Continue reading Lessons Learned from the Giant Tax Hike, Part Two<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[151,33,15,134],"tags":[1545,1368,2176,1463,1539],"class_list":["post-8632","post","type-post","status-publish","format-standard","hentry","category-adam-pagnucco","category-budget","category-montgomery-county-council","category-taxes","tag-adam-pagnucco","tag-budget","tag-giant-tax-hike-series","tag-montgomery-county-council","tag-taxes"],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p4mKJE-2fe","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/posts\/8632","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=8632"}],"version-history":[{"count":7,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/posts\/8632\/revisions"}],"predecessor-version":[{"id":8656,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=\/wp\/v2\/posts\/8632\/revisions\/8656"}],"wp:attachment":[{"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=8632"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=8632"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.theseventhstate.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=8632"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}