The Montgomery County Council voted unanimously Tuesday for guidelines that cut bond issuances by $40 million incrementally over a period of four years.
The move by the council is a step toward limiting growing debt-service payments the county is paying on the current $3.5 billion in bonds that fund capital projects such as school construction and new government buildings in the county.
The county pays about $394 million in debt service each year, which is more than the county pays for all but two departments using the county’s $5.4 billion annual operating budget, according to County Council member Nancy Navarro.
Since 2016, the county’s spending affordability guidelines have called for a maximum of $340 million in new bonds issued per year. County Executive Ike Leggett wrote in a memo that if those guidelines continue or increase, the county’s AAA bond rating would be at risk.
Faced with this consequence, the council voted to approve the Government Operations Committee recommendations to reduce the spending guidelines by $10 million each year from fiscal year 2018 to fiscal 2022 and to maintain a $300 million bond limit from fiscal 2022 to 2024.
Navarro said the cuts would not affect long-term capital projects that are budgeted and in the planning stages in the six-year capital plan. The cuts are the beginning of what could be a long-term effort by the council to reduce debt-service payments by limiting the total amount of new bonds that the county issues.
Council member Craig Rice said he and other council members made commitments to their communities to build things such as libraries, schools and recreation centers. He said reducing spending could make it difficult to honor those commitments.
Still, he said, he would vote for the cuts to the guidelines to strike a balance between maintaining the county’s bond rating and not significantly reducing funding for projects in the pipeline.
“This proposal does try to balance two competing needs—our commitments to [credit] ratings agencies and our commitments to the community,” Rice said.
Even with the cuts to the guidelines, the county’s debt-service payments are expected to rise to around $476 million by fiscal 2024.
However, county revenues are predicted to rise during that period from the current $3.5 billion to $4.1 billion in fiscal 2024. The debt service as a share of county revenues would stay about the same—around 11 percent—rather than rising, as it has in recent years, according to budget estimates presented to the council.
Council member Hans Riemer said the cuts to the guidelines likely will need to continue well after the 2018 election, in which county voters will elect a new executive and at least four new council members.
Riemer said the council should look to get bonds issuances down to less than $250 million per year to be sustainable.
“People running for the County Council should be aware the next term is going to be more of a reduction in the capital budget,” Riemer said. “That’s going to be a big challenge for us. … We will do our best to protect investments in education and transportation, [but] we’re going to have a tough road ahead of us.”
The council vote could be a blow to Montgomery County Public Schools.
The county’s Board of Education requested that the council increase the spending guidelines by 10 percent, to $374 million per year, or increase the school system’s share of the capital budget. Board President Michael Durso wrote to the council to say failing to increase the guidelines would make it impossible to “fund the full range of urgently needed capital projects.”
Council members acknowledged Tuesday that they received numerous emails about the spending guidelines and indicated many came from PTA leaders and representatives.
A representative from the school system was not present when Council member George Leventhal inquired if anyone from MCPS wanted to provide input to the council before the vote.
Leventhal said he was not confident about the school system’s budget analysis. He wondered whether the county’s Office of Management and Budget and the school’s budget office could work more closely to arrive at compromises on tough budget issues.
“They’re advocates for the school system,” Jennifer Hughes, the director of the county’s Office of Management and Budget, responded. “I don’t think it’s realistic in this process to see that kind of convergence.”