New Report Urges Shift in County Spending Priorities

Nonprofit suggests building more schools, reducing reserve funds, incentives for business

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A new report says the county relies too heavily on residential taxes, which are based on property assessments done every three years. Click to view larger image.

Empower Montgomery, a nonprofit that advocates for transportation, education reform and economic development, is warning that Montgomery County is “marching toward fiscal peril” and needs to take steps to boost the economy.

In a report released Tuesday morning, the group said the county’s “swollen reserve fund” could be lowered to free up money for other projects, noting the county has had a budget shortfall every year since the 2008 recession.

Among the criticisms made in the report, “Restoring Economic Momentum in Montgomery County” by the Baltimore economic consulting firm Sage Policy Group, are that the county’s tax base is disproportionately residential, government salaries are too high and there is excessive money in the county’s reserve fund.

The report’s recommendations include:

– Building more schools, which could involve lifting development moratoriums in several areas.

– Ending the county’s liquor control monopoly, which is estimated to free up $193.7 million. For decades, Montgomery has been the only county in the nation to control distribution of alcoholic beverages and moves to turn the operation over to the private sector have failed.

– Reducing the county’s reserve funds to 5 percent of county revenues instead of 10 percent, estimated to free up $269 million.

– Creating policies that reduce the tax burden and make Montgomery County competitive with jurisdictions in Virginia such as Arlington and Fairfax counties, including “large-scale tax breaks and public-private partnerships in both White Flint and White Oak in conjunction with other tax incentives targeting startups and those relocating to these districts.”

Empower Montgomery notes that money put into the reserve fund could be used for other programs.

“This appears to be fiscal prudence, and perhaps it is. But every dollar placed into reserve is a dollar that is not spent on education, health/human services, or transportation,” according to the 45-page report. “These reserves may be an indication of a county that has lost confidence given years of stagnant economic performance and the specter of demographically-driven programmatic expenditure growth.”

The report notes that other jurisdictions in the Washington region have a reserve goal, but their tax base is larger. It goes on to state that the bond rating agencies would likely “find improved economic and fiscal performance far more persuasive than a swollen reserve fund.”

Sage’s President and CEO, Anirban Basu, said on Tuesday that the report was written using information from the county’s website, dataMontgomery, which contains data about business, government and other aspects of county life. The main takeaway, Basu said, is that the county must grow its tax base in order to become more competitive.

“There’s simply not enough recognition that something needs to change. On this trajectory … the county’s budget will not be able to support the quality of life that people have become accustomed,” he said.

County Executive Marc Elrich has submitted a savings plan to the County Council for the current fiscal year, which cuts about $46 million for the 2019 operating budget. The goal of the savings plan, officials have noted, is to achieve a reserve level of 10 percent by 2020 in order to help the county maintain its top Triple A bond rating, allowing it to borrow money for major projects at lower rates.

Elrich last week proposed amendments for the six-year Capital Improvements Program budget,  which eliminated $37 million for Montgomery County Public Schools and other capital projects such as the Montrose Parkway East, two Metro station entrances and several bike and pedestrian safety measures.

Elrich has taken steps to save money by cutting the salaries of top department positions, and has pledged to ask the state for more money for school construction.

At the county council’s meeting Tuesday, at-large member Hans Riemer made it clear he wasn’t pleased.

“This pathetic report that was just released advocating that we throw away our triple A [bond rating] … it’s a lame report. It’s sizzle. No steak,” he said during a discussion during Tuesday’ council meeting, in which council members received updated information from county staff on the county’s fiscal health.

Riemer said taking money out of the county’s rainy day account was out of the question when achieving a 10 percent reserve level was within their grasp.

“There’s no discussion to be had about abandoning 10 percent,” he said.

Riemer said he looks forward to the day when the county will no longer need to make up budget shortfalls during the middle of the fiscal year, but that the county must repair damage from the early 2000’s when, he said, the county “got drunk off of fiscal recklessness.”

“We have spent years getting out of this mess. Now is not the time to turn our back on that approach,” he said.

Riemer said the immediate focus must be on producing affordable housing, and noted that Planning Director Gwen Wright told the Planning, Housing and Economic Development Committee last week that only 800 housing units were added to tax rolls in 2018.

“We’re not producing any housing. The result is that we have an affordability crunch,” he said.

Council President Nancy Navarro noted in an email Tuesday that the county has been fiscally prudent in maintaining a triple-A bond rating every year since 1973.

“This position of strength was reaffirmed by Amazon’s selection of Montgomery County as one of the top twenty finalists for their second North American headquarters, in our increasingly global economy.  The Council will continue to work aggressively to promote an economic development strategy that grows high-quality jobs for our residents and attracts large corporate investment while also supporting our small business innovators.”

Although Arlington County was awarded one of Amazon’s headquarters in November, with the other going to Long Island City, N.Y. Navarro said Montgomery’s appearance on Amazon’s list of 20 finalists was still “quite a big deal.”

When asked about the comparison of that county’s 5 percent reserve level to Montgomery’s 10 percent, Navarro said comparing Montgomery to Arlington County wasn’t appropriate because the Virginia county is smaller and doesn’t face the same fiscal challenges.

Navarro said she doesn’t think Empower Montgomery’s report is “anything new.” Asked whether the government shutdown’s economic impact and the possibility of another recession was a concern, she wasn’t fazed.

“We’ve been there before in much worse situations… if we do I think we’re ready,” she said.

Empower Montgomery’s latest report follows a similar one released in April 2018 that found that jobs decreased between 2006 and 2016 despite the addition of 11,600 public sector positions.

Basu, chairman of the Maryland Economic Development Commission, said the state “rallied around” the county in trying to lure Amazon, offering more than $5 billion in incentives. The county’s inability to land Amazon’s bid, he said, should serve as a “wake up call” to elected officials.”

“The fact that they chose a location across the river tells us that Montgomery County’s business climate is a long way from where it needs to be,” he said.

Basu said overall he thinks there isn’t a “sense of urgency” among the county’s elected officials when it comes to changing the business climate, with the exception of “some people who ran for county executive.” He declined to criticize specific elected officials.

“At the end of the day, when people make locational decisions they’re also looking at numbers, and until the numbers change it’s difficult to imagine a radical departure from the current status quo,” he said.

Dan Schere can be reached at Daniel.schere@bethesdamagazine.com

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