2018 | Government

Market Forces Said To Drive County Budget-Cut Mandate

Elrich and Franchot gird for fallout if there is a national recession

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Dan Schere

Revenue is projected to slow over the next few years in Montgomery County, legislative analysts say, making a $44 million budget cut necessary in the eyes of County Executive Marc Elrich.

Factors such as inflation, a decline in home sales, stock market volatility, inconsistent trends in property tax revenues and changes in the property tax base helped contribute to a $41 million revenue shortfall at the end of fiscal 2018, analysts said during a Tuesday briefing with the County Council.

Elrich wants department heads to come up with ways to trim about 1.5 percent from the county’s $5.6 billion budget.

In an interview Wednesday, Elrich said revenue projections can be “slightly imperfect” due to factors such as federal tax cuts and appeals of commercial property owners on their assessed property value. He said the need for a beefed-up rainy day fund is pre-emptive, in the event of a national recession — something he warned could happen within the next couple of years during his campaign.

The county typically sets aside about 10 percent of government revenues to be used for a revenue stabilization or “rainy day fund,” which allows the county to fund services during times of economic downturn.

“You don’t know what [President] Trump’s gonna do, and what his impact on the economy’s gonna be. That’s why we’re going after spending levels now,” he said.

At Tuesday’s briefing, County Finance Director Alex Espinosa explained to at-large council member Hans Riemer that the assessable tax base can fluctuate based on changing property values and property tax rates. According to the Maryland Department of Assessments and Taxation, two assessable base reports are generated ever year for all 24 Maryland jurisdictions. The department must also reassess all properties in the state every three years.

Riemer expressed frustration that market forces were leading to the need for budget cuts this year.

“I just can’t help but observe that this is why we need to have a strong commercial assessable tax base,” he said.  “We’re feeling the impact here, right at home in terms of budget cuts we may have to make in terms of not having a substantial real estate market.”

Montgomery County is not alone in sounding a cautionary note on the economy.

Maryland Comptroller Peter Franchot announced Wednesday that the state’s Board of Revenue voted to decrease revenue projections by $18.4 million in fiscal 2019 in anticipation of a recession.

He noted that the 113 straight months of economic growth at the national level, was the second-longest expansion in the country’s history. He has also advised the state legislature and governor to increase the state’s rainy day fund. Maryland’s budget for the current fiscal year is $44.5 billion.

Franchot, who entered office in 2007 just before the Great Recession, said in an interview Wednesday that the board’s message to the legislature and governor is to make sure enough money is set aside for an emergency.

“It’s not the end of the world if we have a recession. It’s part of the normal economic cycle. But you want to be prepared,” said Franchot, a former state legislator from Takoma Park.

Franchot said he understood the logic behind Elrich’s budget savings proposal.

“The smartest move right now is to be cautious, and that initiative fits into that category,” he said.

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