As the COVID-19 pandemic continues to chip away at the economy, Montgomery County officials are looking ahead to financial uncertainties of the next fiscal year.
Although tax-supported revenues are expected to grow by 0.8%, County Executive Marc Elrich proposed a budget for fiscal year 2022 that is about a 5% increase from the current fiscal year’s budget. The next fiscal year begins on July 1.
During a briefing on the budget with the County Council on Tuesday, staff members discussed key points of the recommended $6.7 billion spending plan.
Elrich proposed no property tax-rate increases, which would leave the county’s weighted average property tax rate at 97.85 cents per $100 assessed value.
The income tax offset credit — provided against the county’s real property tax rate to offset the increases of more than 2.6% of the county income tax revenues — is proposed at $692 . It would stay the same as the current year.
Although the rate and the credit are recommended to stay the same, property taxes could rise as property assessments go up.
Of the $6.7 billion, roughly $6 billion would go to the operating budget. The remainder would go to the Capital Improvements Program, debt service and reserves.
Gene Smith, a legislative analyst for the county, said Montgomery County has seen significant decreases in available money to spend in fiscal years 2020 and 2021 because of the pandemic, aside from state and federal aid.
“Fortunately, when we predicted where things would be at [now] in maybe May of 2020, we have not seen as severe cuts to the revenues, but nonetheless, [the] council staff believes it’s important to highlight that we have not escaped this unscathed both on the expenditure and revenue side,” he told the council.
Smith said the estimate for tax-supported revenues is almost 75% less than the county’s 10-year annual average.
In fiscal year 2023, the county’s financial growth is expected to only be about a third of what its annual growth has been previously, Smith said.
Federal funding plays a significant role in the next proposed budget — $107.4 million is expected to be reimbursed from the Federal Emergency Management Agency for FY21 and FY22 pandemic-related costs.
But the timing of the reimbursements could shift and the exact amounts aren’t guaranteed, staff members noted.
For nearly $204 million in funding from the federal American Rescue Plan Act, the aid will be split for costs in the current and next fiscal years.
Highlights include : For FY21, $67 million of ARPA funding would address revenue losses and $12.4 million would go to previously approved pandemic response expenses. For FY22, $20 million would be used for the Working Families Income Support Expansion, $10.4 million would be used for specific one-time or ongoing uses within the budget, and $6.2 million would be used to address projected revenue losses.
Smith said the recommended budget does not meet two of the council’s spending affordability guidelines for the plan, including achieving 10% reserves and full funding of PAYGO, which refers to the principle of not adding debt when there is an expenditure.
Elrich proposed restoring reserves to 9.6%, for a total of $521.9 million. Another $20.8 million would be needed to reach the 10% reserve goal.
He also recommended reducing PAYGO by 50%, for a total of $15.5 million.
‘Alarm bells’ for a balanced budget
Council Member Andrew Friedson, who often takes charge with budget discussions, said there are several “alarm bells” because the budget strays from the fiscal policies the council approved several weeks ago.
“It’s more important than ever that we follow our fiscal policies and avoid using one-time revenue to fund ongoing expenses, so we don’t end up with a budget that is structurally unbalanced and fiscally unsustainable,” he said. “My strong preference — and I believe the fiscally responsible approach — would have been to propose a structurally balanced budget without federal money.”
The council and executive could then separately and collaboratively discuss how federal funding should be used for one-time emergency expenses, he said.
Friedson noted that spending is increasing six times that of expected revenue for the budget.
Council Member Nancy Navarro said that while the county won’t face a deficit next year, it will still be financially different from past years.
“Let’s not forget that this [federal aid] is a one-time situation and it does call for us to stay on track with regards to our fiscal strength,” she said. “So, working to make sure that our fiscal strength remains a priority as we have done in the past — to make sure that we are also focusing on economic development.”
Friedson said the council has discussed using ARPA funding for relief programs for residents and businesses, but half of the money won’t be available until next year.
“We’ve used more than the money that’s coming this year to balance the budget,” he said.
Friedson said the council’s spending affordability guidelines and reserve target “only matter if we follow them.”
“What I can’t reconcile is how federal money is both being used to effectively balance the budget, but [is] not included in the calculation for budget reserves,” he said. “It seems like we’re trying to have our cake here and eat it, too. This carries significant fiscal consequences and calls into question our requirement to approve a balanced budget.”
The proposed budget is balanced with $324.2 million in federal funding, but much of that funding is to fill budget holes, including offsetting $67 million in revenue losses, Friedson said.
“What happens if our revenues drop or our spending grows, like it did last year to meet the crisis? How will we be able to weather the storm without another round of federal bailouts?” he said. “We have to put ourselves in the position to do that.”
Friedson said relying on federal funding to balance the county’s budget could lead to a bigger budget gap that won’t include federal funding to bail the county out.
The county and its agencies are expected to add 228.5 tax-supported positions and 28.5 non tax-supported positions. Most of those — 142 positions, or 62% — would be for Montgomery County Public Schools. Another 68.9 positions — or 30% — would go to the county government. The remaining 8% would go to Montgomery College and the Maryland-National Capital Park and Planning Commission.
The budget plan also includes raises for employees. General wage adjustments, service increments and longevity increments would be given to each employee group. The timing and amount varies for each.
The raises would cost $13.8 million in FY22. Because many of the pay adjustments take effect at the end of the fiscal year, the annualized cost is $36.6 million, which would become part of the FY23 base budget, if approved.
Smith said the tax-supported costs for salaries would increase 3.2%, while tax-supported revenue rises 0.8%.
Council Member Craig Rice said it’s great to pay employees more, but that level needs to be reflected in what the county can do for everything else on the horizon.
Rice said FEMA has decided that it will not reimburse MCPS the costs of its free meal distribution to students since it was considered a regular service — another cost the county will need to cover.
“There are a myriad of other things out there where FEMA is making judgments based on reimbursement that we assumed that reimbursement would be taken care of and it’s not,” he said. “Because of that, there are huge looming implications that are out there.”
Friedson said the county spent $92,000 on a consultant to identify cost efficiency, but “no positions and no savings” have been identified in a report yet.
Rich Madaleno, the county’s chief administrative officer, told Friedson that an initial report has been drafted and there will be some proposals for savings.
Madaleno said the budget includes creating more positions — mostly for MCPS — than have been identified to be eliminated.
“You should all be prepared for a lot of additional positions in MCPS over the next decade as the state encourages, prods, mandates us to take a new look at how education is delivered to our young people,” he said.
Friedson said the county has to find savings that have long been discussed to keep up with commitments for adding positions.
Council Member Hans Riemer expressed concern about the employee raises and additional employees without identifying any savings. He said there’s “déjà vu” of the continued promises for restructuring.
Compensation increases will be more affordable as there are fewer employees , he said, but “all we’ve gotten is more head count and more compensation increases.”
The council will have work sessions on the budget, leading up to its final vote on the budget no later than June 1 — a month before the new fiscal year begins.
Briana Adhikusuma can be reached at firstname.lastname@example.org.