As part of his recommended fiscal 2020 budget, County Executive Marc Elrich has given the county’s largest labor union its most generous contract in recent memory. And he has paid for it with a one-time diversion from retiree health care money, leaving huge uncertainty on how his labor contracts will be funded in the future.
To understand this issue, let’s review how the county grants wage increases in its labor contracts.
Most contracts have at least three major wage components. The first is a general wage adjustment, sometimes called a cost-of-living adjustment, or COLA. This is an increase that all bargaining unit members receive.
The second is called a service increment, or step increase. Employees who are not at the top of the salary scale for their classifications receive a step until they hit the scale maximum.
The third is a longevity increase. Employees who are at the top of their scales and who meet a minimum threshold of seniority (often 20 years or more) receive longevity increases. There are also sometimes lump-sum payments and smaller increases related to training, schedules and other factors.
Contracts for the three county employee unions – the Municipal and County Government Employees Organization (MCGEO), the career firefighters and the police – customarily contained these provisions until the Great Recession ravaged the county’s finances.
In three fiscal years – 2011, 2012 and 2013 – the unions were granted no general wage adjustments or step increases. But the unions did not regard the step increases as eliminated – in their view, they were deferred and payable at a later time. That was hugely significant because step increases are usually set at 3.5 percent.
Once the budget improved, the unions began pursuing “make-up steps” in their contracts – step increases for members who were employed at the time that those increases would have been awarded in bargaining but did not receive them because of the recession.
The police union and the firefighters union each received make-up steps in both fiscal 2014 and 2015.
Combining a general wage increase, a regular step and a make-up step available to members who were employed during the recession, the police union got annual increases of 7.35 percent in those two years and the firefighters received annual increases of 9.75 percent. MCGEO did not receive make-up steps in those years, but they (along with the police) negotiated make-up steps for fiscal 2017.
That’s when things got hairy. In fiscal 2017, County Executive Isiah Leggett proposed an 8.7 percent increase in the property tax. The County Council was leery of passing a large tax hike at the same time as they were approving large labor contracts. So the council voted to eliminate that year’s make-up steps. The only no vote came from Council Member Marc Elrich.
Make-up steps did not reappear in the labor contracts for the next two years.
But something happened in the interim: the 2018 campaign for county executive.
MCGEO, the police union and the career firefighters all endorsed Elrich. MCGEO additionally contributed $60,000 to the Progressive Maryland Liberation Alliance PAC, a mostly labor-funded super PAC which supported Elrich and opposed David Blair and Nancy Floreen.
Because Elrich was in public campaign financing, he could not accept a direct check from MCGEO. But MCGEO’s $60,000 contribution to the super PAC was 10 times the maximum amount it could have contributed to Elrich’s account if he had been in traditional financing.
Elrich defeated Blair in the primary election by 77 votes. MCGEO President Gino Renne told his shop stewards, “Marc Elrich won the primary thanks to our shoe leather.”
MCGEO’s efforts for Elrich paid off – big time.
Elrich agreed to generous contracts for all three unions, and especially for MCGEO. Here are the amounts negotiated by MCGEO, the police and the career firefighters for general wage adjustments, steps and make-up steps (which have now returned). Smaller raises including lump sums and longevity increases are not included.
Not all employees will get all of these increases.
MCGEO members hired after fiscal 2011 and police union members hired after fiscal 2013 will not get make-up steps.
Data from the 2018 employee salary file indicates that 71 percent of police department employees were hired before fiscal 2013 and 62 percent of employees outside of the police and fire departments were hired before fiscal 2011. That means thousands of county employees will get raises of 7 to 9.4 percent.
How much will Elrich’s contracts cost? Elrich’s budget contains the following estimates of costs in fiscal year 2020 and annual costs thereafter. (Non-represented employees are typically awarded increases that approximate MCGEO’s contract.)
Elrich’s labor contracts will cost $29 million in fiscal 2020 and $39 million every year thereafter.
How did Elrich pay for the contracts?
The largest single cost saving in his budget is a reduction in the county’s contribution to its Consolidated Retiree Health Benefits Trust, which is a fund used to pay for future retiree health benefits. Funds of this kind, which have been set up by state and local governments over the last decade, are often called OPEB (other postemployment benefits) funds. Elrich’s budget says, “Due to a significant shortfall of originally estimated tax revenues, the County initiated several cost containment measures to restore current year reserves. On a one-time basis, the County will reduce FY19 pre-funding to the Consolidated Trust by $89.6 million.”
The cost of paying Elrich’s labor contracts is equivalent to roughly a third of the reduced OPEB contribution. It’s worth noting that as of last year, the county’s OPEB fund was just 24 percent funded. Combined with Montgomery County Public Schools, Montgomery College and Park and Planning, the county’s net OPEB liability was $2.5 billion.
Diverting money away from the retiree health benefits fund is a one-shot financing mechanism.
After fiscal 2020, Elrich’s labor contracts will cost the county $39 million a year. How will he pay for them – and other future similar ones – without another tax hike?
Adam Pagnucco is a writer, researcher and consultant who is a former chief of staff at the County Council. He has worked in the labor movement and has had clients in labor, business and politics.