Opinion: Is Another Tax Hike Coming?
In his inauguration speech, Montgomery County Executive Elrich has a slightly different take on his approach to taxes
Countless times during the campaign, County Executive Marc Elrich said he did not want to raise taxes. He flatly said at a candidate forum, “I’m not raising taxes and I’m not raising fees” and even told the Brickyard Coalition he would like to “lower taxes a little.” He gave one of his lengthier statements on the subject to Source of the Spring:
“A lot of people ask me about taxes,” Elrich said. “One of the issues in the campaign, people said, ‘Oh, Marc is going to bring in all these massive numbers of social programs and raise taxes on everybody.’ And actually that’s not what we’re doing. We know that the budget is going to be constrained.
“We’re pretty committed to staying inside the box and trying to run the government more efficiently,” he continued. “I’ve been telling people I’ve got $5.5 billion or more in revenue, and if I’m going to look for doing new things and being creative, I’m going to look at the revenue I have [and] figure out how to use it better. I think we can do a better job.”
But in his inauguration speech, Elrich told a slightly different story. The Washington Post reported:
“We’re not going to be raising taxes this year,” Elrich said. The time-frame caveat, potentially leaving open the possibility of tax increases in future years, prompted [Council Members Hans] Riemer and [Nancy] Navarro to exchange glances.
“It was a surprise,” said Navarro, who is expected to be elected council president Tuesday. “I don’t believe that our constituents have the ability, nor do I think it’s necessary, to be entertaining tax increases at this moment.”
Elrich said later he simply was trying to reassure people he wasn’t planning on raising taxes this year.
“I’m not planning on next year, either,” he said. “For four whole years, that would be hard — but I’m not assuming you have to.”
On the same day, Bethesda Magazine reported this quote from State Senator Rich Madaleno, Elrich’s nominee for budget director: “Asked whether Elrich could realistically not raise taxes, Madaleno said, ‘We’ll see. That’s his vision.’”
That was not a casual statement by the county’s next budget director. Madaleno knows the numbers well. On top of the fact that Elrich is pondering $44 million in budget cuts just a week after taking office, consider some of the budget pressures that his administration is facing.
- The Great Recession has had a long-term impact on county revenues. From fiscal 1998 through 2009, county revenue growth excluding intergovernmental aid increased by an annual average of 6.1 percent. Since then, revenue has grown by 2.7 percent a year – and that includes the giant property tax hike of two years ago.
- The county’s private sector job market has still not recovered from the recession.
- While the county’s wage and salary employment has stagnated since the pre-recession peak, lower-paying proprietor (self-employed) jobs have grown by more than a third. That trend is different from most of the rest of the D.C. region, in which both types of employment have grown simultaneously.
- Internal Revenue Service data shows that the average taxable income of people moving into the county is lower than the income earned by people moving out. That has been the case for decades but that trend has intensified in recent years.
- The county used $77.7 million in one-time transfers to balance its budget over the last two fiscal years.
- From fiscal 2005 through 2018, the county council added an average of $17 million a year in new spending on top of the executive’s recommended budgets. Much of the added spending was long term but some of the revenues used to pay for it were for one year only.
- Starting in fiscal 2021 (Elrich’s second budget), Maryland local governments will owe the state a combined $50 million a year to repay income tax refunds due under the U.S. Supreme Court’s Wynne decision. MoCo will owe roughly half that amount. Those payments will run through fiscal 2026.
- JPMorgan Chase & Co. forecasts more than a 60 percent chance of a national recession in the next two years. Recessions impose tough fiscal choices on state and local governments and MoCo is not immune to them.
- Currently, 56 percent of county spending goes to pay salaries and wages of employees. For six straight years, members of the three county employee unions (MCGEO, the firefighters and the police) have received combined general wage adjustments and step increases ranging from 5 points to 9.75 points per year. (Elrich voted for all those increases when he was on the county council.) According to an Office of Human Resources report sent to the council, most county government employees have received raises of double the amounts received by the private sector workforce since fiscal 2014. The county employee unions who spent tens of thousands of dollars in PAC money to get Elrich elected didn’t do so to get lower wage hikes. They are going to expect Elrich to continue their current pace of increases.
- Another county report shows total county employee compensation growing faster than revenues over the next six years. The report said, “The County is experiencing significant revenue pressures and has few options to address these pressures within the current tax structure.”
- Elrich has lots of expensive policy goals, including closing the achievement gap in public schools, expanding school construction, investing in early childhood education and building his bus rapid transit system. Any of these initiatives could easily gobble up tens of millions of dollars alone. Put them together and they could require hundreds of millions.
Is it any wonder that Elrich is not ruling out tax increases during his first term as executive?
Elrich has a history of supporting tax hikes. He voted for four large increases during his time on the county council: a 13 percent increase in property taxes in fiscal 2009, a doubling of the energy tax in fiscal year 2011, a nearly 9 percent property tax increase in fiscal 2017 and a major increase in the recordation tax that same year. When the last property tax hike was approved, Elrich famously said, “There are no civilizations in history that are remembered for their tax rates, none.”
That said, even if Elrich were to propose a tax hike, he would need to get it passed by the County Council. The council is well aware that the 8.7 percent property tax hike of two years ago helped get term limits passed. There are significant hurdles for tax hikes: the income tax rate is already at the maximum set by state law, a property tax hike above the rate of inflation requires a unanimous council vote and budgets sometimes require super-majorities to pass. That gives any tax-allergic council members options to resist a tax increase.
But here’s the thing: if Elrich sends over a recommended budget with a tax hike in it, that budget will also include all the spending that the revenue increase will finance. The council can’t say no to the tax hike without saying no to all the new spending too. Depending on what spending items are in such a budget, expect influential groups to line up out the door to secure that new money. These are the same groups who got Elrich elected, who were critical to electing several council members in this past election and who will play big roles in the next election too. It will be very hard for the council to say no to all of them.
One more important factor is at play: Robin Ficker’s gathering of signatures for a new anti-tax charter amendment in 2020. That means a tax hike could face more hurdles in years three or four of the current term than it would in the first two years. Would Elrich gamble that he can get a tax hike through even after the possible passage of a new Ficker amendment or would he try to pass one in his second budget?
One thing seems more probable than not: there are decent odds that a tax increase will be proposed during Elrich’s first term. The questions are what kind, how much and when.
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.