Montgomery County Executive Marc Elrich recently submitted his first budget proposal to the Montgomery County Council. The total FY 20 budget request is $5.723 billion in all funds, with a 2.3 percent increase in tax-supported dollars.
County Executive Elrich’s plan dedicates $2.65 billion to Montgomery County public schools, a $51 million increase from this year’s budget, allocates funding to implement economic development grant agreements for retention and expansion of jobs and business activities that will support economic growth, and enhances public transportation services throughout the County.
Montgomery County’s economy generally experienced positive economic performance in 2018. Some of the areas of strength included an increase in resident employment, a decline in the unemployment rate, an increase in the median sales price for an existing home, an increase in the construction of residential housing, an increase in the added values of new construction for residential and non-residential properties, and a modest increase in retail sales.
However, partially offsetting those increases, the County experienced a decline in the number of sales of existing homes.
According to the County Executive’s Budget Message:
This budget also begins to deliver on the promises I made to our residents during the campaign.
To that end, I am proposing a down payment on expanding access to quality early childhood education so that Montgomery County’s young children have a future of opportunity regardless of their family’s economic circumstances. I am increasing our investment in a strong, multimodal transportation system that can serve as the backbone of a growing economy. I am focusing our economic development programs on the small businesses of our County to foster long-lasting wealth for our community. Finally, I am proposing several budget modifications to correct several long-term structural deficiencies while simultaneously satisfying the County’s longstanding goal to provide 10 percent of total adjusted governmental revenues in reserve. Balancing these competing priorities was not an easy task.
The last decade has been an extremely challenging period for governments across the country – and particularly in the National Capital region. During this time, Montgomery County has been buffeted by the 2008 global economic meltdown and the painful 2013 regional recession, the ripple effects of which are still felt. Solid economic growth is in a dance with lingering uncertainty. The new federal tax law has introduced more uncertainty and volatility in revenue forecasting for all governments. Repeated needless shutdowns of the federal government, including one of historic length just weeks ago, hurt families and businesses across our region. Trade disputes with countries across the globe and inhumane federal immigration enforcement policies at home have derailed and delayed important financial decisions in our community. Finally, the Supreme Court’s Wynne decision has permanently reduced income tax revenues by an estimated $30.0 million annually.
As a result of these trends, within days of taking office, I was presented with the troubling news that the final closeout of Fiscal Year 2018 had turned up an unexpected gap of $44 million due to an underperformance of revenues and higher spending than budgeted in Transit and Fire and Rescue Services (FRS). FY18 revenue growth unexpectedly slowed to an anemic 0.3 percent or $14.5 million over FY17 actuals. Income tax revenue estimates flatlined due to the massive changes to Federal tax law. Property tax receipts underperformed due to unanticipated reductions in commercial property valuations. Finally, transfer and recordation taxes fell as the square footage of new construction dropped. Unexpected increases in motor fuel prices and vehicle maintenance costs lead to higher than anticipated spending in operating expenses for FRS and Transit, while increased overtime utilization drove higher spending for personnel expenses particularly in FRS.
Unfortunately, the volatility of the income tax has continued into FY19 and FY20. Estimated quarterly payments were down by more than 30 percent in the final quarter of Calendar Year 2018. This necessitated a downward revision of income tax estimates of $85 million across the two fiscal years. This decline is in line with recent downward revisions in State income tax receipts made by the Maryland Board of Revenue Estimates. The combination of steady job growth with declining quarterly payments suggests volatility in the highest income brackets caused by fluctuations in capital gains. I am hopeful our revenues will regain equilibrium as our residents get through the first tax year cycle with the new Federal tax code.
To address the gap in the current fiscal year, the County Council and I worked together to enact a $45.7 million savings plan in January. Unfortunately, the decline in revenue estimates requires additional action. Therefore, I am proposing we forgo our contribution to the OPEB Trust Fund for FY19. Instead, I am directing these funds into our reserve accounts to satisfy our longstanding fiscal policy goal of holding 10 percent of adjusted governmental revenues in reserve as protection from additional economic shocks. Quite frankly, we do not have the revenues available at this time to satisfy both our OPEB funding policy and our reserves funding policy without making substantial reductions in current services. I will not layoff or furlough current employees to pay for their future retirement healthcare benefits.
The decision to delay OPEB funding for a year is, I believe, the most prudent course of action with just months left in the fiscal year. It is important to note that this action does not alter our commitment to current or future retirees. Their healthcare benefits are fully funded in this budget. However, this action will allow us to closeout our FY19 budget with 9.7 percent in reserve. It also allows me to propose an FY20 budget that funds services, provides a fair compensation increase for our dedicated County employees as fully bargained with their representatives, adheres to our adopted fiscal policies, and addresses some of the structural budget problems which have plagued County government over the last few years.
I intend to put County government on a more sustainable path, and this budget begins that process. I have already directed my senior management team to develop a 10-year financial plan that is grounded in reality and sustainability. As I learned from my own formative years as a manager with a once-iconic department store chain, organizations that do not plan adequately for the future do not have a future. I envision a plan that details the challenges our community faces and presents affordable ways to address them. This budget provides funding to correct several long-term deficiencies.
In fulfillment of recently concluded labor negotiations, I am including funding for compensation adjustments for the County’s workforce. These increases include general wage adjustments of 2.4 percent for employees in the Municipal and County Government Employees Organization (MCGEO) and International Association of Fire Fighters (IAFF) bargaining units (effective November 2019), and 2 percent for non-represented employees (effective July 1, 2019). There is also funding for service increments and longevity steps for eligible employees, as well as performance-based increases for employees in Management Leadership Services and Police Leadership Services. I have also included funding for a deferred service increment for eligible employees in the FOP and MCGEO bargaining units.
The budget proposal is subject to the approval of the Montgomery County Council. The Council must adopt a budget by June 1.