Moody’s Investors Service, one of the three major Wall Street bond rating agencies, has released an issuer comment characterizing the passage of Question A as a “credit positive” for Montgomery County. The comment is reprinted below.
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Montgomery (County of) MD
Voters amend limits to property tax revenue collections, a credit positive
On November 3, voters in Montgomery County (Aaa stable) approved a charter amendment on property tax limitations which enables the county to raise property tax rates without revenue constraints, a credit positive.
The approved measure (Question A) replaces the existing limit and enables a unanimous vote by County Council to adopt a tax rate on real property that can exceed the rate from the previous year. The amendment is credit positive for county operations because property tax revenue is not subject to any restrictions based on inflation, and revenue growth can be captured through tax base expansion in addition to any approved rate increases. The county’s previous charter limit, a self-imposed tax cap that was enacted in 1990, limited property tax revenue growth to the rate of inflation (CPI index) and an amount based on new construction.
A second charter amendment on the ballot (Question B) was rejected, which aimed to remove the county’s ability to increase revenue above inflation. The failure of the measure is also positive because it enables the county to retain flexibility to increase this revenue source when needed to balance the budget, particularly as its income tax rate is already levied at the maximum state cap of 3.2%. Montgomery County is just one of five counties in Maryland with a charter amendment limiting property tax revenue increases, and the ability to adjust the tax rate accordingly is important, particularly as most of the county’s debt is secured by its limited ad valorem tax and full faith and credit pledge.
Income taxes are the county’s primary general fund revenue source (43.5% of total fiscal 2019 revenue), followed by property taxes (36.6%) and other local taxes (7.8%).
The county demonstrated willingness to override its prior charter limit in May 2016 when it approved a 9.9% increase in property tax revenue to support rising debt service and insurance costs, as well as an increase in the Maintenance of Effort (MOE) for K-12 schools and the community college, mandated by the State of Maryland (Aaa stable). Without the increase, the county faced a $178 million budget gap in fiscal 2017 (ended June 30, 2017).
There are a lot of reasons to pay attention to the races for president and Congress: social justice, climate change, the pandemic, the economy, the fate of planet Earth… you get the idea. Here’s one more reason. If you’re a MoCo taxpayer, the fiscal fate of your county government might depend on what happens in Washington. And right now, that fate is not looking great.
4. The county executive has entered into open-ended agreements with county employee unions to give them emergency pay which could total $100 million over the course of a year. (Employees at MCPS, the college and park and planning are not covered by these agreements.) MoCo’s emergency pay is far more generous than offered by any other jurisdiction in the region.
6. The county’s own emergency management director has expressed skepticism in public that FEMA will reimburse the county for a meaningful share of its COVID expenses.
7. The county has ended its hiring freeze and is filling positions across many different departments, including ones not directly related to the pandemic emergency.
But who needs fiscal discipline when a blue wave sweeps over Washington, giving the Democrats total control of the federal government? And then they can solve all of MoCo’s financial problems with the biggest state and local government aid package in U.S. history. Right?
Wrong.
As anyone not hiding on Mars has noticed, the federal elections have not gone as planned for Democrats. Three scenarios seem plausible, all with troubling consequences for MoCo.
President Donald Trump wins reelection. This is obviously awful for many reasons. One of them is that Vice-President Mike Pence can break ties in the U.S. Senate, giving GOP Senate Majority Leader Mitch McConnell extra latitude in his chamber.
Former Vice-President Joe Biden defeats Trump but Republicans hold control of the Senate. This is better than a second Trump term but let’s remember that McConnell once said he would prefer that state and local governments go bankrupt rather than get more federal aid. Additionally, the last thing McConnell would want is to give Biden a big win with tons of federal money for blue localities like MoCo.
Biden wins and Democrats get razor-thin control of the Senate. Even if Democrats win the Senate, McConnell could use the filibuster to block or reduce more federal aid. Would Democrats repeal the legislative filibuster with control of the Senate hanging on a vote or two?
MoCo’s bailout bet was always a bad one. At the very least, a bit of restraint was in order. But we are now one-third of the way into the current fiscal year and any budget adjustments made now will be more severe than if they were put into effect months ago. The mess is getting harder to clean up, not easier.
Is anyone going to bring order to the budget or are we headed for another tax hike?
As I have previously written, MoCo government is in the throes of a dire budget crisis that rivals the near-death experience it suffered during the Great Recession. The county is looking at an estimated revenue shortfall of $522 million from FY20 through FY22. In response, the county executive announced back in March that he had “already instituted a hiring and procurement freeze for all programs not engaged in direct response to COVID-19.” The idea was to clamp down on all but the most necessary types of spending to weather the county’s pandemic-fueled budget downturn.
Nothing has improved since then. However, it’s apparent that the hiring freeze is over.
Today, I received this notice from the county’s Office of Community Partnerships that they are hiring for three community outreach positions and a program manager position.
That’s not all. The county’s online hiring system shows 43 open positions for which the county is soliciting applications, of which 22 were posted this month and 9 were posted in the last week. These positions include an adoption counselor in the Office of Animal Services, an administrative specialist in the environmental protection director’s office, a manager in the retirement plan office, a policy analyst in the budget office, a warehouse position at the liquor monopoly and three positions at the county council. It’s hard to argue that any of these positions are “engaged in direct response to COVID-19.”
Governor Larry Hogan is hopping mad about Question 1, a statewide constitutional amendment on the ballot that would curtail some of his massive budget powers. That’s understandable – any politician (and most of the rest of us) would be upset about having any of our powers taken away. But Hogan’s critique of Question 1 has careened into the territory of outright lies and he deserves to be exposed.
Question 1 has its roots in a state budget crisis way back in 1915. In those days, the state government was considerably less professional than it is now. In Fiscal Year 1915, the state ran up a general fund deficit of $1.4 million. That was pretty bad considering that the state recorded revenues of just $12.1 million.
The crisis resulted in the incorporation of an executive budget system into the state’s constitution, which gives the governor enormous powers to set the operating budget. The General Assembly is prevented from adding to or rearranging the governor’s proposed operating budget under most circumstances. The legislature can cut certain items from the governor’s budget and also fence off money, designating it for use only under certain circumstances. The governor can release the money for those purposes or save it. Over the years, the General Assembly got around the restrictions by mandating future funding for some items through statute (especially education). But in an operating budget for an upcoming fiscal year, the governor – any governor – has awesome power which dwarfs the ability of the legislature to check it.
No other state gives such budgetary authority to its governor.
In the past, the governor and the General Assembly lived with each other by negotiating (to an extent) what would appear in the governor’s budget. But Hogan and the current General Assembly tend not to negotiate with each other all that nicely. Last spring, General Assembly Democrats got fed up and passed SB 1028, a constitutional amendment that would junk the executive budget system and balance budgetary power between the governor and the General Assembly. That is now Question 1 on this year’s ballot. Here is the exact language of Question 1.
Question 01
Constitutional Amendment (Ch. 645 of the 2020 Legislative Session) State Budget Process
The proposed amendment authorizes the General Assembly, in enacting a balanced budget bill for fiscal year 2024 and each fiscal year thereafter, to increase, diminish, or add items, provided that the General Assembly may not exceed the total proposed budget as submitted by the Governor.
(Amending Article II Section 17 and Article III Sections 14 and 52 of the Maryland Constitution)
Additionally, the bill creating Question 1 grants the governor authority to veto any line items added by the General Assembly to executive departments. Furthermore, the bill makes clear that the changes will take effect in Fiscal Year 2024, after Hogan has left office.
Hogan despises this constitutional amendment and set up a website to oppose it. The website says, “Question 1 would upend the Maryland constitution to give career politicians in the legislature unchecked power over the budget, denying governors the chance to hold them accountable and to protect taxpayers.”
Hogan also made this video in which he claimed that Question 1 would lead to higher taxes.
Here’s the lie: Question 1 does not give the General Assembly “unchecked power over the budget.” The very language of the amendment makes clear that the legislature “may not exceed the total proposed budget as submitted by the Governor.” That means the governor still gets to set a budget ceiling that the legislature cannot exceed. Furthermore, the bill gives the governor line item veto authority over appropriations for state departments. What the bill actually does is establish a balance of power between the governor and the General Assembly that resembles the arrangement in most other states.
If Hogan wants to make an honest argument against Question 1, he can claim that the current system has worked well enough over the past century and has prevented a recurrence of the kind of budget crisis that it was designed to stop. But it’s a lie to say that it will result in higher taxes when the governor still gets to set a budget ceiling.
Readers, please take this into account when voting on Question 1.
Here are two things that almost everyone inside and outside of county government will agree on.
The needs of residents and businesses for financial assistance to deal with the COVID crisis are immense.
The $183 million in CARES Act grant money the county has been allocated by the federal government is helpful but is far from adequate to cover all the above needs.
With those two things said, representatives of the executive branch told the county council yesterday that they have not spent all the federal money appropriated by the council yet. And facing an end-of-year deadline to get the money out the door, there is now doubt as to whether the county will spend all of the federal money or forfeit some of it.
The council’s response to this was nothing short of nuclear.
The fissile material was prepared by council staff, whose memo to the council listed major appropriations of federal assistance and its actual expenditure by the executive branch. Six federal money appropriations mentioned in the memo and passed by the council months ago include:
Resolution 19-439: Emergency Assistance Relief Payment (EARP) Program Adopted by council: 4/30/20 Funds appropriated by council: $5,000,000 Funds spent by executive branch: $0
Resolution 19-499: 3R Program (Reopen, Relaunch, Reimagine) – Economic Development Adopted by council: 6/16/20 Funds appropriated by council: $500,000 Funds spent: $142,500 (Note: the county’s economic development corporation is responsible for spending this money.)
Resolution 19-506: Food Assistance/Security Adopted by council: 6/23/20 Funds appropriated by council: $10,300,000 Funds spent by executive branch: $5,052,209
Resolution 19-523: Reopen Montgomery Initiative Adopted by council: 7/7/20 Funds appropriated by council: $14,000,000 Funds spent by executive branch: $1,431,538
Resolution 19-535: Business Assistance for Medical and Dental Clinics Adopted by council: 7/21/20 Funds appropriated by council: $3,000,000 Funds spent by executive branch: $0
Resolution 19-557: Rental Assistance and Eviction/Homelessness Prevention Adopted by council: 7/28/20 Funds appropriated by council: $20,000,000 Funds spent by executive branch: $607,508
The above six appropriations total $52.8 million, of which the largest chunk ($20 million) is assistance to renters. Of that amount, the executive branch has spent $7,233,755. If the executive branch does not spend the remaining $45.6 million of federal money by December 31, it risks forfeiting the money.
That’s not all. Eight additional appropriations of federal money passed more recently by the council total $12.1 million, of which the executive branch has so far spent just $30,492. The two largest portions of this money are assistance to school age child care providers ($7.7 million) and assistance to distressed, affordable common ownership communities ($2 million). If this money is not spent by December 31, it might also be forfeited.
What’s the problem? First, the county just can’t spray checks around; it has to design the assistance programs, publicize them to potential recipients, process the applications and distribute the funds. Those things take staff and time. Second and more seriously, the county has had problems complying with FEMA paperwork requirements to get reimbursed. The process is nightmarish and time-consuming with FEMA changing the rules at least once (so far). County homeland security director Earl Stoddard told the council that the county had obtained just $20,000(!) in reimbursement from FEMA so far and that took more than two weeks and dozens of staff hours to process. Stoddard and Chief Administrative Officer Rich Madaleno made no defense of the feds and were clearly frustrated.
None of this mollified the council, who proceeded to nuke the executive branch from orbit. Here are just four quotes from MANY angry statements by council members.
Council Member Andrew Friedson This is a really frustrating conversation and clearly there are a lot more questions than answers. Some of that is understandable when in the midst of a crisis and there are a lot more questions. We don’t know what the future will hold, we don’t know what this virus will do, we don’t know what the impact on our community will be, we can’t control what the federal government… and how they will respond. But the idea that our residents and our businesses are struggling more than they ever have and are more vulnerable than they’ve ever been, when the needs are as challenging as they currently are, with an economic crisis and a public health emergency, that our issue right now is not whether or not we will run out of money too quickly, but whether or not the clock will run out before these programs will have been able to help the businesses, help the residents, help the vulnerable members of our community who desperately need it. And I can’t tell you how frustrating that is for me. I believe it’s frustrating similarly for colleagues and I can’t imagine how frustrating that is for the 1.1 million residents who are desperately trying to get through the most challenging time in our lifetimes.
Council Member Nancy Navarro For that list of special appropriations that we started, some of them, all the way back in April, the amount of money that has not been spent translates into residents not receiving that assistance. Residents who we interact with on a daily basis that I know I have said, “Oh no, we have this program, we have that program,” we all did, all these different places and interviews and social media, pushing all this out and I keep getting feedback that, “Well no, we have not really been able to access this and we have not received that,” thinking OK, we’ll keep working on it. So number one, I’m just super disappointed that so many of these amounts, these special appropriations, these funds that are specifically to address the needs of some of the most vulnerable people in the county, and when I see how little has been spent, I just don’t even know what to say…
There is no excuse for the fact that so much of this money has not been out there.
Council Member Gabe Albornoz I’m not confident at all that a month from now, when we have another update, that things will be significantly improved from where we are right now. And we’re setting everybody up for failure right now. And it’s not fair. It’s not fair to the county employees who are working diligently and around the clock to address these issues. We need stronger strategic leadership to be able to provide them with the support that they need to be able to get their jobs done. And I’m not seeing that and I’m not hearing that right now.
Council Member Will Jawando The thing that is totally unacceptable to me is that we can’t get money out of the door that we’ve appropriated for rent and for food and for emergency assistance. So we just have to do better on that.
Council Members also called out County Executive Marc Elrich directly.
Navarro I apologize to you, Dr. Stoddard, because this is not directed at you, because you’re not the executive. And I will say, the executive should be here talking to us about what is happening because this is really, really critical.
Council Member Tom Hucker [To Madaleno] Do you know where the county executive is? I would just expect the county executive to be coming in and making this presentation. This is not one, this is like five or six of the most important issues facing the county. It’s hard enough to tell our constituents, “We don’t have money to keep your business open, we don’t have money to keep you in your apartment,” but it’s heartbreaking to tell them, “We have the money, we appropriated it, and it’s in a bank account, we just haven’t given it to you yet. And we may not be able to.” And I would just think, if there would be one thing he’d be on top of, it’s this. I don’t want to be unfair to him, I’m happy to tell him that himself, but I’m a little shocked that he’s not here to make this presentation and that it also wasn’t made months ago.
Council Member Craig Rice This lies firmly in the county executive’s lap. And look, I have been incredibly complimentary to the county executive in terms of how I think we’ve responded to the pandemic, and so now, I can also equally be critical of the fact that we failed. We dropped the ball. And it does rest in his court. That’s just the reality…
We cannot work as a county if we have a disconnect between the county executive and the county council on something that is so important as keeping people in their homes, putting food on their tables and making sure that they can continue to be employed. I mean, these are basics. And if it’s not happening, then there’s a serious problem ahead…
[To Stoddard] I just want to say I appreciate you falling on your sword, but sir, it’s not your sword to fall on.
Friedson With all due respect, I heard earlier about the county executive and his frustration. We don’t need frustration from the county executive, we need leadership. And thus far on these issues, we have not seen it, and we need to.
On top of all that, Stoddard made this grim observation.
The FEMA reimbursement process is going to be incredibly difficult, not just for us, but also for FEMA. And as I think I have alluded to before, my experience with FEMA is generally that if they can find a reason not to reimburse you for something, they’re going to find it. And they’re going to utilize that as a rationale to not reimburse.
Back in July, I wrote a post about the county budget titled “Crash!” The post discussed the county’s revenue writedown of $522 million for Fiscal Years 20-22, with more shortfalls to come later. That post was soon followed by another titled “MoCo is Praying for a Federal Bailout,” which described the county’s cream-puff savings plan and desperate desire for more federal money (which so far has not arrived). Three months later, an eye-opening memo from county council staff contains more details of what is becoming one of the most serious budget crises in recent county history.
Consider the following.
CARES Act Funding
The county has received $183 million in federal aid under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Of that amount, $100.6 million has been used for special appropriations, $82.2 million has been allocated for county operations (some as placeholders) and $10 million has been allocated for municipal and outside agency reimbursements. If the placeholders (totaling $85.9 million) are included, the county will have overspent its CARES Act money by $9.4 million.
COVID Pay
I have previously written that County Executive Marc Elrich agreed to distribute COVID pay of up to $10 per hour at a cost of $3.2 million per pay period indefinitely. According to the council staff, the initial cost estimate was low. The cost is now roughly $4 million per pay period. Through 9/26/20, $49.2 million has been paid out, far in excess of any savings the council achieved through canceling collectively bargained raises. The total cost of the extra pay is projected to total $72 million through the end of the calendar year and approximately $100 million if paid for an entire year.
The executive branch expects to get FEMA reimbursements for most of this pay but that is not assured. Council staff wrote:
Previously, the Executive Branch had indicated that the pay differential would likely be eligible for FEMA reimbursement – meaning that the County might only be required to cover 25% of the total cost. However, the County has yet to apply for or receive FEMA reimbursement for these costs. In preparation for this briefing, the Executive Branch provided the following update on the status of FEMA reimbursement for the pay differential: “These remain pending. There were changes in the FEMA reimbursement guidelines on September 15 and other reimbursement rulings that created significant questions about some personnel cost eligibility. We met with FEMA representatives on Monday, October 5 to clarify some of these questions and are proceeding with data collection for reimbursement. We have added a large number of staff to this effort to address the increasing data collection burden.” Based on the updated guidance from FEMA, even in the best-case scenario, it is likely that the County will need to cover much more than 25% of the total cost of the pay differential.
In other words, who knows whether the feds will come through, leaving the county stuck with tens of millions of dollars in liabilities.
Council staff also compared the extra pay negotiated by Elrich to other jurisdictions. Maximum payouts per pay period are $140 in D.C., $200 in Baltimore City, Baltimore County and Frederick, $250 in Anne Arundel and $350 in Prince George’s. Howard County paid one-time bonuses of $600 to $1,500 and Fairfax County does not have COVID pay at all. MoCo’s maximum payout is $800 per pay period, by far the highest in the region.
Spending from Reserve
This fact is not contained in the council staff memo but is nonetheless relevant to the county’s budget issues. Since the start of the calendar year, the council has appropriated amounts totaling $28 million from general fund reserves. This does not include another $28 million taken from reserves that were reimbursed with federal CARES Act money.
These appropriations might be understandable if the county had undertaken a deliberate strategy of dipping into its reserves to fight the recession. But no such strategy has been announced. The county has not officially diverged from its policy of setting aside 10% of its revenues into reserves, a policy originally devised ten years ago. What happens if we have a bad winter and the county must dip into reserves some more to pay snow removal costs, a common practice of the past?
During the Great Recession, County Executive Ike Leggett and the council of that era adopted very tough measures combining brutal spending cuts, an energy tax hike and a 10% reserve policy to save the county from financial disaster. Both the county employee unions and the business community were outraged at these tactics but they worked. When Leggett retired, he bequeathed a large reserve, a 96% pension funding ratio and a gold-plated AAA bond rating to his successor.
The county’s elected officials are united in opposing Question B, the tax cap charter amendment from Robin Ficker that they say would endanger the county’s AAA bond rating. They’re right to oppose Question B. But the actions described above, occurring in the context of a huge revenue writedown, might be at least as big a threat to the bond rating as anything Ficker’s proposal would do. The council must heed the warnings of its staff and get control of the budget.
One of the key claims made by some opponents of Question B (Robin Ficker’s latest charter amendment on taxes) is that it will harm schools by limiting growth in property tax revenues. For example, former County Council Member Bruce Adams wrote on Maryland Matters: “Ficker’s amendment would not let even a unanimous council act to preserve our quality schools and services.” Former County Executive Ike Leggett also told MCM in an interview that it could “certainly impact schools.”
Is that true?
First, let’s remember what Question B would actually do. Right now, the county charter limits annual growth in property tax receipts to the rate of inflation (with a few exceptions) unless the county council unanimously votes to go over the limit. The last time that happened was in 2016, when the council voted to increase property taxes by 8.7%. Question B would remove the ability of the council to exceed the limit, thereby imposing an absolute cap on property tax revenue growth at the rate of inflation. (Question A, a competing tax limit charter amendment authored by Council Member Andrew Friedson, would raise far more revenue than Question B over time.) Because of Question B’s limit on revenue growth, some opponents criticize it for potentially damaging many different kinds of county services, including schools.
But school funding is different from most other kinds of funding when it comes to charter limits. The reason for that lies in a fight between the counties and the state back in 2012. At that time, the counties were struggling with the budgetary effects of the Great Recession and several of them had cut local per pupil school funding below the floor established by the state. The state responded by passing SB 848, which made a number of changes to the state’s maintenance of effort law on school funding. One of them allowed counties to circumvent their charter limits to fund school budgets. (State law preempts county charters.) The exact language of this part of the bill, which is now contained in Md. Education Code Ann. § 5-104(d)(1), reads:
Notwithstanding any provision of a county charter that places a limit on that county’s property tax rate or revenues and subject to paragraph (2) of this subsection, a county governing body may set a property tax rate that is higher than the rate authorized under the county’s charter or collect more property tax revenues than the revenues authorized under the county’s charter for the sole purpose of funding the approved budget of the county board.
That means that a county can exceed its charter limit for the purpose of funding its school budget. A majority of county council votes are all that is required to raise property taxes for MCPS’s operating budget regardless of what MoCo voters put in the charter.
Five counties in Maryland have charter limits on property taxes: Anne Arundel, Montgomery, Prince George’s, Talbot and Wicomico. Since the maintenance of effort law was changed in 2012, three of them – Anne Arundel, Prince George’s and Talbot – took advantage of their new authority under state law to circumvent their charter limits and raise taxes for schools. (Talbot did it three times.) Montgomery County Executive Marc Elrich proposed doing the same in his FY21 recommended budget, but the council rejected his tax hike. (It’s not a coincidence that then-budget director and current Chief Administrative Officer Rich Madaleno was one of the architects of the school funding exemption when he was in the State Senate.)
There are two ways in which Question B would indirectly affect MCPS. First, property taxes are a major source of revenue to pay off debt service, which is required to finance bonds issued for school construction. If reduced growth in property taxes impacts debt service, MCPS’s capital budget could become tighter. Property taxes also generate cash that goes into some school capital spending (like technology modernization). Second, county departments outside MCPS contribute ancillary services that benefit the schools. Examples include health and human services (school health nurses, health room technicians, childhood wellness, linkages to learning), police (crossing guards and school resource officers), libraries (research and internet resources) and recreation (sports academies). These services are not inside MCPS’s local appropriation and would be impacted by Question B.
Over time, Question B if passed would probably result in two pots of property tax money – one exclusively for the MCPS operating budget requiring a majority of council votes to increase, and another for everything else with growth capped at inflation. Smart people like Madaleno and the county’s budget analysts can figure out how to move money around to avoid the worst effects of this. Question B would still be a challenge to the county’s finances, a distortion to its budget process and an impediment to funding police, fire service, parks, libraries, road maintenance and more. That’s reason enough to vote against it. But the bottom line is that Question B would do far less to hurt MCPS than the rest of county government.
What is this new spending stream? On April 10, County Executive Marc Elrich announced that he had reached an agreement with the three county employee unions (MCGEO, the fire fighters and the police) to provide their members with COVID-19 differential pay. The extra pay applied to two categories of employees.
Front Facing Onsite: work that cannot be performed by telework, involves physical interaction with the public and cannot be performed with appropriate social distancing. These employees would get an extra $10 per hour.
Back Office Onsite: work that cannot be performed by telework and does not involve regular physical interaction with the public. These employees would get an extra $3 per hour.
The extra pay was retroactive to the March 29 pay period and was supposed to be in effect for six pay periods “or until the Maryland State of Emergency is lifted.” At the time, county council staff estimated that the extra pay would cost the county $3.2 million per pay period. As of this writing, I am told that the COVID pay continues. (Note: this pay arrangement does not apply to MCPS or other agencies legally separate from county government.)
My sources tell me that the county’s COVID pay program is one of the most generous in the United States. It is far more generous than the state’s COVID pay, which was an extra $3.13 per hour for some classifications of public safety, juvenile center and healthcare employees plus $2.00 more for those working in quarantine areas. (The $3.13 per hour ended on September 8 while the quarantine pay continues.) The generosity of the county’s program can further be seen by its cost: $3.2 million per pay period versus the state’s $3.3 million. MoCo has roughly 10,000 employees while the state has more than 80,000.
Elrich painted this extra pay as a financial win for the county. His press release stated, “The County Executive noted that under provisions of existing county bargaining agreements (which were negotiated years ago), the unions could have insisted on much larger benefits, but they understood the importance of the ongoing fiscal health of the county.” So according to Elrich, by giving the unions something less than what their agreements gave them, he was saving the county money.
In retrospect, that was a dubious claim. The unions are indeed entitled to double pay during emergencies under their agreements. However, a careful examination of the county’s collective bargaining agreements with MCGEO, the fire fighters and the police shows that their emergency pay provisions relate to weather emergencies. The emergency pay provision in the police agreement is actually labeled “Snow Emergency-General Emergency Pay.” All three agreements contain this language:
“General emergency” for the purpose of this agreement is defined as any period determined by the County Executive, Chief Administrative Officer, or designee to be a period of emergency, such as inclement weather conditions. Under such conditions, County offices are closed and services are discontinued; only emergency services shall be provided.
The county suspended some (but not all) services early during the COVID crisis but many of them are being provided now. The county even said as far back as March 13, “While schools and public facilities will be closed, Montgomery County offices remain open for business and operations are continuing.” This status does not qualify as a general emergency under the contract language.
MCGEO’s agreement contains this additional language:
Implementation of General Emergencies shall be in accordance with Administrative Procedure 4-21, dated July 12, 1991. In addition to the above, before making a determination whether to declare a General Emergency, the CAO or designee will consider recent weather reports regarding the amount of precipitation already accumulated, as well as the forecast for further accumulations during the succeeding 8-hour period. Other considerations that the CAO or designee will take into account include whether the major roadways of the County are passable and safe for travel and whether the County public schools have been closed for the day and what actions other public sector jurisdictions in the Washington Metropolitan Region take. The decision whether to declare a General Emergency shall be based on the cumulative of all these factors and no one factor shall be conclusive or determinative. The County Executive or CAO should attempt to give employees the earliest notice of whether a general emergency or liberal leave period will be declared.
Again, this clearly relates to a weather emergency.
Either Elrich knew all this and granted concessions anyway or he didn’t bother to read the union contracts and was out-negotiated by MCGEO’s shrewd president, Gino Renne. If the latter, he is not the first executive to be cleaned out at the bargaining table by Gino! The unions were quite upset to see the council cancel $28 million of compensation increases last spring, but they have already earned more than that in COVID pay.
It’s important to note that the county council had no role in this. Normally, the council would approve economic elements of a new collective bargaining agreement inside county government. But in this instance, a renegotiation occurred of an existing agreement. Elrich did not ask for council approval and the council did not bless it.
The issue here isn’t whether employees should get COVID pay. Of course they should. If you were a police officer, a fire fighter, a correctional officer, a Ride On bus driver or another employee interacting with the public for hours on end, you would want it too! The issue is whether the county has a way to pay for it, especially given its troubled financial condition. And that’s where the matter gets complicated.
One place where the county can turn for COVID expenses is federal grant funds, especially those disbursed under the CARES Act. To date, the county has received $223 million in federal grant funds during the COVID crisis. The status of those funds is a bit murky, but my quick and dirty math from examining the county council’s spending resolutions is that close to all of that money has already been appropriated. Last summer, the county was hoping a deal in Congress would produce more federal funds but it didn’t happen. Now there is talk of covering at least part of the COVID pay through a FEMA reimbursement but who knows if that will occur. Looming over all of this is the question of how long the payments will continue.
If federal funds are not available, the county’s options for financing its COVID pay program are difficult ones. It could make offsetting spending cuts although most county spending is tied to labor in one way or another. (How crazy would it be to pay employees more and then furlough them?) It could dip into reserves, which might impact its AAA bond rating. It could raid retiree health care funds yet again (something that was hinted at in July), which has already earned it a rebuke from Wall Street. Or it could raise taxes.
Dear readers, let’s consider the following sequence of events.
2018: County executive candidate Marc Elrich campaigns on a platform of restructuring government. Elrich writes in the Washington Post:
Far from saddling taxpayers with higher bills, I will streamline county government. Unions and their members, our county’s workforce, know and trust me. That is why we announced our plan to restructure county government together. Our county is facing difficult financial times; without thoughtful changes, employees will face across-the-board cuts.
August 2019: The three county employee unions, who expected to partner with Elrich to restructure government, blast Chief Administrative Officer Andrew Kleine in writing for “hindering progress” in labor relations. Kleine, the administrative head of county government, was supposed to be a key player in restructuring.
March 2020: Elrich recommends a budget that adds positions and raises taxes despite repeated campaign pledges to not raise taxes. The county council immediately rejects the tax hike and later implements a same services budget.
June 2020: The county advertises and requests responses to informal solicitation #1118023, a consultant contract for “Cost Efficiency Study Group Consulting Services.”
July 2020: The county’s budget director informs the county council about the consulting contract and its relationship with a new “government efficiency work group.” This prompts a letter to Kleine by the three members of the council’s Government Operations Committee, Nancy Navarro (chair), Andrew Friedson and Sidney Katz, asking about the identity and compensation of the consultant, the membership of the work group and prior additions of positions in the budget.
August 6, 2020: Kleine’s deputy, Fariba Kassiri, replies to the council with the following information: the consultant, Matrix Consulting Group Ltd., will be paid $92,000 for a twelve-week period beginning this month to advise a “cost efficiency study group” containing county government officials and representatives of the county’s largest employee union (MCGEO). “The Consultant will assist the group abolish at minimum 100 vacant positions by identifying potential cost savings and/or efficiency enhancements. Additionally, the Consultant will provide a written report approximately 3 months after the project commences that will contain findings and recommendations. The report will be shared with the County Council once it has been finalized.”
So let’s summarize. After doing nothing to restructure government for a year and a half, the administration will be paying a consultant $92,000 to help it eliminate 100 or more vacant positions after it has already added almost 200 positions in the last two budgets.
By definition, vacant positions do not have a cash cost since no one earning salary and benefits occupies them. How does eliminating them save cash? And since the county’s budget office already tracks these positions, why is a consultant necessary for identifying them?
The very concept of spending money on a consultant to save zero money by eliminating vacant positions – something the county can do and has done by itself – is totally banana cakes. If this is how county management intends to address the hundreds of millions of dollars in lost revenue which will soon come due, then the county council’s bloody meat axe awaits.
The council’s letter and the administration’s answer (mysteriously not signed by Kleine) appears below.
The COVID cuts have begun. County Executive Marc Elrich has sent a mid-year savings plan to the county council, which has tweaked it and given it tentative approval through a straw vote. The ostensible cut numbers are $44 million from the operating budget and another $28 million from the capital budget. That compares to revenue writedowns of $48 million in FY20 and $192 million in FY21, meaning that the cuts are roughly a third of the revenue loss.
But let’s be clear. The county has not adopted a true fiscal strategy as it did ten years ago, at least not yet. Its real strategy – if you can call it that – is to pray for a bailout from Washington.
Let’s look at what exactly these cuts are.
The most common form of “cut” in the savings plan comes in the form of lapses. The county budget defines lapse as, “The reduction of budgeted gross personnel costs by an amount believed unnecessary because of turnover, vacancies, and normal delays in filling positions. The amount of lapse will differ among departments and from year to year.”
Lapses occur naturally because of churn in the workforce. Imagine an employee leaves a position that has a cost of $100,000 a year at the end of a fiscal year. Now imagine that the county takes six months to fill the position. That lapse has cut the county’s cost of filling that position to $50,000 in the current fiscal year. However, that cost will jump to $100,000 in the next fiscal year assuming that it remains occupied. These costs are common throughout published budgets. By keeping lapsed positions vacant for longer, county departments can produce “savings.” No one is getting laid off through such practices and they are equivalent to deferring planned future spending, not making actual cuts. Department managers may wish to fill these positions but extending lapses means they will have to wait longer.
Elrich’s savings plan included over 60 lapsed positions in the savings package. Many of them were lapsed for only part of the fiscal year. It’s hard to tell the exact number because not all individual positions were listed. Their total combined cost was $7.0 million, or about a fifth of the administration’s operating budget reductions. The council added another $3.5 million by converting Elrich’s proposed abolition of vacant positions in the police department into lapses. Even though no employees are actually getting cut through these lapses, the $10.5 million counts as a “cut” because it means the county will be spending $10.5 million less than it was planning to spend in FY21.
In Elrich’s plan, nine county offices and departments – the Community Engagement Cluster, Consumer Protection, the County Council, Environmental Protection, Finance, Housing and Community Affairs, Legislative Oversight, the Housing Opportunities Commission and Procurement – relied exclusively on lapses for their share of “cuts.” Seven more – the Circuit Court, County Attorney, Human Rights, Inspector General, Management and Budget, Public Information and Technology Services – used lapses for a majority of their “cuts.”
Another set of reductions relates to turnover, telework, shifting funding to state money and adjustments for service reductions already set in place (like transit and recreation facilities). Examples of these kinds of cuts are $4.2 million in previously reduced transit service, a $2.9 million reduction for Next Gen 911 “in anticipation of state aid,” $1.9 million in “utility savings due to continued telework” and $766,713 in savings from recreation facilities that have been closed for months. Much of this is booking savings the county was already going to receive. Little of this represents new actual service cuts.
Most of the impactful cuts are concentrated in health and human services, the police department, transportation and the parks department. Then there is Montgomery College, which has agreed to direct $4.4 million of county money to its fund balance rather than spend it this year. That money will be available for the next annual budget. MCPS has been spared – for now. There are also modest adjustments to the capital budget related to cost savings on certain projects, delays on the state’s Purple Line project (which is tied to three related county projects) and deferrals of Ride On bus purchases. These trims will pale in comparison to a likely bloody capital project adjustment season early next year.
The county government knows that plucking low hanging fruit is far from sufficient to survive the current budget crisis, so why is it not doing more? Elrich answered that question in his savings plan transmission memo to the council. Elrich wrote:
Across the country, states and local governments are struggling to deliver vital services to residents and help communities to recover, while adjusting to a significant decline in revenues. Unlike other recessions, however, it is unlikely we will be able to climb our way out of this fiscal crisis without additional Federal aid unless we decimate the services that are so desperately needed by County residents. Do not get me wrong, we are grateful for the aid that the Federal government has already provided to Maryland and Montgomery County to help us navigate these uncertain times, and I am greatly appreciative of our State’s Congressional delegation for their continued assistance and leadership. Simply put, however, without additional aid from the Federal government, deep and draconian spending reductions may well be needed in order for us to balance our budget. These reductions will have lasting impacts on County residents, businesses and employees.
The county would be in better shape if it had done what county executive candidate Marc Elrich said he was going to do two years ago: undertake a genuine restructuring program in cooperation with the county’s unions to save money starting in the first 90 days of the term. Instead, the executive has added positions through his recommended budgets – some of which were trimmed by the council and others now lapsed – and the county’s top manager has spent his time running a book club while getting blasted by labor. The county’s budget director has also said that the county is looking at eliminating at least 100 vacant positions. (How does that save actual cash?) Now the county is praying that Mitch McConnell – who wants us to go bankrupt! – will bail us out.
Prayer is a great thing for matters of faith. It is much less useful for matters of budget.
