Monthly Archives: June 2016

Adam Pagnucco, George Leventhal, Robin Ficker, Term Limits

Two Myths About Term Limits

By Adam Pagnucco.

The fight over whether term limits should apply to Montgomery County elected officials is now underway, and that’s even before political heckler Robin Ficker has submitted his signatures for his proposed charter amendment.  Supporters and opponents are offering arguments for their point of view, some with merit and some without.  Today we will take down one of the most prominent arguments from each side.

1.  Term Limits are Needed to Create Competition

The historical record shows plenty of competition for elected office in Montgomery County.  It just doesn’t happen to be the kind of competition that some term limits supporters want.

Since charter government was established in 1970, there has been one Republican County Executive (Jim Gleason, the first to hold that office) and three Republican Council Members (District 1’s Betty Ann Krahnke and Howard Denis and District 2’s Nancy Dacek).  The other county elected officials have all been Democrats.  But there has been substantial competition among the Democrats over the years, including the Neal Potter vs. Sidney Kramer factions in the 1980s and early 1990s and the competing council slates in 2002.

Below are the election results over the last six cycles.

MoCo Elections 1994-2014

Incumbents were reelected 42 times and lost 6 times.  It’s important to note that two of those six losses were by Republicans in general elections: Dacek (2002) and Denis (2006).  Including them, incumbents had a win rate of 88%.

But when you count the open seats (15 of them including three special elections), newcomers filled seats one-third of the time.  That’s plenty of turnover and FAR more than Congress.  Ficker’s objection is that Democrats replace other Democrats, and term limits won’t change that.

2.  Term Limits Supporters are Similar to Brexit Voters

This is an argument made by four-term council incumbent George Leventhal, who has called term limits “a dumb, unnecessary protest gesture” and compared supporters to Brexit voters.  Leventhal has also noted that Help Save Maryland, which the Southern Poverty Law Center has labeled a “nativist extremist” group, has gathered signatures for the charter amendment.  This is a clear attempt to marginalize term limits supporters and paint them as pawns of racist xenophobes.

There are two problems with this argument.  First, if Ficker, Help Save Maryland and the county GOP were the only people in favor of term limits, they would have absolutely no chance of passage.  So why are Council Members like Leventhal so worried about it?  The answer is that he and other opponents know the issue is getting broader traction.  Second, the motivations of supporters are almost entirely local ones.  Consider the following groups who might be tempted to back term limits.

People Who Object to the Giant Tax Hike

The nine percent property tax hike is extremely unpopular, unnecessarily large, and could not have come at a worse time.  If term limits becomes a proxy vote on whether the Giant Tax Hike should have gone through – and Ficker is doing everything in his power to link the issues – term limits will pass by a mile.

Business People

Business owners and managers have been complaining incessantly about the difficulty of doing business in Montgomery County for many years.  Passage of repeated tax hikes along with progressive legislation that increases the cost of doing business feeds into their unhappiness.  Then there are the restaurants and retailers who are forced to do business with the county’s incompetent Department of Liquor Control.  Term limits seem like a good idea to some of them!

County Employees

First, the County Council abrogated the county employee unions’ collective bargaining agreements .  Next, the council introduced legislation to weaken their ability to negotiate.  Some in labor are furious and there is even a chance that one or more unions could SUPPORT term limits.

One thing that many people outside labor don’t understand is that unions are political organizations.  Local union leaders are elected by their members every three years.  Each union has to deal with internal discussions, occasional disagreements and even dissent.  Members have expectations of service and performance, and when they are not met, there can be consequences.  When an employer rubs a union leader’s face in the bitter mud of defeat, that leader must fight back or risk being seen as weak.  And if such a leader tells members that term limits are the only way to defend their rights in the workplace, a lot of those members are going to listen.

Non-Democrats and Moderate Democrats

Republicans and unaffiliated voters have long been on the outside looking in at county politics.  But many moderate Democrats, especially those far away from the liberal precincts near the Beltway, don’t feel adequately represented either.  True or not, comments about “Takoma Park liberals” dominating county government are not unheard of, even among Democrats.  The county Democratic Party’s rank-and-file is more ideologically diverse than its elected leadership, and if the leaders don’t do things to keep moderates on board (like limit the size of tax hikes), they will lose some of them to the likes of Governor Larry Hogan and even to the cause of term limits.

Note the common thread of the concerns held by the above groups: none of them are linked to racism, xenophobia or political extremism.  Whether they are right or wrong, all are rooted in local issues and many are in line with these folks’ self-interest.

In general, it’s a REALLY bad idea to call voters “dumb” even if sometimes there’s a little bit of truth in it.  If that’s the argument that term limits opponents use, term limits will DEFINITELY pass.

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Adam Pagnucco, Montgomery County Council, Robin Ficker, Term Limits

Why Term Limits Will Probably Pass

By Adam Pagnucco.

Montgomery County political heckler Robin Ficker, who has tormented politicians and voters alike for decades, is on the verge of getting a charter amendment calling for term limits for county officials  on the ballot.  Ficker’s previous term limits amendments failed by 8 points in 2000 and 4 points in 2004.  But Ficker, whose energy and combativeness have not declined with age, is trying again.

And this time the heckler just might get the last laugh.

Many things have changed over the last twelve years, and all of them favor the passage of term limits.  Consider the following.

1.  The Giant Tax Hike

I have written in great detail about the county’s Giant Tax Hike, but look at it in simple terms.  Imagine a public gathering of county residents at a restaurant, a festival, a park or any other public space.  Then give them three options from which to pick.  First, they could have a nine percent hike in property taxes that would be spread throughout the county government.  (That is what the County Council passed.)  Second, they could have a tax hike of about half that size with the proceeds going towards education alone.  (We laid out how to do that in a prior post.)  Or third, they could have no tax hike.  Which option do you think they would pick?  Which one do you think would they be LEAST likely to pick?

Many voters will go to the polls with twin sets of two words on their minds – “tax hike” and “term limits” – and for a lot of them, they go together.  That’s what Ficker is counting on and by maximizing the tax hike, the County Council played right into his hands.

2.  Declining Local Media Coverage

We spent a lot of time discussing the near disappearance of local media coverage in our Politics After the Gazette series.  The result of this is that people know a lot less about what their elected officials do than they did twelve years ago.  Back then, the Post had multiple reporters covering county government and it competed vigorously with the Gazette and a daily, the Montgomery Journal, both of which are gone.  Now, there are basically two people responsible for local news here: the Post’s Bill Turque and Bethesda Magazine publisher Steve Hull.  That’s it, folks.

When voters don’t know what their government does, they are less likely to understand it and trust it.  And the few stories that remain are disproportionately negative ones.  Over the course of the last year, the two dominant stories on Montgomery County government have been the Giant Tax Hike and the dreadful performance of the county’s liquor monopoly.  Neither one generates happiness among the public.

3.  Declining Voter Turnout

Voter turnout has been declining in Montgomery County for some time now, although this year’s contested Presidential primary was an exception.  Consider the trend in mid-term primaries, which usually decide elections for county officials.  In 2002, 143,762 voters turned out in MoCo’s primary.  That number fell in every cycle through 2014, when 111,231 voters turned out.  That is actually less than primary turnout in 1990, when 118,527 people came out to vote.  The declining number of voters shrinks the mailing universe used by county-level candidates, meaning that an ever-smaller number of people receive communications from candidates.  The number of Democrats who voted in all three of the 2006, 2010 and 2014 primaries totaled just over 40,000 people, or four percent of the population.  That means the HUGE majority of the population does not hear from candidates at election time, and as we said above, it’s hard for people to trust elected officials they don’t know.

4.  The General Electorate is Getting Less Liberal

Years ago, the general electorate – which votes on ballot questions and charter amendments – regularly voted down right-wing proposals like Ficker’s.  Not anymore.  On each of the last three occasions on which they were asked to settle a policy question, the voters opted for the less progressive option – approving Ficker’s property tax amendment in 2008, opposing the ambulance fee in 2010 and opposing some of the police union’s collective bargaining rights in 2012.  Democrats account for roughly 60% of the county’s general election voters and not all of them are liberals.  When it comes to general election voters deciding policy issues, all bets are off now.

5.  Change at the Board of Elections

The last time Ficker tried to get term limits on the ballot was in 2010, when the county’s Board of Elections rejected his signatures.  But the current board now has a Republican majority appointed by the Governor and was accused of “naked voter suppression” by the County Council during a recent dispute over early voting sites.  Who among you believes that this new board will race to protect the council from term limits?

6.  No One Has the Council’s Backs

When Ficker got term limits on the ballot in 2000, a large coalition of state legislators and business, labor and civic groups came together to oppose him.  Two committees spent tens of thousands of dollars on mailings and campaigned vigorously to stop Ficker.  The result was an 8-point loss for term limits.

An anti-term limits lit piece from 2000.

Ficker C 1 Ficker C 2

That is not happening now.  Some participants in the 2000 coalition would actually be perfectly fine with term limits in 2016.  The business community dislikes the tax hike and believes the county government does not do enough to compete with D.C., Virginia and the rest of Maryland.  The public employee unions are upset about the council’s abrogating their collective bargaining agreements and one of the biggest unions may even SUPPORT term limits.  And in a way, term limits may be in the strategic interest of these groups if they can get supportive candidates elected to the open seats. As for the state legislators, some may very well run for the open County Council seats in part because of council salaries, which are on track to be three times what Annapolis lawmakers receive.

Robin Ficker may be the most unpopular political figure in the history of Montgomery County.  Politicians and party activists have been laughing at him – and not in a good way! – for decades.  But even the most clownish hecklers understand the old truism: he who laughs last laughs best.

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Adam Pagnucco, budget, Department of Liquor Control, Economy, Larry Hogan, MCGEO, Montgomery County, Montgomery County Council, Property Taxes, Republicans, Robin Ficker

MoCo’s Giant Tax Hike, Part Six

By Adam Pagnucco.

Montgomery County’s giant tax hike will have consequences.  Here are a few of them.

1.  Term limits are more likely to pass.

There are several reasons why Robin Ficker’s newest term limits amendment will probably pass if he gathers enough signatures to place it on the ballot, but the tax hike is one of the biggest.  The last time the council broke the charter limit in 2008, voters responded by passing Ficker’s charter amendment to make tax hikes harder.  With a new tax hike in place, voters may be tempted to respond with term limits.

Ficker has taken notice.  He regularly runs Facebook ads linking term limits, the tax hike and the council’s 2013 salary increase like the one below.  Commenters respond predictably.

Ficker vs Elrich

Ficker may have a new ally in his quest to evict the council: MCGEO President Gino Renne.  After the council voted to abrogate his union’s collective bargaining agreement, Renne told the Post, “I’m tired of these clowns,” and said his union might support term limits.  An alliance between Gino Renne and Robin Ficker would be one of the strangest events in the history of MoCo politics.  Whoever can produce a picture of these two smiling and shaking hands will be awarded a gift certificate from Gino’s beloved Department of Liquor Control.

2. Outsider candidates could be encouraged to run for county office.

If term limits pass, two things will happen.  First, the County Executive’s seat and five seats on the County Council will be open in 2018.  Second, the tax increase will be blamed for the success of term limits.  Both factors could lead to the entry of outsider candidates with a message like this: “We need new leadership.  We need to do things differently.”  Translation: we need to run the government without giant tax hikes.

Some of these outsiders may use the county’s new public financing system to run.  But the strong performance of David Trone, who started with zero name recognition and won many parts of CD8, will encourage self-funders.  This being Montgomery County, there are a LOT of potential self-funders, including those who have previously run for office.  Candidates in public financing can raise as many individual contributions of up to $150 each as they are able to collect, but the system caps public match amounts at $750,000 for Executive candidates, $250,000 for at-large council candidates and $125,000 for district council candidates.  A wealthy self-funder could easily overwhelm candidates who are subject to these caps and make a mockery of public financing.

3.  More charter amendments on taxes are possible.

Ficker’s 2008 property tax charter amendment, which instituted the requirement that all nine Council Members must vote to override the charter limit on property taxes, was a mild version of his previous ballot questions on the subject.  His 2004 Question A, which would have abolished the override provision entirely, failed by a 59-41 percent margin.  Now that the 2008 amendment has been proven ineffective, Ficker could be encouraged to bring back his more draconian version soon.  In the wake of this new tax hike, would voters support it?

Passage of a hard tax cap would have very grave consequences for the ability of county government to deal with downturns.  In 2010, the County Council responded to the Great Recession by passing a tough budget combining cuts, furloughs, an energy tax increase and layoffs of 90 employees.  When the next recession comes, if the county has no taxation flexibility, it might have to pass a budget laying off hundreds of people and gutting entire departments.  If the levying of giant tax hikes in non-emergencies causes the voters to abolish the possibility of levying them in true emergencies in the future, it would be a serious calamity.

4.  Governor Larry Hogan is a big winner.

One of Governor Hogan’s favorite political tactics is to play the Big Three Democratic jurisdictions against the rest of the state, with the City of Baltimore being his prime target.  But he can also point to Prince George’s County, where the County Executive (and a potential election opponent) proposed a 15% property tax hike, and also to Montgomery County, where the council passed a 9% increase.  His message to the voters will be a simple one.

“Look, folks.  This is what you get when you allow liberal Democrats to have one-party rule: giant tax hikes.  That’s why you need people like me in office to stop them.”

How many MoCo Democrats will ask themselves this question: “What is easier for me to live with? Larry Hogan or nine percent tax hikes?” What do you think their answer will be?

Hogan received 37% of the vote in Montgomery County in 2014.  He had a 55% approval rating in MoCo according to a Washington Post poll last October.  A Gonzales poll taken in March found that registered voters in the Washington suburbs (defined as MoCo, Prince George’s and Charles) gave Hogan a 62.6% job approval rating, with 35% strongly approving.  If Hogan can use the tax issue to run in the low 40s, or even as high as 45% in MoCo, he will be very difficult to beat for reelection.

Reelecting himself is not Hogan’s only priority.  He would also like to elect enough Republicans to the General Assembly to uphold his vetoes.  That task is easier in the House of Delegates, where Democrats hold 91 seats, six more than the 85 votes required to override vetoes.  If the GOP can pick up seven seats, as they did in 2014, they can uphold the Governor’s vetoes on party line votes.  That would cause serious change in how Annapolis operates.  Could big tax hikes in Democratic jurisdictions like Montgomery help the GOP get there?

5.  It will be harder to get more aid from Annapolis.

In 2007, former Baltimore State Senator Barbara Hoffman commented to the Gazette on Montgomery County’s ultra-wealthy reputation in Annapolis.  “They have to overcome the view that they’re rich and trouble-free. … That’s not true anymore.”  She was right then, and she is even more right now.  The county has massive needs for transportation projects and both operating and construction funds for the public schools.  But when the county levies giant tax hikes on itself to pay for these needs, is it letting the state off the hook?  State legislators from other cash-strapped jurisdictions that lack wealthy tax bases like Bethesda, Chevy Chase and Potomac are perfectly happy to let MoCo tax itself while they ask the state to tax MoCo even more to pay for their needs.  (Remember the 2012 state income tax hike, of which MoCo residents paid 41% of the new revenue?)  As a result, the next time the Lords of Annapolis are asked to help Montgomery County, they could very well reply, “Tax yourselves to pay for it. You always do.”

6.  A major argument in favor of the liquor monopoly has been proven hollow.

County officials predicted that if the liquor monopoly was lost, annual property taxes would have to rise by an average $100 per household.  Instead, the monopoly was preserved and the council passed a property tax hike that will cost an average $326 per household.  The tax hike was in the works since at least January 2015, long before small businesses and consumers launched their campaign to End the Monopoly.  And the $25 million in new spending added by the council to this year’s budget actually exceeds the $20.7 million that the liquor monopoly is projected to return to the general fund.  This proves once and for all that liquor monopoly revenues do not prevent tax hikes!

7.  There will be pressure in the future for another tax hike.

As we discussed in Part Three of this series, the U.S. Supreme Court’s Wynne decision, which requires counties to refund taxes paid on out-of-state income, was one reason for the current property tax hike.  Senator Rich Madaleno’s state legislation extended the time that counties had to pay for refunds from Fiscal Year 2019 to 2024.  Below is a table showing the fiscal impact on all Maryland counties combined, of which Montgomery accounts for roughly half.  While the legislation enables counties to spend less in FY 2017-2018, it requires them to spend more in FY 2020-2024.  MoCo will have to spend around $20 million a year in most of the out years.

Madaleno Wynne Bill Fiscal Impact

Given its $5 billion-plus annual budget, Montgomery could easily afford the out-year payments by slightly slowing the growth rate in its annual spending.  But instead, the council added $25 million in new spending on top of the Executive’s FY 2017 budget, and unless it is cut, that spending will continue in future budgets.  The cumulative impact of that new spending plus future Wynne refund payments will start to be felt in three years.  At that point, the council could very well face a choice between trimming back their added spending or raising taxes.  What do you think they will do?

8.  Economic development will now be harder.

Despite the wealth in some of its communities, Montgomery County struggles with the perception that it is not business-friendly.  While its unemployment rate is low by national standards, its real per capita income fell steeply during the recession, much of its office space is obsolete and it lacks Northern Virginia’s two major airports and its new Metro line.  The chart below shows the county’s private sector employment from 2001 through 2014.  Despite recent sluggish growth, the county had fewer private sector jobs in 2014 than it did in 2001.

MoCo Private Employment 2001-2014

And while the county lost private sector jobs, the Washington region as a whole grew by 9.5% over this period.

Washington Private Employment 2001-2014

There may be a variety of factors explaining MoCo’s weak economic performance, but consider this: in the last 15 fiscal years, the county has seen six major tax increases.  The county broke its charter limit on property taxes in FY 2003, 2004, 2005, 2009 and 2017 and it doubled the energy tax in FY 2011.  (Most of the latter increase is still on the books.)

Good government is an exercise in balancing needs.  Education, transportation, public safety and public services are valuable and require resources, at times necessitating tax increases.  But all of that is impossible without a vigorous private sector that creates jobs and incomes and pays the government’s bills.  Those priorities must be balanced, and when they are, progressive policies can be afforded.  But if they are not, economic growth will fail, government services will be harder to sustain, taxes will fall increasingly on a shrinking base and a downward spiral could begin.

In the wake of its long-term stagnant economy and its Giant Tax Hike, how close is Montgomery County to that tipping point?

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Adam Pagnucco, budget, Montgomery County, Montgomery County Council, Nancy Floreen, Property Taxes

MoCo’s Giant Tax Hike, Part Five

By Adam Pagnucco.

The untold story about the Giant Tax Hike is that it could have been cut substantially while still maintaining every dime of funding for MCPS in the Executive’s recommended budget.  How could that have been done?

The Executive called for an increase in property taxes of $140 million over the charter limit.  Three sources of savings were available to offset it.  First, Senator Rich Madaleno’s state legislation enabling the county to extend the time necessary to pay tax refunds mandated by the U.S. Supreme Court’s Wynne decision freed up $33.7 million.  Second, the County Council had obtained $4.1 million by not funding some elements of the employees’ collective bargaining agreements.  Third, county agencies other than MCPS were due to receive a combined $36.3 million in extra tax-supported funds in the Executive’s recommended budget.  Using some or all of that money for tax relief would have reduced the tax hike even more.  If all of that money were redirected, the tax hike could have been cut in half with MCPS still getting the entire funding increase in the Executive’s budget.

Instead, the council kept the entire 8.7% property tax hike and distributed $25 million of it throughout the entire county government, as well as its affiliated agencies and partner organizations.  While MCPS may have undergone seven straight years of austerity, most of the other agencies and departments had already received double-digit increases over their pre-recession peak amounts.  This new money was on top of those increases.

Council President Nancy Floreen was very honest about this, writing:

While this is an “education first” budget, it isn’t an “education only” budget. As much as many people care about our outstanding school system, we know that others have different priorities. This budget is very much about those people as well.

This budget provides a much-needed boost to police and fire and rescue services as we will be adding more police officers and firefighters and giving them the equipment they need to continue to make this one the safest counties in America. This budget is about libraries, recreation, parks, the safety net, Montgomery College, and transportation programs that help get people around this county better.

This budget means that no matter where you live in the county, if you call an ambulance, you can count on a life-saving response time. Our police force will now be equipped with body cameras. Potholes will be filled, snow will be plowed, grass in parks and on playing fields will be mowed and trees will get planted in the right-of-way. While our unemployment rate has fallen steadily over the past couple of years, our newly privatized program for economic development promises an even better job market in the future. We are going to help new businesses in their early stages and hope they will remain here once they become successful. We are going to aggressively seek to get established businesses to relocate here and we are going to fight to keep the great businesses of all sizes that already call Montgomery County home. Our avid readers and researchers will appreciate the interim Wheaton Library and extended hours at several branches. And students will have better access to after-school enrichment programs.

As Council President Floreen demonstrates above, this is not so much an Education First budget as it is an Everything First budget, with nearly every department and agency getting a piece of new tax revenues.

Let’s compare what happened this year to what occurred in 2010.  Back then, the county was suffering from the full effects of the Great Recession.  Its reserves were dwindling to zero, revenues were in freefall and its AAA bond rating was on the verge of being downgraded.  The County Council responded by passing a budget with furloughs, layoffs, no raises for employees, a cut in the county’s earned income tax credit, an absolute reduction in spending and a $110 million increase in the energy tax.  Given the dire economic emergency, all options were bad ones, but the council really had no choice.  The cuts and tax hike were forced upon them.

This year, there is a stagnant economy (which we will discuss in Part Six) but no Great Recession.  Reserves are substantial and have been on track to meet the county’s goal of ten percent of revenues.  There is no threat to the bond rating.  And yet, the council chose to pass a $140 million property tax increase – larger than the energy tax hike during the recession – when it could easily have reduced the tax increase, funded MCPS’s needs and not cut any other departments.  But it did not.

Like all big choices, this one will have consequences.  We will explore them in Part Six.

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Adam Pagnucco, budget, MCGEO, Montgomery County, Montgomery County Council, Property Taxes, Public Employees, unions

MoCo’s Giant Tax Hike, Part Four

By Adam Pagnucco.

The tax hike is the part of the budget that is getting the most attention, but the County Council took another unusual step: it refused to fund part of the county employees’ collective bargaining agreements.  Labor has taken notice.

Salary increases in the county’s collective bargaining agreements are comprised of three main components.  First, there is a general wage adjustment that all employees receive.  Second, there is a service increment, also called a step increase, that employees who are not at the top of the salary scale for their classification receive.  Third, there is a longevity increment that is received only by employees who are at the top of their scale and have completed twenty years of service.  All of these items, along with many others, are negotiated by the three county employee unions (MCGEO, the Fire Fighters and the Police) and the Executive and codified in collective bargaining agreements.  The agreements then go to the council, which can decide to fund all, some, or no items that create economic costs.

During the Great Recession, the employees received no raises of any kind in Fiscal Years 2011, 2012 and 2013.  Afterwards, the unions negotiated for and received general wage adjustments, steps and longevity increments as well as “make-up steps.”  The latter were intended to compensate the employees for steps they did not receive during the recession.  The unions won make-up steps in Fiscal Years 2014, 2015 and 2017 (this year’s budget) with the exception of the Fire Fighters this year.  During these years, the combined general wage adjustments, steps and make-up steps ranged from 6.8% to 9.8% per year.

This year, the council approved MCPS’s funding increase on the condition that some of the money scheduled to fund MCPS employees’ raises be instead redirected to hire teachers and other staff.  The school board agreed.  In order to maintain equity between MCPS employees and county employees, the council insisted that the county unions give up some of their raises and primarily targeted their make-up steps.  The council refused to fund eight items in the collective bargaining agreements which together totaled $4.1 million in savings in Fiscal Year 2017, leaving the unions with raises of 4.5 percent.  Only Council Member Marc Elrich voted with the unions.

The county unions were outraged.  MCGEO, the largest of them, published a scathing response on its website, blasting the council as “hypocrites” who engage in “public manipulation in order to achieve what looks like sound fiscal management while achieving nothing.”  The council had approved make-up steps and total salary increases of 6.8-9.8% in both 2014 and 2015, so what had changed now?  The difference is that few people were paying attention in those two years because a tax hike was not on the table.  Now that a large tax hike was being considered, big raises were not politically feasible.  Hence MCGEO’s anger.

Justified or not, the council had achieved $4.1 million in savings by trimming employee salary increases.  That money could have been used to reduce the property tax increase, but that’s not what happened.  Why not?  We will have more in Part Five.

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Adam Pagnucco, budget, Montgomery County, Montgomery County Council, Property Taxes, Rich Madaleno

MoCo’s Giant Tax Hike, Part Three

By Adam Pagnucco.

The need to fund MCPS was one reason given by county officials for their recent hike in property taxes.  Another reason was the effects of the U.S. Supreme Court’s decision in the Comptroller of The Treasury of Maryland vs Wynne case.  We examine that issue today.

The Wynne case started when two Howard County residents with income from a firm that did business in other states applied for an income tax credit to offset their out-of-state earnings.  While they received a credit against their state income taxes, they were denied a credit against their county income taxes.  The residents sued, and the case made it all the way to the U.S. Supreme Court, where the court sided with the plaintiffs on a 5-4 vote.  There were two consequences for local jurisdictions.  First, they could no longer tax out-of-state income.  Second, they owed refunds to residents who had paid taxes on out-of-state income dating back to 2006.  Between the two changes, Montgomery County’s Department of Finance estimated lost county income tax revenue of $76.7 million in FY17 and FY18, $31.5 million in FY19, and $16.4 million annually after FY19.

When the Executive sent the council his recommended budget in March, then-current state law required that Montgomery County pay an estimated $115 million in refunds and interest in nine quarterly installments stretching into FY19.  The hit in FY17 was $50.4 million.  But Montgomery County State Senator Rich Madaleno, Vice Chair of the Senate’s Budget and Taxation Committee, passed a state bill that extended the refund payment period out to FY24.  This reduced the county’s immediate liability and the Executive responded by asking the council to reduce his recommended property tax hike from 3.9 cents to 2.1 cents per $100 of assesable base.

Senator Madaleno’s legislation enabled the council to cut the Executive’s original $140 million tax hike by $33.7 million and still increase county funding for MCPS by $110 million.  But the County Council did not take advantage of it.  They increased property taxes by the Executive’s original amount anyway, a tax hike of 8.7 percent.  Why did they do that?  We will explore that question soon, but first we will examine another source of potential reductions in the tax hike: savings from collective bargaining agreements.

More in Part Four.

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Adam Pagnucco, budget, MCPS, Montgomery County, Montgomery County Council, Property Taxes

MoCo’s Giant Tax Hike, Part Two

By Adam Pagnucco.

The County Council is calling its recently passed budget an “Education First” budget since it included an increase above the state-required minimum level for Montgomery County Public Schools.  Let’s evaluate that claim.

The council and the school system have had strained relations for a decade.  The problems began under former Superintendent Jerry Weast, who antagonized several Council Members with his hard-charging, overdriven style.  Nevertheless, Weast won several major budget increases for MCPS during his tenure.  Then came the Great Recession, which forced the county to make substantial spending cuts across all of its agencies.  One obstacle to cuts at MCPS was the state’s Maintenance of Effort (MOE) law, which sets a local jurisdiction’s per-pupil contribution to public schools as a base which cannot be lowered in future years unless a waiver is obtained from the state’s Board of Education.  In Fiscal Years 2010, 2011 and 2012, the county cuts its per-pupil contribution to MCPS, and in 2012, it did so without applying for a waiver.  As a result, the General Assembly changed the MOE law to force counties to apply for waivers or else have their income tax revenues sent directly to school systems.  At the same time, the General Assembly shifted a portion of teacher pension funding responsibilities, once solely the province of the state, down to the counties.  The combination of these two changes provoked outrage from county officials, some of whom vowed to never support a dime over MOE for MCPS in the future.

The chart below, which shows the recent history of Montgomery County’s local per-pupil contribution to the schools, illustrates the effects of these events.  After rising through FY09, the per-pupil contribution fell for three straight years and then was frozen for four straight years.  This year, the Executive proposed and the council approved an increased per-pupil contribution.  (Roughly $300 of the increase is accounted for by the county’s payment of teacher pensions.)  This is why the County Council is calling its budget an “Education First” budget.

County Per-Pupil Spending on MCPS Nominal

But three items of context apply here.

First, the above chart does not include the effects of inflation, which erode dollar contributions over time.  The chart below shows per-pupil contributions in real dollars using 2017 as a base.  (Inflation in 2016 and 2017 is assumed to be 2.1%, the average of 2007-2015.)  Adjusted for inflation, the county’s current per-pupil funding is nowhere close to what it was before the Great Recession struck.

County Per-Pupil Spending on MCPS Real

Second, while MCPS was living under austerity, other county departments were receiving sizeable funding increases.  The chart below compares funding increases across several county departments and agencies including MCPS between FY10 (the pre-recession peak year) and FY16.  In terms of county dollars only, MCPS’s budget was cut from $1.57 billion to $1.54 billion over this period, a 2% cut, while many other departments enjoyed double-digit increases.  Can one good year make up for seven years of austerity for the public schools?

Change in County Spending FY10-FY16

Third, while county officials criticize the General Assembly for tightening the MOE law and shifting teacher pensions, it is the state that has been pumping substantial funding increases into MCPS’s operating budget.  The chart below shows that while county funding for MCPS was cut by $33 million between FY10 and FY16, state aid to MCPS rose by $192 million.

MCPS Local Money vs State Aid

The bottom line is that the new FY17 budget does add $110 million in local money to MCPS, an amount which exceeds the state-required maintenance of effort by $89 million.  But this one funding increase comes after seven years of reduced and frozen per-pupil contributions, a period during which the rest of the government enjoyed double-digit increases.  Council President Nancy Floreen has described the budget as “a historic partnership with the Board of Education” and “a plan for the future.”  Does that mean that the council will continue to exceed maintenance of effort and give the school system increases that match the rest of the government in future years?  Or will this be a one-year respite, after which austerity will return?

We will have more in Part Three.

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Adam Pagnucco, budget, Montgomery County, Montgomery County Council, Property Taxes

MoCo’s Giant Tax Hike, Part One

By Adam Pagnucco.

As part of the Fiscal Year 2017 budget, the Montgomery County Council has voted to increase property taxes by 8.7 percent.  This is a landmark event that is drawing attention from a large number of people who hold differing views.  While it is a dramatic development, it is also the product of several factors that have been building for a number of years.  This series will explore those factors, explain how it happened, and look at the future.

First, a bit of background.  Property taxes are the number one source of revenue for Montgomery County Government, as they are for most, if not all, county governments in Maryland and Virginia.  In recent years, property taxes have accounted for 35-40% of the county’s total revenues, and the average household paid $4,154 in FY16.

In 1978, the nationwide property tax revolt that produced Proposition 13 in California came to Maryland.  That year, Prince George’s County voters passed the Tax Reform Initiative by Marylanders (TRIM) charter amendment, which placed a hard cap on property tax collections, and replaced it with a rate cap in 1984.  A 1996 referendum to repeal the cap failed.  Montgomery County voters also saw a TRIM charter amendment in 1978, but they voted it down by a 52-48% margin.  In 1990, Montgomery civic activist Bob Denny authored a charter amendment limiting growth in property tax collections to the rate of inflation, and county voters passed it.  But the charter amendment contained an override provision allowing the County Council to exceed the limit on a 7-2 vote.

By the 2000s, the charter limit’s constraint on the council began to evaporate.  The council voted to exceed the limit in FY03, FY04, FY05 and FY09, thereby prompting Robin Ficker to place one of his many anti-tax charter amendments on the ballot in 2008.  After years of failure, the same general electorate that voted for Barack Obama for President by 45 points approved Ficker’s amendment by 5,060 votes.  Ficker’s amendment did not convert the property tax limit to a hard cap, but it did require all nine Council Members to vote in favor of exceeding it.  The council has not done that until this year’s budget.

It’s worth understanding how Montgomery County’s charter limit works.  Section 305 of the charter states the following.

Unless approved by an affirmative vote of nine, not seven, Councilmembers, the Council shall not levy an ad valorem tax on real property to finance the budgets that will produce total revenue that exceeds the total revenue produced by the tax on real property in the preceding fiscal year plus a percentage of the previous year’s real property tax revenues that equals any increase in the Consumer Price Index as computed under this section. This limit does not apply to revenue from: (1) newly constructed property, (2) newly rezoned property, (3) property that, because of a change in state law, is assessed differently than it was assessed in the previous tax year, (4) property that has undergone a change in use, and (5) any development district tax used to fund capital improvement projects.

This is not a cap on rates.  It is a cap on collections, which are not allowed to grow faster than the rate of inflation with certain exceptions unless all nine Council Members vote to override.  Collections are a product of both rates and assessments.  If assessments grow rapidly, it’s possible for the county to cut the tax rate and still grow collections to the limit (or beyond).  Conversely, if assessments fall, the rate could rise and collections might grow slowly (or even shrink).  This distinction is key to understanding how the county makes decisions on this item.

In the new FY17 budget, County Executive Ike Leggett proposed increasing the property tax rate by 3.94 cents per $100 of assessed real property, an increase of 8.7 percent that would have raised $140 million more than the charter limit.  The Executive cited two main reasons for doing so: the challenge of dealing with the adverse consequences of the U.S. Supreme Court’s Wynne decision, which required large refunds to be paid to some county taxpayers, and the fiscal needs of the public schools.  We will look at both of those items as this series continues.

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District 15

Former GOP Delegate Candidate Jumps to the Democrats

Edptychange

Former District 15 Republican Delegate Candidate Ed Edmundson announced his switch from R to D on Facebook yesterday, stating: “Done and Done. Bye-Bye GOP. I will not be part of a Party that picks a racist bigot to head the top of the ticket.” A real loss for the Montgomery GOP because they “desperately need people like him,” as I commented in this space two years ago.

In other news, Gov. Larry Hogan continues his silence on “racist bigot” Donald Trump becoming the nominee of his party.

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