By Adam Pagnucco.

Buried in the fine print of County Executive Marc Elrich’s recommended FY21 operating budget is a shocking revelation: the executive claims that a mistake made by county revenue estimators two years ago has caused tens of millions of dollars in losses for the county.  One reason why the Elrich administration is proposing a tax hike now is to recover that money.

To understand what happened, we have to understand how the county’s charter limit on property taxes functions.  Here is the exact text of the charter limit.

Unless approved by an affirmative vote of all current 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.

In plain English, what this means is that the county’s real property tax receipts (with a few exceptions) may not rise at an annual rate exceeding inflation unless the entire council votes to exceed it.

Calculating the charter limit involves three basic steps.  First, one must estimate the value of the assessable base subject to the charter limit.  Second, one must calculate the value of the many property tax credits offered by the county.  Third, one must calculate the levels of real property tax rates that, when applied to the assessable base and taking account of the credits, produce an increase in receipts equal to the rate of inflation.

Hence, estimating the size of the assessable base is critical.  If it is underestimated, property tax rates will be set too high and the charter limit will be violated.  If it is overestimated, property tax rates will be set too low and the county will not collect as much revenue as it could at the charter limit.  These are extremely technical considerations but this affects tens of millions of dollars (at least) for the county budget.

In his recommended budget, the county executive makes this statement:

I am proposing this supplemental tax rate this year to partially offset an unexpected underperformance of the property tax for the last two years. In preparing the FY19 County budget, the taxable property base of the County was overvalued. As a result, the property tax rate needed to generate revenues at the Charter limit for the past two years was set too low. This resulted in lost revenues of $80 million, now permanently embedded in our revenue projections.

The amount of revenue lost by this mistake was $35 million in FY19 and $45 million in FY20.  Because of compounding, the lost revenue will rise each year unless it is recovered.

It’s important to note that Elrich was not yet the county executive when the FY19 charter limit was estimated.  That was done by the finance department in former County Executive Ike Leggett’s last year.

Must the losses be stanched?  The county usually allows property tax receipts to rise up to the charter limit each year, but there is nothing in county law requiring that.  For example, in FY13, Leggett recommended level-funding of property tax receipts, which actually kept them below the charter limit.  The amount of forgone revenue was estimated at $26 million that year, which would have risen in subsequent years.  However, this was not the result of an estimation mistake.  The county had doubled the energy tax two years before and had not sunset it as was promised.  Forgoing a bit of property taxes was something of a consolation.

This issue must be frustrating for all concerned.  County leaders have a choice.  They can live with the mistake and move on.  Or they can tell voters, “We screwed up and now we need to raise your taxes.”

If option number two is selected, how do you think folks will respond to that?

Dear reader, if you are someone who is considering running for office someday, remember this story.  Something terrible could happen to you when you run.

You could win!

By Adam Pagnucco.

The big news coming out of County Executive Marc Elrich’s recommended Fiscal Year 2021 budget is that he is proposing a tax hike.  As you might imagine, I will have something to say about the specifics of that tax proposal in future days.  But first, it’s worth remembering what Elrich said about taxes when he was running for executive two years ago.  Over and over, he made statements ranging from saying that he did not want to raise taxes all the way to flatly refusing to raise them.  Consider the following:

1.  In July 2018, Elrich told WAMU that he “doesn’t want to raise taxes, but would like to see developers pay a greater share of infrastructure costs in the county.”

2.  In a candidate forum in October 2018, Elrich said, “I’m not raising taxes and I’m not raising fees.”  Check out Elrich’s remarks at 1:25 of this video.

3.  In May 2018, Bethesda Beat reporter Lou Peck asked Elrich this question:

As county executive, could you foresee yourself proposing a property tax increase above the charter limit of the rate of inflation, requiring another unanimous council vote?

Elrich replied:

I would seriously hope not. I feel that before you go talk about a tax increase, I would have to demonstrate to people that I’ve done everything I can do to lean out the county, to make sure we’re as efficient as possible, that I’ve taken people and been able to repurpose them, rather than just going to taxes first. I think the days of going to taxes first are over.

4.  In November 2018, Elrich said the following to Source of the Spring:

“A lot of people ask me about taxes,” Elrich said. “One of the issues in the campaign, people said, ‘Oh, Marc is going to bring in all these massive numbers of social programs and raise taxes on everybody.’ And actually that’s not what we’re doing. We know that the budget is going to be constrained.

“We’re pretty committed to staying inside the box and trying to run the government more efficiently,” he continued. “I’ve been telling people I’ve got $5.5 billion or more in revenue, and if I’m going to look for doing new things and being creative, I’m going to look at the revenue I have [and] figure out how to use it better. I think we can do a better job.”

5.  Immediately after he was elected, WAMU asked Elrich about taxes.

Despite being Maryland’s largest county with more than a million people, Montgomery County tax revenues aren’t growing fast enough to keep up with rising costs, Elrich said.

But, he said, a tax increase is out of the question.

“If you don’t handle the money you have better, you’re gonna have a hard time doing what you’re doing today, let alone doing things that you need to [in the future],” Elrich said. “But I think it’s actually a good thing to have this decision that there’s not going to be additional taxes because it means you actually have to think about what you’re doing.”

As a candidate, Elrich proposed an alternative to tax hikes: restructuring the government to increase efficiency and save money.  In a November 2018 op-ed in the Washington Post, Elrich wrote:

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.

Elrich elaborated on his restructuring plans in his 2018 questionnaire response to the Greater Silver Spring Chamber of Commerce.

I have explained how I would begin to rethink government in my First 90 Days Financial To-Do List, which you can find on my website. In this list, I lay out how I would initiate a long-term financial plan, increase the net profit contribution from the Department of Liquor Control, begin a structural review of county departments in partnership with the county workforce, implement a labor-management partnership called gainsharing (in which both parties agree on targets for improving performance and reducing cost and everyone receives a share of the savings generated), leverage a business process improvement system called Lean, assess the appropriateness of county reserve levels, improve data practices, review non-competitive county contracts, establish an innovation fund, increase government accountability, and develop budgets that prioritize spending and ensure that the county meets financial commitments in a sustainable way.

After Elrich’s election, the Sentinel interviewed him and reported, “Elrich said he plans to restructure the County government to make it run more efficiently, saying that doing so will help pay for the new programs he proposes without needing to raise taxes.”

So according to candidate Elrich, there would be no need for tax hikes because he would work with the unions to restructure government and save money.  What is his actual governing record through his first two budgets?

1.  Elrich’s recommended FY20 operating budget contained an increase of 82 full-time equivalent (FTE) positions in county government.  This does not include position increases in other agencies like MCPS, the college or park and planning.  The personnel cost increase recommended for county government was $37 million.  For the three county government unions, Elrich negotiated contracts containing raises of up to 9.4% for some employees.

2.  Elrich’s recommended FY21 operating budget contains an increase of 189 FTEs in county government with a personnel cost increase of $21 million.  Again, this omits increases in MCPS, the college and park and planning.  Elrich’s negotiated contracts with the three county government unions contain raises of up to 8% for some employees plus lump sum bonuses of $1,000 and longevity increases for some employee categories.

3.  The county council trimmed Elrich’s contract with MCGEO last year but his contracts and increases for managers and non-union employees this year will cost a combined $27.4 million in FY21 and $37.7 million each year thereafter.

And so, if there has been any restructuring at all, it has not saved any money or created any obvious new efficiencies.  Instead of streamlining government – as he said he would do – Elrich just wants a tax hike.

Would anyone like to rerun the 2018 county executive election right about now?

By Adam Pagnucco.

As MoCo residents are just now starting to find out, County Executive Marc Elrich has recommended a property tax hike as part of his Fiscal Year 2021 budget.  And how did they find this out?  The first mention of it came from a county council statement released at 1:05 PM today opposing the tax hike.  As of this writing, the public knows little about the budget other than the fact that it contains a tax increase.

With the coronavirus spreading and the local economy on its knees, how do you think folks are going to feel about that?

Let’s set aside for the moment any analysis of the merits of the tax hike.  (That will come.)  Instead, let’s consider how a competent administration would try to roll this out.  In the past, administrations held press events with the council on the mornings of their recommended budget releases.  Right after those events, press releases went out containing loooooooong lists of all the goodies in the budgets.  More money for schools?  Check.  More social workers?  Check.  Increased numbers of police officers?  Check.  Big Macs for every girl and boy (or quinoa for the healthy eaters)?  Check.  Doug Duncan, Ike Leggett – it didn’t matter who it was, they all put on a Santa cap and handed out cookies from the chimney, at least when there wasn’t a recession.

But this budget contains a tax hike.  No problem, plenty of budgets in the past contained tax hikes.  You sell those tax hikes based on what they buy and other factors making them necessary.  Leggett, for example, sold his FY11 doubling of the energy tax hike as being the only way that he could preserve the bond rating.  In FY17, the county council sold its 8.7% property tax increase as an “Education First” budget.  It didn’t matter so much whether they were right.  The point is that they had an argument to make.

And now to today.  The administration was always going to face hurdles in selling a tax hike.  After all, the council just two weeks ago said that they didn’t want more taxing authority from the state because they weren’t interested in raising taxes.  So what do you do?  First, you line up advocates who benefit from the tax hike and forge them into an army.  That shouldn’t be so hard since the teachers, the service employees, MCGEO, the non-profits, the enviros and lots of other stakeholders are getting a piece of the new money either directly or indirectly.  Invite them to your presser.  If the coronavirus prevents that, get them in writing.  Have them make videos.  Include supportive quotes from them in your own communications.  Have them all up team up on an online petition.  (MCGEO already has one that they promoted through a mailer.)  Have them send out supportive blast emails and social media posts the very morning on which the budget is released.  And so on.  The point here is that this isn’t just the executive’s budget.  It belongs to all of these other groups too.  This makes the council members understand that they would pay a price by voting no.

The budget isn’t drafted overnight; it takes weeks to prepare.  That means the executive branch had time to get ready.  They should have lined everything up and beat the council (and everyone else) to the punch.  Yeah, the critics are going to cry about it, but let them go last so YOU can define this budget first.  Instead, the administration did… apparently nothing.  There was no morning press event, even a livestreamed one, and there were no preemptive communications – at least none that I saw.  The very first communication released from the county came from eight council members who opposed the tax increase.  As of this writing, other than a brief statement from Elrich defending the tax hike, there is STILL no comprehensive communication from the county listing all the benefits of the budget.  Is anyone other than Elrich out there defending it?

What a disaster!

So who should be upset about this?  It shouldn’t be the tax opponents.  The administration’s incompetence allowed them to define the budget around the tax increase.  Robin Ficker has to be bellowing in joy right now.

The folks who should be really upset are the ones who might benefit from the tax hike.  A proper communications effort should have been designed to get the council to hold off on expressing opinions about the increase, thereby buying time for the advocates to lobby them and start shifting some votes around.  Instead, eight council members said no immediately in the most public way possible.  (Council Member Nancy Navarro, who has chaired the council’s tax-writing committee for ten years, followed up with a hell no.)  It would be very hard for the council to move off that now.  As for the advocates, instead of waging a common battle for a bigger pie, they might have to fight each other for scraps as the council figures out how to reduce the executive’s increase in county expenditures.

And so, because of an epic communications debacle, a tough sell has become damn near impossible.

Congrats to the administration.  Or something.

By Adam Pagnucco.

Forty-five minutes after eight members of the county council released a statement opposing the property tax hike contained in County Executive Marc Elrich’s recommended budget, the executive has released a statement defending it. We reprint it below.

Montgomery County Executive Marc Elrich’s Statement on Release of his Recommended Fiscal Year 2021 Operating Budget

As required by the County Charter, I submitted my annual budget to the County Council earlier today. My staff and I have been working on this budget for more than six months. During that time, we received budget requests from the community, the school system, our departments and Councilmembers that help to shape this budget proposal. The three-cent increase is a special tax that is specifically designed for education and would help to fund the budget request from Montgomery County Public Schools.

At the time that we were developing this budget, COVID-19 was not on the horizon and now, during these unique and difficult times, we have to factor in its impact. I stand by the need for us to increase our investment in education, but I understand the unique situation that we are currently in. We have all known from the beginning that funding the school system’s request could not be funded within anticipated revenues and, as we have been working at the State level to increase school funding through the Build Act and Kirwan, I believe that we should make the additional investment in schools that they need today, even if it required a special tax increase dedicated to the schools.

I combined this proposed three-cent special schools tax increase with a $108 increase in the County’s property tax credit so that a homeowner with a $500,000 home would see about a $42 annual tax increase—the three cents would raise the taxes by $150, but combined with the County property tax, the net increase is $42. A one million dollar home would have a net $192 per year increase. 

As in every budget cycle, I have informed the Council that I will work with it to find ways to deal with the budget.

Dealing with today’s emergency situation and having a long overdue community conversation about the future we want to build for our County will be a challenge in coming weeks.  The challenges we face in areas such as education, economic development and transportation will still be there long after this crisis is over and we can’t take our eyes off the future no matter how hard those decisions will be. I know that in today’s context it is hard to determine what the future looks like, but we will balance addressing our present situation with planning for the future of this County. And we will do it together.

To learn more about the recommended operating budget, go to https://www.montgomerycountymd.gov/operatingbudget

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By Adam Pagnucco.

County Executive Marc Elrich has proposed a 3.18 cent property tax hike in his recommended Fiscal Year 2021 operating budget, which was released today. The budget does not state the exact size of the tax hike, but because state data indicates that the county collects almost $20 million per penny in real property taxes, the tax hike is probably in the vicinity of $60 million.

Soon after receiving Elrich’s budget, the entire county council except for Council Member Tom Hucker released a statement opposing the tax hike. Their statement is reprinted below.

Statement by Montgomery County Council President Katz and Councilmembers Albornoz, Friedson, Glass, Jawando, Navarro, Rice and Riemer on the County Executive’s Fiscal Year 2021 $5.9 Billion Operating Budget Recommendation

ROCKVILLE, Md., March 16, 2020—Montgomery County Council President Sidney Katz and Councilmembers Gabe Albornoz, Andrew Friedson, Evan Glass, Will Jawando, Nancy Navarro, Craig Rice and Hans Riemer, made the following statement on County Executive Marc Elrich’s proposed 3.18 cent property tax increase in the fiscal year 2021 Recommended Operating Budget:

“Our focus in the midst of an unprecedented health emergency must be on bringing together businesses and residents, nonprofits and government to address the immediate crisis we face. We also must provide as much certainty and support as we can for county residents who understandably fear what the economic realities of this global pandemic will have on their jobs, retirement savings, small businesses and families.

This is a time for cautious decision-making, not property tax increases. We look forward to working with the County Executive to address the initiatives in his budget recommendations.”

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