In Part Three, we learned that rising average wages during the pandemic are likely a sign of growing income inequality as job losses are concentrated in lower paying positions. Preliminary data from the U.S. Bureau of Labor Statistics (BLS) suggests how this is playing out across Maryland.
BLS’s county employment series has a six-month lag in release time. As of this writing, county-level data are only available through the second quarter of 2020. However, BLS also has a state and metro area series that is more up to date. Preliminary data for that series is currently available through the end of 2020. BLS releases that data for metropolitan statistical areas in Maryland defined as follows:
Baltimore-Columbia-Towson: Anne Arundel, Baltimore City, Baltimore County, Carroll, Harford, Howard and Queen Anne’s counties. California-Lexington Park: St. Mary’s County. Cumberland: Allegany County in Maryland and Mineral County in West Virginia. Hagerstown-Martinsburg: Washington County in Maryland and Berkeley and Morgan counties in West Virginia. Silver Spring-Frederick-Rockville: Frederick and Montgomery counties. Baltimore City Calvert-Charles-Prince George’s
The chart below shows nonfarm employment declines by Maryland metro area in 2020.
According to the state’s wealth measures, Allegany County, Washington County and Baltimore City, which had some of the largest job losses, are three of the least wealthy jurisdictions in Maryland. The Silver Spring-Frederick-Rockville metro area, which had one of the smallest job losses, is dominated by Montgomery County, one of the wealthiest jurisdictions in Maryland. This chart, while admittedly incomplete, hints at widening geographic inequality between different parts of the state.
The chart below shows change in average hourly earnings by Maryland metro area in 2020.
California-Lexington Park (St. Mary’s County) is the only metro area here showing a drop in average hourly earnings. All the other areas show an increase exceeding the 1.4% rise in the national consumer price index last year. Remember what we learned in Part Three: because low-wage workers have likely been disproportionately affected by the COVID recession, a rising average wage is probably a sign of rising income inequality. This chart, while also incomplete, hints at rising inequality inside many local jurisdictions in the state.
There is a silver lining for state and local budgets here: low income workers pay lower absolute amounts of property and income taxes than higher income workers. To the extent that the recession’s impact falls disproportionately on the lower end of the income distribution, budget losses may turn out to be less than initially feared. But that’s cold comfort to those who have been let go from payroll jobs and have turned to the gig economy to survive. Governments that benefit from less-than-expected budget pain have a responsibility to help these people until the economy revives.
In Part Two, we identified one reason why average wages have been rising during the COVID recession: job losses have been concentrated in the leisure and hospitality sector. Since that sector pays low wages, disproportionate job losses there tend to push average wage rates up.
But that’s not all that is going on.
The chart below shows changes in average hourly earnings by sector in Maryland. Most sectors are seeing substantial increases, with some beating the 1.4% change in the consumer price index in 2020 by several multiples.
The craziest finding in that chart is that leisure and hospitality, which had by far the biggest job loss in 2020, also had the largest increase in average hourly earnings. That violates every lesson in supply and demand taught in Economics 101. An industry with precipitous job losses should have a big drop in wages. Why is the opposite happening?
Let’s take a closer look at Maryland’s leisure and hospitality sector. The chart below shows employment (on the left axis) and average hourly earnings (on the right axis) in leisure and hospitality since 1990. (Average hourly earnings are only available starting in 2007.) For the most part, this is what we would expect to see. Employment has grown with interruptions in the early 1990s recession, the Great Recession and the COVID recession. Average hourly earnings fell during the Great Recession and recovered afterwards. So far, so good.
Now let’s zero in on the last two years. The chart below shows the monthly employment in the sector for both 2019 and 2020. (Data for December 2020 is preliminary.)
In the first two months of 2020, Maryland’s leisure and hospitality sector was on pace to have 2-3% more jobs than in 2019. Then the pandemic hit and in April 2020, employment was 47% less than in April 2019. The sector recovered somewhat though it did not enjoy the summer bump that it normally gets. By November and December, when COVID case rates began to rise again, the sector began losing jobs again. Overall, its employment in 2020 seems tied to public health restrictions and consumer behavior tied to the virus.
Now let’s look at monthly average hourly earnings in the sector in 2019 and 2020.
The massive job loss in April coincided with a massive spike in average hourly earnings. The smaller job loss in the last two months of the year coincided with a smaller spike in average hourly earnings. At first glance, this doesn’t seem to make much sense if you remember supply and demand from Economics 101.
But it might make sense depending on who gets laid off. The leisure and hospitality sector, like other sectors, has wide variations between employees in skill, seniority and responsibility – all of which tend to be associated with pay differentials. What if the workers who were laid off in April and in the winter were disproportionately low tenure, less skilled and non-supervisory? And what if the workers who were protected were disproportionately highly skilled, high tenure, supervisory and critical to their employers? That would explain the pattern in leisure and hospitality and in the other sectors too: job losses coincide with average hourly earnings spikes because lower paid workers are the ones being let go, thus skewing the wage distribution upwards.
This coincides with findings cited by the U.S. Bureau of Labor Statistics that job losses have been “strongly concentrated among low-wage workers,” including hospitality workers, young workers, less educated workers and part-time workers. One article finds that “the pandemic’s negative economic effects are most severe and likely to be longest lasting for low-paid workers in more affluent locations.” That’s a good description of the realities faced by many recession-impacted workers in Maryland, who are hit both by job losses and high costs of living. Think of how this applies to a laid-off restaurant employee in Montgomery, Howard or Anne Arundel counties.
If this theory is true, then the rising average wages during the COVID recession are not a sign of prosperity – they’re a sign of rampant, increasing income inequality. In Part Four, we will see how this is playing out in some locations in Maryland.
In Part One, we recited a central lesson from Economics 101: wages are prices affected by supply and demand for labor. In prior recessions, wages either stagnated or fell – a result we would expect as jobs declined and hiring opportunities fell short of available workers. However, the COVID recession has seen one of the biggest average wage increases in the last half century.
Why?
One key to understanding this is to examine how the COVID recession has impacted specific industries. The chart below shows the decline in employment from 2019 to 2020 by industrial sector in Maryland. (Data for December 2020 is preliminary, which may have a minimal impact on the final results due from the U.S. Bureau of Labor Statistics in a month or two.)
Every industrial sector in Maryland has lost jobs in 2020 except for mining, logging and construction, which actually grew by 2%. This sector is dominated by construction and employers in that industry were likely building a lot of projects that were approved before the pandemic or in its early stages. The sector that took the biggest hit by far was leisure and hospitality, which is comprised of hotels, motels, restaurants, bars, casinos, museums, performing arts, sports and related industries. That makes sense. These industries were among the most affected by health restrictions and they have suffered mightily from declines in travel and tourism.
Now let’s look at the average hourly earnings in these sectors in 2020.
Leisure and hospitality, which had by far the biggest job hit, was also the lowest paying sector in Maryland. When the lowest paying sector loses the greatest percentage of jobs, it skews the overall distribution of wages upward, thereby increasing the average. Also contributing to this skew is that financial activities and professional and business services, the two highest paying sectors, had below average rates of job loss. The jobs that are being lost are disproportionately in lower paying industries. That’s one reason why average wages are rising in the COVID recession unlike in earlier recessions.
But industrial impact is not the only factor behind what’s going on. We will have more in Part Three.
Every college student taking Economics 101 learns about how supply and demand interact to set market prices. Wages are prices set in labor markets. When growth in demand for labor exceeds growth in supply, wages go up as employers bid against each other to hire workers. When the opposite occurs – growth in supply exceeds growth in demand – wages fall as workers compete for a limited number of job opportunities. That’s how it’s supposed to work according to theory, and that’s how it has worked (more or less) in prior business cycles.
But so far, that’s apparently NOT how it has worked during the COVID recession. Why?
First, let’s look at history. The chart below shows average real hourly earnings (in 2020 dollars) for U.S. private sector production workers from 1964 to 2020. Besides the flat U shape, you can see how wage increases moderated during certain periods, like the early 1970s, the early 1980s and the early 2010s. That makes sense since those were periods of recession. Jobs were lost, hiring demand was down and that put downward pressure on wages.
The chart below shows the change in average real hourly earnings and brings out the contrasts shown above even more. Big drops in real wages occurred during the oil embargo recessions of the 1970s and early 1980s and a smaller drop occurred during the Great Recession. Again, this is what we expect to see.
But now look at 2020, the year of the awful COVID recession. Preliminary data indicates that real hourly earnings actually rose by 3.7%, the third HIGHEST real increase on record since 1964. (The two higher ones were 4.0% in 1972 and 3.7% in 2009, both peak years immediately prior to recessions.) Everybody knows there have been job losses during the COVID recession so why are average wages going up?
The year 2020 was hugely eventful for the entire world and MoCo was no exception. In our county, 2020 saw a public health crisis, a resulting economic crash and huge challenges to our quality of life. In political terms, it also saw unusually contentious elections for school board and circuit court judge, four historic ballot questions and numerous fights inside county government. We wrote about it all on Seventh State. Here are the top twenty posts measured by page views from the people who count the most – YOU, our readers.
This was a poorly organized public event gone wrong, culminating with an unmasked protestor getting within spitting distance of the county executive. For those who question the need for the executive to have a security detail, this is Exhibit A for why it can be necessary.
County Executive Marc Elrich’s first veto, this one targeting a council-passed bill giving Metro station developers 15-year property tax breaks, set off a fight on corporate welfare that has not ended by a long shot. That will prove especially true if a proposal by the planning staff to grant tax abatements to other properties near Metro stations advances.
MoCo PTA Vice-President Laura Stewart wrote this guest blog on inequities in MCPS’s capital budget. It’s a must-read for everyone who cares about school construction.
In early November, MCPS told the public that it was planning a phased-in reopening of schools for some in-person instruction. But the winter surge of COVID quickly overtook that plan and cast the timing of reopening in doubt. The issue is still unsettled.
Back in the summer, MCPS’s original reopening plan was drenched in controversy, ultimately resulting in a pitched battle with the county teachers’ union (MCEA). MCPS wound up going with virtual learning for the fall, like most other large school systems in the region, but the mechanics and safety of reopening are still subjects of debate.
Jobs, jobs, JOBS. According to White Flint developers, MoCo’s slow rate of job growth was one reason that they could not get financing to proceed on the county’s preeminent development plan. The chart below says it all. And when the COVID pandemic finally ends, county leaders must dedicate themselves to creating jobs, Jobs, JOBS or MoCo’s stagnation will continue.
Back in June, incumbent Baltimore City Council Member Zeke Cohen, who had a big lead in money and endorsements over his challenger, appeared on election night to be getting just 2% of the vote. That was the first sign of a primary gone wrong, which led to many misgivings about the state’s processes with mail ballots and the performance of its long-time election administrator Linda Lamone.
2020 was a year of surprises, and one of the bigger surprises was the emergence from political retirement of former County Executive Ike Leggett. Question B (Robin Ficker’s latest anti-tax charter amendment) and Question D (nine council districts) disturbed Leggett enough that he started a ballot issue committee to defeat them. This post was Leggett’s guest column on why they were bad ideas and it got a big reaction from our readers.
After school board candidate Lynne Harris blamed MCEA for allegedly resisting school reopening (a post that also appears on our top 20 list), a group of rank-and-file teachers pushed back in this guest post. It achieved wide readership that was probably concentrated among teachers as the general election approached.
In non-COVID news, 2020 was the year that the county’s police department (along with departments around the country) became a political football. This post describes how the executive, the county council and Annapolis all jumped into the issue of policing with little coordination. Lost in the debate was the central fact that crime in MoCo is at its lowest level in decades. Policing will continue to be a hot topic in 2021.
Tomorrow we will list the top ten Seventh State posts for the year!
The top three stories fit together and have meaning for the new year and beyond. The Day of Reckoning is Near summarizes the county’s dire fiscal picture as it heads into a challenging FY22 budget discussion in the spring. Jawando Calls for a Tax Hike kicks off an inevitable dialogue about taxes, one which will only get hotter before the executive makes his budget recommendation on March 15. And What Happened to White Flint? – December’s runaway winner – lays out the story of how the county’s premier development plan has been held back by our slow rate of job growth. Budget headaches, taxes and economic problems are about to collide.
Ten years ago, White Flint was regarded as the future crown jewel of MoCo. With a shiny new master plan, a tax district for infrastructure and an assortment of regulatory breaks, the area was supposed to create new high-end high-rises combining office, retail and residential uses that would generate billions of dollars in county revenues over coming decades. Everyone who lives here knows that vision is still largely unrealized. And now a new report by county planning staff lays out why.
First, let’s revisit what White Flint was envisioned to become in its 2010 master plan: a smart growth, walkable mecca around a transformed Rockville Pike which would be transit-heavy and pedestrian friendly. The plan required substantial infrastructure investment including streetscaping, a new road network and a bus rapid transit route. Unlike many county master plans, this one had a mechanism for financing infrastructure: a new special taxing district. Properties inside the taxing district would pay into a fund used to pay for the new infrastructure needed to bring the plan to life. In return, impact taxes were set to zero. The council set an infrastructure project list through a resolution and projects in the district were exemptedfrom county traffic reviews. This combination of high density, infrastructure investment and regulatory exemptions was revolutionary for MoCo at the time and still has not been fully replicated. MoCo politicians love to throw around the word “bold” like peanut shells, but White Flint (now marketed as the Pike District) truly deserved the adjective.
So what happened?
In simple terms, the planning staff describes a negative, self-reinforcing feedback loop that has no identifiable end. The loop functions like this. Low levels of development led to low proceeds for the tax district. It was supposed to raise $45 million in its first 10 years but only generated $12-15 million. Low tax district revenues held back the construction of some of the transportation improvements and other infrastructure necessary to make the area more attractive to investment. Developers seeking financing for projects were hindered by the inadequate infrastructure along with the “prominence of underutilized properties.” One of those properties, the mammoth White Flint Mall site, was tied up by years of litigation. The lack of financing, along with construction costs and market conditions, has held back development. And of course the lack of development holds back tax district revenues necessary to pay for infrastructure, so the cycle continues.
This map from the report shows the vast majority of land in White Flint is underutilized (areas marked in red and orange) relative to its zoning.
The most interesting part of the report summarizes comments from White Flint property owners, who comprise a who’s who list of prominent MoCo developers. First, let’s identify what they don’t complain about. They don’t complain about the plan itself; indeed, they think the area still has potential. They don’t complain about market demographics; they find the wealth and education levels in the area attractive. They don’t intend to sell their existing properties, which generate enough cash to cover operating costs and taxes, but they’re not in a hurry to redevelop them. And not a single one of them complained about taxes or requested a tax abatement.
Here are a few excerpts from the report on their take on White Flint’s problems.
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All developers interviewed cited Montgomery County’s limited job growth as a fundamental challenge to continued construction in the Pike District. Low levels of new jobs limit the number of new families seeking to occupy units in the county (household formation), decreasing demand for new development. In addition to limited employment growth, construction costs increased dramatically since 2010, office users occupied less space per employee, and retail demand declined with the rise of online shopping, all factors that continue to reduce demand for or limit the financial feasibility of new development.
Multiple developers noted without providing details that their firm managed to solve issues of high construction costs in other submarkets where there is a higher pace of job growth and household formation, which in turn supports rent growth.
Developers interviewed affirmed that the Pike District is accessible to fewer jobs within a reasonable commute than its peer non-downtown submarkets, and that this reduced access to job centers limits demand for additional multifamily units.
All developers interviewed cited Montgomery County’s limited job growth as a fundamental challenge to continued construction in the Pike District. Low levels of new jobs limit the number of new families seeking to occupy units in the county (household formation), decreasing demand for new development. Developers cited the reduced pace of household formation as a key contributor to stagnant rents, a major concern for the feasibility of future projects.
Several developers independently stated that the attraction of a major employer to the Pike District, such as a life science campus, would significantly increase the feasibility of new multifamily projects.
Developers are not currently willing to build speculative office projects in Montgomery County due to the lack of underlying job growth and the uncertainty about the future of the office sector. Several developers mentioned that they would still consider speculative office construction in Tysons and along the Silver Line corridor, highlighting the continued job growth in Northern Virginia and the contrast with suburban Maryland.
Several interviewees contrasted recent Northern Virginia economic development wins, such as the expansion of Microsoft in Reston, with news that a large distribution center project in Gaithersburg for Amazon is in jeopardy due to delays in the entitlement process. These interviewees stressed that while the number of jobs in these deals is modest, there is a constant drumbeat of positive economic news from Northern Virginia that is unmatched from suburban Maryland.
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Let’s boil this down to three words: jobs, Jobs, JOBS. Employment growth was the dominant theme for these developers, but they had a few things to say about business climate and regulations too.
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Interviewees related that development projects ultimately deliver equivalent profits as similar projects in neighboring jurisdictions, but that Montgomery County’s reputation as generally “a difficult place to do business” limits developer interest.
Developers agreed that the difficulty of the business environment issue is primarily about perception rather than the ultimate profitability. Interviewees cited as examples a range of policy issues such as a minor energy efficiency tax that Montgomery County leadership presented and implemented as a temporary measure but that never expired.
Multiple interviewees stated that in competitor counties they feel that the entitlement review process is oriented to enabling and facilitating a project, whereas in Montgomery County it feels like an oppositional relationship. Related to this, developers feel the County continually creates new policies and initiatives that adversely affect development, and which ultimately encourages them to focus on assets elsewhere in the region.
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The county council and the planning staff are focused on tax abatements as a way to stimulate development, especially housing. But developers in White Flint weren’t complaining about taxes. In fact, tax revenues are NECESSARY to finance infrastructure required to make development happen and function well. It is the absence of tax revenues that resulted in under-financing of infrastructure in White Flint, a key part of the area’s negative feedback loop.
Instead of taxes, the key issue identified by White Flint developers is the absence of job growth, which they believe would stimulate demand for housing and eventually make the economics of housing construction work even with high construction costs. In short: if you want more housing, create more jobs. All of these developers know what we have been saying on Seventh State for years: MoCo has one of the worst records on job growth and business formation of any large jurisdiction in the metro area.
The county’s terrible record on job growth and business formation must be reversed.
All of this points to the need for a strategic decision. MoCo can focus like a laser on job creation, doing everything possible to help entrepreneurs grow their organizations and create employment for residents. If the county does that, the vision of White Flint and other smart growth plans can be realized. Or MoCo can keep handing out tens of millions of dollars in corporate welfare as it has done for decades, thereby depleting its ability to construct infrastructure that facilitates economic growth. Or it can do nothing.
On October 27, the county council overrode County Executive Marc Elrich’s veto of Bill 29-20, which mandates 15-year property tax breaks for developers at Metro stations. This seemingly ended – for now – the debate over whether huge tax abatements should be written into law for transit-accessible development projects. But in fact, the debate may just be getting started. That’s because a little-noticed discussion eight days before offered a prelude of many more tax expenditures than just the amount contained in that one bill.
On October 19, the council’s Planning, Housing and Economic Development (PHED) Committee held a work session on the upcoming Thrive Montgomery 2050 Plan. The plan, still in its early stages, is conceptualized in a mammoth 167-page public hearing draft authored by planning department staff. Among the MANY recommendations in the draft is this goal:
Goal 5.2: Ensure that the majority of new housing is located near rail and BRT stations, employment centers and within Complete Communities that provide needed services and amenities for residents.
And one of the action steps recommended for this goal is this one:
Action 5.2.1.a: Provide appropriate financial incentives, such as tax abatements, Payment in Lieu of Taxes (PILOTs), and Tax Increment Financing (TIFs) to increase housing production in targeted locations near high-capacity transit.
The adjective “near” is not defined.
At the PHED Committee’s work session, county planning director Gwen Wright commented on before and after sketches of development on Georgia Avenue and said:
One of the items, and I put this specifically because I know we’ve had a very challenging conversation just recently, about the idea of PILOTs to try to target development near high capacity transit. To do, to change what you see on the left into what you see on the right is going to take more than just zoning. It is going to take financial incentives. It is going to take different kinds of public investment.
Wright’s comments on incentives start at 38:27 of the video below.
It’s worth remembering one of the rationales for the Metro property tax break bill. Supporters of the bill said that its tax abatement was necessitated by the unique costs of building on top of Metro stations. They stressed over and over that the bill would not apply to other sites. It’s clear now that much broader tax abatements for all kinds of sites – not just Metro stations – have been under consideration by at least the planning staff and maybe other actors too for some time. Back on September 24, I wrote, “Developers of sites near but not on Metro stations might demand concessions too. As with the county’s Economic Development Fund, which began by handing out small grants to companies twenty years ago and eventually distributed 7-digit and 8-digit grants, the subsidies in the current bill may only be the beginning.” It didn’t take long for that prophecy to amass evidence of its accuracy.
Another rationale for the WMATA tax break bill is that it applied to largely empty Metro-owned sites that were not generating tax revenues. Supporters of the bill said that waiving taxes on new development did not cost the county real money if the new development would not have occurred without the tax break. But that argument does not apply to areas around Metro stations, which tend to have low-rise, mid-rise and – in Downtown Bethesda – high-rise buildings in existence now. These properties pay property taxes. Offering tax abatements to them to redevelop converts them from revenue generators into non-payers. It would actually SHRINK the tax base. This contradicts one of the primary reasons why economic development is good for the county: it is supposed to ADD to the tax base. That wouldn’t happen under the planners’ proposal.
Sure, this is just a staff draft. And sure, the draft has not been approved by the planning board much less the county council. But this is how policy is formed – it starts as a proposal, it turns into a recommendation, it is incorporated into official planning and then it becomes law. Unless something changes, these are the first baby steps towards what could ultimately become billions and billions of dollars in subsidies that the rest of us will pay for.
In MoCo politics, the number one attack made against smart growth organizations and activists is that they are supposedly tools of developers. It’s a line of argument used to shut down – and shut up – anyone who wants to see more commercial development or more housing here. It took smart growthers many years to get beyond the epithets, to present their agenda of community building, walkability, environmental preservation and sound transportation management and to truly break through into the county’s mainstream. It helped that transit-oriented projects were supposed to make money for the county’s budget. Ten years ago, redevelopment in White Flint was predicted to generate $6-7 billion of revenue over the next 20-30 years.
If smart growth indeed becomes married to corporate welfare, some of that political progress will be lost. The smart growth movement will be cast by its opponents as anti-progressive and in thrall to corporate masters whose primary goal is tax avoidance. It will face increasing impediments to its political growth and hence its ability to affect policy and influence votes. That is exactly what opponents of transit-oriented development want. The push towards corporate welfare plays right into their hands.
All of this will be a huge political gift to County Executive Marc Elrich, the man who built his career on voting against transit-oriented development and whom many smart growthers desperately want to see out of office. Elrich relishes vetoing tax abatements and tax cuts for developers because it reminds a large part of his base why they voted for him. The only thing that could be better for Elrich is if the next round of huge tax breaks is proposed in legislation a couple months before the next primary.
In the wake of his veto message, County Executive Marc Elrich has once again blasted a bill passed by the county council granting developers at Metro stations 15-year property tax breaks. The council is set to override Elrich’s veto on Tuesday. Elrich’s mass email, which reiterates his reasons for vetoing the bill, is reprinted below.
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Dear Friends:
Last week I issued my first veto of legislation, Bill 29-20 Taxation – Payment in Lieu of Taxes – WMATA Property. I sent a memorandum with the veto explaining in detail the reasons for the veto; you can read the entire memo here, but I wanted to explain some of the reasons in my letter.
Like the Council, I am focused on expanding transit and transit-oriented development, broadening our tax base and preserving and increasing the supply of affordable housing. Unfortunately, Bill 29-20 does not achieve any important goals, is too costly and does not produce sufficient public benefit to justify the cost.
This legislation would require 100 percent exemption of the real property tax for 15 years. This exemption is known as a Payment in Lieu of Taxes, or PILOT [see NOTE 1]. A few requirements are included in the bill. However, it would not increase the number of affordable housing units than otherwise would have been provided. While it was amended to make some of the units more affordable, we could have negotiated that with the developer at a fraction of the cost to the County.
[NOTE 1: The requirement applies to development that is higher than eight stories on property owned by WMATA at a Metro station. The development must include at least 50 percent residential rental housing, and one-quarter of the moderately priced dwelling units (MPDUs) must be affordable for residents at 50 percent of area median income (AMI). The PILOT would begin no later than the second year after the property tax is levied. The law would sunset in 2032, but any existing PILOT would continue until the end of its 15-year period. To be eligible for a PILOT, a developer would be required to use contractors and subcontractors who have no more than two final penalties of $5,000 or more in the three prior years for violations of applicable wage and hour laws. At least 25 percent of the workers constructing the project must be County residents. Special taxing district taxes are exempt from the PILOT.]
It is an expensive, and unnecessary, approach, particularly at this moment when the County is struggling to fund critical services (the need for which is increasing and will likely continue to increase for a while), where the outlook for revenues over the next couple of years is not good and where full economic recovery from this pandemic may take as much as 10 years. It is certainly not prudent to reduce revenues coming into the County coffers at this time.
During the Council’s deliberations on the bill, supporters could only cite one potential development as being eligible for this 15-year, 100 percent tax break – the proposed Strathmore Square at the Grosvenor/Strathmore Station. Under the provisions of this legislation, Strathmore Square’s owners would receive a tax break of approximately $100 million. As a member of the County Council, I supported the zoning changes that made this proposed development possible, but I simply do not believe it is a responsible use of County resources to supplement a market-rate housing complex at this level of expense.
The developer of that project saw an increase in the allowed units that went from a little over 500 to more than 2,200—density that was based on being atop a Metro station. Now, the developer is arguing that it is too expensive to develop on the Metro, yet WMATA records show that the price the developer paid was based on an appraisal that was done AFTER the property was rezoned. The developer accepted the appraisal and agreed to proceed. If the developer thought the price was unreasonable and would make development unprofitable, it could have rejected the appraisal and the deal. Instead, it came to the County three years later and asked that all its taxes be forgiven because the deal does not work for it.
Should similar developments occur at the other potential WMATA sites across the County, lost revenue would likely exceed $400 million. To be clear, I want more housing constructed in our County, and I see the significant benefit of housing that makes transit usage extremely convenient. However, I do not believe providing developers with as much as $400 million in incentives is necessary to get 8,000 new housing units that are projected to come here anyway. Put another way, this bill would provide a developer with a $50,000 per unit gift regardless of cost of rent, without producing additional affordable housing units beyond the amount required for all developments. This is not a good use of public funds.
Nor do we need this law—the authority already exists for the County to negotiate individual agreements.
It makes sense to continue to allow them on a project-by-project basis—not all projects need the same PILOT term or value. Flexibility should be maintained to enable negotiation of the best possible agreement that is in the public interest.
Additionally, it does not make sense to focus the market rate housing (along with the public subsidy) at Metro stations, which pushes affordable housing elsewhere. As the recent Housing Preservation study points out, affordable housing units near transit are at greatest risk of being lost and are being lost. Seventy-five percent of projected need for housing over the next decade is for affordable housing—why would the focus of a housing bill be on subsidizing market rate housing? Furthermore, given the projected number of market units needed over the next 20 years, there is sufficient zoning near Metro Stations to accommodate the needed units. While they might not be built on top of Metro property, they may be built nearby within easy walking distance of the Metro.
In White Flint, there are properties adjacent to, and across the street from, the Metro entrance where housing could be built that would actually be closer to the Metro entrance than some buildings on WMATA property. In other words, the housing does not have to be built directly on WMATA property; it can be nearby. And this bill creates a difficult precedent. It is likely that other properties near Metro will ask for the same PILOT. Those properties offer similar value in providing transit proximate development. It is simply not good policy to have a general approach to subsidize market rate housing.
Ironically, this bill may be counterproductive by raising the value of WMATA’s land. Under Federal law, WMATA must seek the highest and best price for its land. Land that is exempted from all property taxes for 15 years is more valuable because the calculation of its value includes the costs to acquire and develop, including taxes, weighed against market rents. If two properties are side by side, one exempt from taxes and the other not, and they were producing the same value of unit, the land value of the exempt property would be greater because its cost of development would be less than the cost to develop the tax-paying property. This would, in turn, likely raise the parcel’s appraised value. Supporters of the bill have said they are trying to reduce the cost to developers, but if the value of the land increases, the bill has had the opposite effect.
Furthermore, there is no evidence that this is needed. In fact, if you look around the region, many of our neighboring jurisdictions have their highest taxes on property nearest Metro sites and the tax rates are substantially greater than in Montgomery County. If property taxes were the key to development, we would have won the development battle a long time ago because we are lower than most surrounding jurisdictions. (See chart below)
And I would note that if one of the goals of this bill is to provide tax incentives to attract new businesses, those incentives should go to the occupant of the building, not to the developer of the building. This legislation gives public funds to help build buildings, not to incentivize businesses to become tenants in those buildings.
And workers deserve a prevailing wage. A majority of the Council voted against requiring the prevailing wage at these projects. The provision would have required that all contractors and subcontractors pay prevailing wages and be licensed, bonded, insured and abide by wage and hour laws. Legislation that dedicates public funds to market-rate housing should, at least, also support the workers who build the housing. If WMATA was building a structure on the same property, current law would require it to abide by the prevailing wage. I believe the developments contemplated by this bill should as well. The lack of such a provision to treat workers equitably and to share in the subsidy is another major deficiency in this legislation.
Finally, to risk of stating the obvious, using our limited funds for market-rate (non-affordable) housing development means fewer funds for other services including affordable housing, recreation and education, which has a racial equity/social justice impact. This bill allows housing to be built for those who can afford it, not for lower-income populations who are disproportionately Black and Latino.
I hope this gives you a better understanding why I could not support this bill.
The Montgomery County Economic Development Corporation (MCEDC) is the county’s economic development authority. It is a 501(c)(3) whose board members are nominated by the county executive and confirmed by the county council. Its operating budget comes mainly from county government. In June, MCEDC launched a business assistance initiative called 3R (Reopen Relaunch and Reimagine), which is funded by a combination of public and private money. One component of 3R is a new grant program for restaurants and retailers to prepare for the winter months. All companies in those sectors are encouraged to apply, but there’s a catch:
Getting the money depends in part on where in the county they are located.
As part of the public-private 3R (Reopen, Relaunch and Reimagine) Initiative, the Montgomery County Economic Development Corporation (MCEDC) is now accepting grant applications from local restaurants and retailers for up to $5,000 to prepare for the upcoming holiday season and winter months. Eligible businesses can submit applications through November 5.
More information on the 3R Initiative Restaurant & Retail grant program and the application can be found here. The grant is an important component of MCEDC’s comprehensive year-long 3R Initiative designed to address the devastating impacts of the pandemic on the Montgomery County restaurant and retail industries.
Although any locally-owned restauranteur or retailer with fewer than 100 employees can apply for the grant, ten Montgomery County target corridors will be given priority for funding: Burtonsville/Briggs Chaney, Wheaton/Glenmont, White Oak, Aspen Hill, Germantown, Damascus, Takoma-Langley, Four Corners, Montgomery Hills, and Twinbrook/White Flint. These ten target corridors were selected with community input.
I asked MCEDC CEO Ben Wu to explain the organization’s rationale for geographic prioritization. He wrote the following to me:
Hi Adam, thanks for your message and your interest in the 3R Initiative.
As you know, the 3R Initiative supports our Montgomery County restaurant and retail sectors during this pandemic crisis. This $1 Million public-private partnership is designed as a year-long initiative, of which the grants are an important element, especially now with the start of the winter and holiday seasons. Future elements include a retail recovery guide, a countywide e-commerce marketplace and additional targeted investments in selected commercial corridors.
While the 3R Initiative has county-wide components such as the recovery guide and the e-commerce marketplace, it is also an economic development pilot project that seeks to bring together community stakeholders in hard-hit target corridors that might not have significant resources to search for collective solutions. These community stakeholders could include landlords, tenants, chambers of commerce, neighborhood associations, local support organizations, and the County Regional Service Centers. The 3R Initiative will work with the target corridors to help their restaurants and retail establishments develop strategies and access funding (through the 3R and/or Reopen Montgomery grants). At the program’s conclusion, depending on the pandemic, we would discuss the future of bringing the successes of this community-based model in the target corridors to potentially be recreated in other areas of the county.
Although any locally-owned restauranteur or retailer with fewer than 100 employees can apply for the grant, ten Montgomery County target corridors will be given priority for funding. These ten target corridors were selected with recommendations and input from the five County Regional Service Centers and the community. They were selected to be geographically and demographically diverse. Each of the Regional Service Center jurisdictions have at least one target corridor, many with more than one.
If you should have any further questions, let me know.
Best, Ben
Now let’s stipulate a few things up front. First, MoCo is an incredibly diverse jurisdiction in all kinds of ways. One can make a case that non-identical communities should not be treated identically. Second, MoCo holds events in locations all over the county that are not the same in kind or timing. There are county seminars, recreation programs, park programs, community events and all sorts of things that rotate across geography. Third, the county has different tax, fee and regulatory requirements depending on area, including parking fees, impact taxes, enterprise zones and of course master plans. We are too large and diverse to enact perfectly homogenous standards for everything the county does.
I don’t think MCEDC intends this, but their decision to steer money to some areas and away from others feeds one of the more toxic trends in MoCo politics: the suspicion that some parts of the county are treated better than others. There are tensions of east vs west (especially in issues connected to the schools). There is upcounty vs downcounty. (Folks ask why the Purple Line is being built but M-83, the upcounty highway, is not.) There is wealth vs less wealth. There are issues of racial equity which play out differently across MoCo. The current movement for nine council districts sprang from these tensions. The biggest single argument made by Nine Districts for MoCo is that the county council’s structure, especially its use of at-large members, steers resources away from some communities and towards others. MCEDC’s program is an unwitting but actual demonstration of this sort of thing.
So now two things will happen. First, conspiracy theorists residing in one of the non-prioritized areas will say, “Aha, we were right! The county really is trying to screw us!” Second, businesses in the largest non-prioritized areas will complain and say, “What about us?” The fact that the county’s largest business districts – Downtown Silver Spring, Downtown Bethesda, Downtown Rockville and Gaithersburg – are non-prioritized means that some serious clout could be brought to bear on this issue.
I think MCEDC is well intentioned. But I also think that this could turn into yet another headache that county leaders don’t need.
