Category Archives: Adam Pagnucco

Adam Pagnucco, Corporate Welfare, Development, Economy, taxes

What Happened to White Flint?

By Adam Pagnucco.

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 exempted from 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.

*****

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.

*****

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.

*****

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.

*****

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.

Those are the choices. What will MoCo choose?

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Adam Pagnucco, Corporate Welfare, Development, Economy

Is Smart Growth Getting Married to Corporate Welfare?

By Adam Pagnucco.

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.

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2020 elections, Adam Pagnucco

Methodology Note: Precinct Analysis

By Adam Pagnucco.

In coming days, I’ll be crunching precinct-level results from the 2020 general election. This post summarizes the methodological choices I made and I’ll refer back to it in the future.

General election precinct results for candidate races and ballot questions are available here for every county in Maryland. In prior years, precinct results were available only for election day voting. For this year’s general election (but not the primary), they are available for all voting modes. That’s an improvement but it means that precinct results for this year aren’t strictly comparable to earlier years.

This year, Montgomery County has 258 precincts. Three of them are “ghost precincts,” which do not report results because no people live in them. If you see the number of precincts alternatively represented as 258 or 255, the three ghost precincts are the reason. Don’t worry about it because vote tallies are unaffected.

All precincts are assigned to congressional, state legislative and council districts. Their town designation is determined by the location of the voting place. This gets a little blurry at times as folks from one town can have a voting place in another, but this shouldn’t have a huge impact on geographic results.

The Democratic Crescent, a term I used two years ago to identify regularly voting downcounty Democrats, includes precincts in Bethesda, Cabin John, Chevy Chase, Kensington, Takoma Park and Silver Spring inside the Beltway. Upcounty includes precincts in Brookeville, Clarksburg, Damascus, Dickerson, Gaithersburg, Germantown, Laytonsville, Montgomery Village, Olney, Poolesville, Sandy Spring and Washington Grove. Residents of smaller nearby communities vote in these precincts, including people who live in Ashton, Barnesville, Beallsville, Boyds and Goshen. Wheaton includes zip code 20902. Glenmont/Norbeck includes zip code 20906, except for Leisure World, which is tracked separately. Silver Spring East County includes all other Silver Spring precincts outside the Beltway and located in zip codes 20901, 20903, 20904 and 20905.

I may refer to how precincts voted for term limits in 2016. Term limits voting is correlated both with partisan turnout and certain other voting behavior this year.

I included estimates of average household income by zip code from the Census Bureau for the five-year period of 2014-2018. I wish I had recent estimates by precinct but that will hopefully be released with the next batch of decennial census data.

Finally, I took a shot at demographics by precinct. This was a huge and imprecise exercise. Using 2010 census data, I matched census blocks to precincts. This is challenging because the two frequently don’t match exactly and precinct definitions have changed over the years. After a great deal of work, I was able to generate rough estimates of percentage Asian, Black, Latino and white for each precinct’s population and use them to gauge crude patterns of voting associated with race. I can’t stress how rough and dated this is and I look forward to getting updated 2020 census data to plug in.

That’s about it. We’ll start digging into data soon!

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Adam Pagnucco, budget, COVID-19

Follow the Money

By Adam Pagnucco.

To understand the growing strains on MoCo’s pandemic-stricken budget, it helps to follow the money. Here is an example.

Follow This Money

Last spring, the county council voted down compensation increases contained in the collective bargaining agreements negotiated by County Executive Marc Elrich with the three county employee unions: MCGEO, the fire fighters and the police. The increases totaled $22 million in the current fiscal year and $29 million annually thereafter. This was the sixth time that the county trimmed or eliminated raises for employees in the last eleven fiscal years. (The county zeroed out raises in FY11, 12, 13 and 21 and reduced collectively bargained raises in FY17 and 20.)

At around the same time, the executive granted the three unions indefinite COVID pay without seeking the consent of the council. There is no question that workers exposed to hazardous conditions deserve extra compensation. The issues are that the executive’s COVID pay far exceeds what any other government in the region (and maybe the entire nation) has granted and that it has no fixed end date. The cost of this pay is $4 million a pay period or roughly $100 million a year, more than three times the compensation increases contained in the now-abrogated contracts. Employees of the college, school district and park and planning are not getting the money. It must be noted that the president of the largest county union said two years ago, “Marc Elrich won the primary thanks to our shoe leather.” Subsequently, the inspector general found that workers were getting pay to which they were not entitled in at least one county department.

No county leaders argue that employees should get zero emergency pay. Instead, the problem now is that the county has little clue how to pay for it even as its budget has been crippled by the COVID recession. Originally, the extra pay was supposed to be mostly reimbursed by FEMA, but the county’s emergency management director called that into question in October. The emergency pay liability grows every day and the need to pay it off grows more desperate.

Now Follow This Money

The county received a $183 million allocation of federal CARES Act money last spring to help it pay for COVID expenses, including aid for pandemic-stricken residents and businesses. But there’s a catch: if the county doesn’t use the federal money for eligible purposes by December 30, it forfeits it. In October, the county council went nuclear upon finding out that the executive branch was slow to spend the federal money it had appropriated for various assistance programs, including aid for rent, food security, child care and more. Administration representatives said that they were trying to prevent fraud and waste and dealing with frustrating FEMA paperwork requirements.

Now it turns out that the money won’t all be spent by December 30. Council staff wrote last week:

CRF [Coronavirus Relief Fund] monies received by Montgomery County must be spent on costs incurred on or before December 30, 2020. Since March 2020, the County Council has enacted special appropriations to help Montgomery County residents and businesses endure the pandemic and its effects. Due to the restrictions on spending imposed by Congress, the Administration expects that $9,934,156 in CRF dollars will be unspent based on current spending patterns and demands. The list below details the special appropriations where funds will likely go unspent.

The table below shows the $9.9 million in unspent federal money by assistance program. The three biggest programs are child care, assistance to distressed common ownership communities and African American health care.

So it appears that families needing child care, residents of distressed common ownership communities and African Americans needing health care may not be getting the federal grant money the council allocated to them. (They might not be completely out of pocket as the executive has recommended the use of county reserves to help.) That said, the $9.9 million in federal grant money still needs to be used by December 30 or forfeited. What’s the administration’s plan for that?

The executive branch sent the council a resolution that says essentially: trust us. The resolution suggests a number of alternate uses for the federal grant money and then says this:

If any of the $9,934,156 is unable to be spent on the Council priority uses identified above in advance of the deadline established by Congress, these funds may also be used for any eligible expense previously authorized by the Council by Resolution 19-498.

And what does Resolution 19-498 authorize? Lots of things, including this:

Payroll expenses for public safety, public health, health care, human services, and similar employees whose services are substantially dedicated to mitigating or responding to the COVID-19 public health emergency, including any pay differential provided to employees responding to the public health crisis. [Bold added for emphasis]

Last Tuesday, the council approved the executive’s resolution to allow a potential transfer on an 8-1 vote with only Council Member Andrew Friedson dissenting.

And so federal grant money set aside by the council for families needing child care, residents of distressed common ownership communities and African Americans needing health care is now subject to diversion to pay off part of the soaring emergency pay liability created by the executive. But even if that happens, it’s not the end of the story. There is only $9.9 million in unspent federal money in play here whereas the total emergency pay liability accounts for $4 million a pay period, or $100 million a year. A reallocation would buy the county about five weeks of time. After that, the liability resumes spraying red ink.

What will happen next as the day of reckoning draws near?

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Adam Pagnucco, Department of Liquor Control

Dorfman Out at Liquor Monopoly

By Adam Pagnucco.

According to a mass email sent by Deputy Chief Administrative Officer Fariba Kassiri, Alcohol Beverage Services (ABS) Director Bob Dorfman is leaving his position effective today. The email is reprinted below.

*****

Subject Line: Bob Dorfman/Acting ABS Director

From: Kassiri, Fariba
Sent: Monday, December 14 2020
To: #ABS All
Cc: #MCG.Department and Office Directors; #MCG.SeniorEAAContacts; #MCG.Legislative Branch Directors

ABS Employees,

Effective today, Bob Dorfman will be moving on from his position as Director of Alcohol Beverage Services. On behalf of the County Executive, I want to thank Bob for his 4 years of service to Montgomery County Government and acknowledge his significant accomplishments during that time. ABS would not be the success it is today without his leadership and vision. I thank him for his many contributions and wish him well in his future endeavors.

Kathie Durbin will be Acting ABS Director until a permanent director is appointed.

*****

It’s difficult to describe just how badly the liquor monopoly was doing when Dorfman, a former Mariott executive, was hired to run it four years ago. The monopoly had suffered critical delivery outages in the week between Christmas and New Year’s two years in a row. It was riddled with crime and abuse, with employees skimming booze and selling it for cash, driving drunk in county trucks and running the warehouse with sticky notes. Licensees were so upset at the monopoly’s failures, especially with regards to special orders, that Delegate Bill Frick (D-16) introduced a bill to allow county voters to end it. (I organized a coalition to support Frick’s bill.)

Dorfman’s success was to do what prior leaders had promised to do for years: run the organization like a business. Even some of the monopoly’s harshest critics conceded that, under Dorfman, the department’s delivery accuracy and service improved. Special orders were still an issue but there were no more week-long outages during holiday periods. Dorfman’s performance was good enough that pressure to abolish the monopoly eased off, at least for a little while. One caveat: Dorfman’s pursuit of the bottom line was great for the monopoly but not always for licensees. He instituted a new bottle fee for licensees at county liquor stores and blocked reform passed by the General Assembly to allow private stores to sell spirits.

Dorfman was also an aggressive defender of his organization, going after both Council Member Hans Riemer and Seventh State founder David Lublin in public. When Riemer found out that county liquor stores were losing money and suggested shutting them down, Dorfman called him “ill informed” and said he “obviously doesn’t care much” about county employees. No other department head has said such things about a sitting Council Member in recent memory!

Departing department directors often take extended departures, with their last days scheduled for weeks or months after their announcements. That’s not the case with Dorfman, who is out effective today. That makes me wonder whether he is leaving on good terms with the administration. In any case, his example offers a lesson: if the county wants the liquor monopoly to perform like a business, it has to hire someone to run it who knows how to run a business. Dorfman was that guy. We shall see if County Executive Marc Elrich heeds that lesson when hiring Dorfman’s successor.

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2018 Governor's Race, 2020 Presidential Election, Adam Pagnucco, Larry Hogan

Trump vs Hogan: Votes by MoCo Town

By Adam Pagnucco.

In what amounts to an early Christmas for this number cruncher, the State Board of Elections has released precinct voting data for candidate races and ballot questions. We are going to have a lot more of this in coming days, but here is a very quick cut comparing outgoing (yes, outgoing) President Donald Trump with Governor Larry Hogan.

In the 2020 general election, Trump received 19% of the vote in MoCo. In the 2018 general election, Hogan received 44% of the vote in MoCo, probably the highest percentage for a Republican in a MoCo gubernatorial general since Spiro Agnew won the county in 1966.

In comparing the two, there are two caveats. First, the electorate in the 2020 general election (more than 517,000 voters in MoCo) was bigger than the electorate in the 2018 general election (413,137). That means these are different groups of voters, although the Democratic percentage of the electorate in 2020 (64%) is about the same as in 2018 (65%). (The state has not released official turnout numbers yet for 2020, making these numbers approximate.)

Second, 2020 precinct level data includes all voting modes whereas 2018 included election day votes only. Election day votes accounted for 61% of all MoCo votes cast in the 2018 general election, and the Democratic percentage of the electorate (61%) was lower than the Democratic percentage of other voting modes (71%). That skews the 2018 precinct results in Hogan’s favor a bit. Hogan won 47% of MoCo’s election day votes whereas he won 44% of MoCo’s general election votes overall.

All of the above said, the chart below shows Trump’s vote percentage by MoCo town in the 2020 general election.

These results are predictable. Trump only won one precinct out of MoCo’s 258 precincts: 12-1 in Damascus, where he tallied 962 votes vs Joe Biden’s 926. Trump did particularly badly in the Democratic Crescent, pulling in the teens and single digits there.

The chart below shows Hogan’s election day vote percentage by MoCo town in the 2018 general election.

In terms of election day votes only, Hogan won many areas in MoCo. Even if other voting modes were included, Hogan probably won in Brookeville, Damascus, Derwood, Dickerson, Laytonsville, Leisure World, North Potomac, Olney, Poolesville, Potomac and Sandy Spring. Hogan’s overall loss in MoCo was due to lopsided defeats in Silver Spring and Takoma Park, not to geographically broad unpopularity.

This goes to show that a fiscally conservative, socially agnostic and politically strategic Republican can get a lot of votes here, especially in upcounty. But Trumpism is a huge loser in MoCo.

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Adam Pagnucco, Montgomery County Council, redistricting

Come On Now

By Adam Pagnucco.

MoCo is about to embark on one of its most important tasks of the decade: redrawing county council districts. The county’s charter mandates redistricting every ten years in line with the release of new U.S. Census data. The charter also states that the council must pick a redistricting commission to recommend new boundary lines (although the council retains the final say). The current redistricting will be particularly intense given the recent passage of Question C, which expanded the number of districts from five to seven.

MoCo’s current county council districts.

More than 100 people applied to be on the 11-member redistricting commission and 32 were scheduled for interviews. The interviewed applicants include:

1. Two former elected officials, including one who used to be a council member and has run for two different offices in the last five years.

2. Five other former candidates for office, including one who has run for office seven times since 2009. Three of these former candidates have run at least once since 2018.

3. Two political consultants, one of whom has worked for MoCo politicians, including sitting council members.

4. Two spouses of sitting municipal elected officials. Both of these officials unsuccessfully ran for higher office before being elected to their current positions. One of the spouses also ran for office, including for council in 2017-18.

5. A sibling of a 2018 council candidate who has managed multiple local political campaigns.

These are not bad people. To the contrary, most – if not all – of them have done good things and can serve the county well in other roles. But the redistricting commission is a critical body that will play a key role in designing council districts for the next decade. The importance of this exercise to county residents cannot be overstated. The public interest should be the sole determinant of redistricting. Given the fact that the public is watching how this plays out:

It would be wise to avoid the appearance of a candidate designing his or her own district for a future run.

It would be wise to avoid the appearance of a political operative designing a district for a client.

It would be wise to avoid the appearance of a commission member designing a district for a family member.

Redistricting is an official and supremely important act of county government but it’s also a very sensitive one. Many people are jaded about “gerrymandering” and the county just had an all-out ballot war over the appropriate number of council districts. I can’t count how many times I have seen the word “machine” used to describe the county’s politics this year. In this climate, it won’t take much to get people to believe the worst about redistricting, and given the recent popularity of charter amendments, who knows how far such sentiment could go.

There are plenty of qualified applicants who could do a good job and don’t have any of the above issues. Come on now, council members! Please consider them when choosing who serves on the redistricting commission.

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Adam Pagnucco, budget

The Day of Reckoning is Near

By Adam Pagnucco.

I worked at the county council during part of the Great Recession. Those were terrible years. Under County Executive Ike Leggett’s leadership, the county slaughtered every sacred cow to stave off fiscal disaster. It busted collective bargaining agreements, cut employee benefits, instituted furloughs, doubled the energy tax and cut positions by roughly 1,000 people. The county did those things for the sake of fiscal survival.

Never did we dream of cutting county government by 12% in one year. But that is the all-out disaster projected by the executive branch in its new fiscal plan, which was sent to the county council last night.

At first, the new fiscal plan doesn’t seem that bad. It projects lower shortfalls during the current fiscal year than the previous plan from July does. But it confirms what sage budget observers have been predicting for a while: Fiscal Year 21 is tough but Fiscal Year 22 will be much worse. The difference between them is reminiscent of the gap between a paper cut and decapitation.

To understand just how bad the projection for next year is, let’s go over the moving parts of the operating budget. Each fiscal year starts with a beginning reserve, targeted by the county as 10% of adjusted governmental revenues. (The 10% level was initiated by Leggett to stave off a bond rating cut ten years ago.) Next, the county projects its revenues, of which the biggest are property taxes, income taxes, other taxes and state aid (which mostly goes to MCPS and Montgomery College). After adjusting for net transfers, debt service, cash for the capital budget and a few other items, what’s left is allocated to the county’s agencies. Of those, there are four big ones: MCPS, Montgomery College, Park and Planning and Montgomery County Government (MCG), the latter of which is governed directly by the county executive. State-mandated minimums apply to local dollars going to MCPS and the college but not to MCG or Park and Planning. At the end, the fiscal year’s ending reserve is supposed to be set at 10% of adjusted revenues and carries over to the next fiscal year.

It sounds smooth and some years it is, but sometimes things go wrong. The current fiscal plan shows a LOT going wrong, including:

1. A drop in the projected reserve percentage in FY21 from 10.2% to 7.6%, a decline of nearly $140 million. That matters because it means less money will be available for FY22 than previously believed.

2. Declines in estimated FY21 receipts of income taxes ($58 million), transfer and recordation taxes ($19 million) and other taxes ($25 million) that are offset by assumed receipts of federal money, particularly FEMA reimbursements. The federal money is not assumed in FY22 but much of the tax revenue declines remain.

3. An increase in FY21 agency spending of $108 million, some of which is due to the executive’s COVID emergency pay program.

And so lower reserves, less tax revenues and higher spending in FY21 bleeds over to FY22, when the red ink really begins to gush. According to projections, getting reserves back to a 10% level in FY22 will require an extra $127 million. That has to come from somewhere, and since revenues won’t be growing, it will have to come out of allocations to the agencies. But remember – as we said above, MCPS and Montgomery College are subject to state-mandated spending minimums. The fiscal plan projects just 0.5% cuts to both of those agencies. That leaves Park and Planning and Montgomery County Government (MCG) to bear the brunt of the cuts.

Do the math and the fiscal plan projects cuts to Park and Planning and MCG of 12% in FY22. If you include one-time COVID-related spending in FY21, the cut to MCG appears even higher at 17%.

That’s right, folks: a 12% cut to the agencies that pay for police, fire service, parks, libraries, health and human services, transportation, environmental protection, courts, corrections, housing, recreation and most functions of government other than education.

Montgomery County has never seen anything like that before.

The Leggett administration used to send us ominous fiscal plans in December to warn the council against exuberant spending increases only to reveal rosier projections in March. It’s tempting to believe there may be a bit of that here except that the pandemic’s economic effects are truly unprecedented. If this projection is anywhere close to the truth, it would be a planet-shattering cataclysm for all stakeholders in county government – employees, residents and businesses alike. Layoffs would be inevitable. Benefit cuts for employees and vulnerable residents might be unavoidable. Terminated Ride On routes, less street maintenance, cuts to fire service, deferred police recruiting, cuts to child care and social assistance, extractions of cash from capital projects – you name it, it’s all on the table. It makes the Great Recession look like a rain drop on a sunny day.

Assuming the revenue projections hold, there are only three ways to avoid an evisceration of county government. The county can get a federal bailout (as it has been futilely praying for since last summer). The county can raid its reserves and retiree health funds, going significantly below its reserve target of 10% and risking its bond rating. Or it can raise taxes. It could also use some combination of the above in concert with cuts to spread the pain.

Given the ferocity of the pandemic, some degree of budget unrest was certain. The county could have prepared for this better by instituting a real FY21 savings plan rather than the nothing burger it passed in July, sticking to its hiring freeze rather than ending it, not spending freely from its reserves and behaving responsibly on emergency pay rather than creating a new $100 million a year liability. But it’s too late.

The day of reckoning is near.

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Adam Pagnucco, Development, Marc Elrich, taxes

Elrich Vetoes Impact Tax Cut

By Adam Pagnucco.

County Executive Marc Elrich has vetoed a bill passed by the council that would effectively cut impact tax collections. While the bill passed the council on a 9-0 vote, making it unlikely that Elrich’s veto will be upheld, the policy debate lays out stark differences between the executive and the council.

Impact taxes are charged to development projects in order to pay for the additional demands for infrastructure that they create. MoCo levies two: a school impact tax and a transportation impact tax. Both are used to finance the capital budget and are dedicated to schools and transportation projects respectively. The county council periodically adjusts impact tax rates, credits and discounts, and various structural aspects of how they are administered.

This year, the planning board proposed as part of a new subdivision staging policy (which sets the county’s policies on infrastructure) a package of tax changes. Bill 38-20 instituted a range of changes to impact tax collections that would effectively reduce the county’s receipts. Among the planning board’s proposals were to cut the school impact tax rate to 100% of the cost of a student seat from the current 120% of the cost of a student seat and to apply discounts to single-family detached and multifamily units in desired growth areas to incentivize growth, both of which would cut receipts. These cuts would be partially reduced by a new utilization premium payment applied to development projects in areas with crowded schools.

To offset the impact tax losses in Bill 38-20, the planning board proposed Bill 39-20E, which would raise recordation taxes. Currently, recordation tax receipts are split between the operating budget’s general fund, the capital budget (especially schools) and rental assistance programs. And so the planning board’s vision was to cut impact taxes and raise recordation taxes to spread the cost of financing infrastructure across both new and existing development.

Lots of changes were made to the planning board’s proposals but the bottom line is that the council passed Bill 38-20, which cut impact tax receipts, and has not yet passed Bill 39-20E, which would raise recordation tax receipts to help pay for lower impact taxes. (The latter had significant opposition from the real estate community.) The recordation tax increase is not dead, however; the council will return to that issue eventually if for no either reason than to examine the capital budget next year.

That leaves the county executive, who repeatedly expressed concerns about the changes to impact taxes and other growth policies throughout the fall. Elrich believes that Bill 38-20 will cost the county $12.5-20 million a year in lost impact tax revenues, all of which go to paying for school construction and transportation projects. (That number is subject to dispute.) Elrich also never bought in to the trade of lower impact taxes for higher recordation taxes. He would rather use higher recordation taxes to cover operating budget shortfalls or more school expenditures than to offset lower revenues from impact taxes. Accordingly, Elrich vetoed the cut in impact taxes even though it passed the council on a 9-0 vote. The council will win the policy debate for now, but the politics (and the budget maneuvers) will go on.

Elrich’s veto message is printed below.

MEMORANDUM

November 30, 2020

TO: Sidney Katz, President, County Council

FROM: Marc Elrich, County Executive

RE: Veto explanation: Bill 38-20 Taxation – Development Impact Taxes for Transportation and Public-School Improvements – Amendments

With new development comes increased infrastructure needs; the newly renamed “Growth and Infrastructure Policy” (Growth Policy) reduces the funding available to provide the necessary infrastructure while the need to provide infrastructure is more critical to our success than ever. While I have long been concerned with how impact taxes work and I believe that there are alternatives that should be implemented, I cannot support simply reducing the necessary revenues without an appropriate replacement. Therefore, I am vetoing Bill 38-20.

The primary purpose of the Growth Policy is to put forth policies for adequate infrastructure – schools, transportation and more – that accompany new development. While I have other concerns about the bill, my primary concern is the projected revenue loss, which is estimated to be between $12.5 million and $20 million per year based on an analysis of projects in the development pipeline.

These reduced revenues are occurring at a time when we know we don’t have enough funding to address current needs or other infrastructure investments needed to grow our economy and maintain our status as a desirable place to live. For example, legislation to increase state aid for school construction will require the county to provide local matching funds; traditional state aid costs the County $3 for every $1 from the State or an average of $200 million annually. It is important to ensure the County will be able to continue to match traditional state aid for school construction as well as the approximately $400 million in additional state aid expected from the Built to Learn Act. (This Act will take effect immediately upon the legislature’s expected override of the Governor’s veto of the “Kirwan” bill.) School overcrowding and a $1.5 billion-dollar backlog in new construction, renovation and modernization needs burden our school system – one of our prime assets.

In addition, regional business leaders have said that improved transportation is central to economic development, pointing out the importance of efforts like Bus Rapid Transit.

Yet at a time when we know that (post-Covid19) we need improved transportation and relief for overcrowded schools and delayed modernizations, this Growth Policy reduces our ability to finance those needs.

These and other increased needs are coming while we are lowering our General Obligation bond borrowing to slow the growth of debt service costs, which lowers the amount of infrastructure we can fund with bonds. Less bonding and fewer impact tax revenues will not allow us to address our education and transportation needs. Even as the Growth Policy reduces revenues, the need for the infrastructure will not disappear. Either the funds will have to come from somewhere else, largely from county residents, or we will have to forgo important infrastructure improvements which will make righting our economic ship even more difficult.

I laid out my concerns in a letter I sent to the Council on September 10 (attached) and I highlighted my concerns again in another letter on November 10 (attached). My staff also raised several issues throughout the process. While I appreciate some of the improvements to the Growth Policy, including the improved annual school test and the clarification for agricultural storage facilities, I cannot sign this bill as it is currently written.

The Council has stated that it will consider an increase in the recordation tax to fill the gap from the reduced revenue, but that discussion is not currently scheduled. Furthermore, using an increase in the recordation tax shifts the costs from the developers of the projects to people refinancing or buying homes as well as to purchasers of commercial properties. Additionally, in these uncertain budgetary times, any potential revenue source may have to be reserved for other needs.

If competitiveness is the issue vis-a-vis our neighbors, then we should consider how our neighbors raised the money to meet their infrastructure needs. I think we will find that their focus was not on ways to reduce the revenues coming from development – rather, the opposite – they looked for ways to ensure the resources needed to provide the infrastructure for a growing community.

I regret that in the middle of this pandemic we have not had the opportunity for a more fundamental discussion of other methods to achieve adequate public facilities under the Growth Policy. While I recognize that one of the driving forces behind the recommended changes is to generate more housing, we know this will generate more residents in need of services, more students in our schools, and more people traveling to their jobs. This strongly suggests the need to increase revenue sources, not reduce them. I would welcome an opportunity to work with the Council to identify fair, alternative methods to fund the necessary infrastructure. For example, our office is working on how we could structure development districts, which have been successfully implemented in Northern Virginia and which were recently recommended by the Economic Advisory Group. Without such a replacement, I cannot support a loss of revenue. That’s not providing adequate public facilities by any measure. We can do better.

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Adam Pagnucco, Judicial Elections

Why on Earth Do We Elect Judges?

By Adam Pagnucco.

In the wake of the nastiest MoCo circuit court judge election in recent memory, one question lingers.

Why on Earth do we elect judges in Maryland?

In considering that question, let’s note that Maryland is totally inconsistent in how judges are selected. Appellate court judges are nominated by the governor, confirmed by the state senate and subject to retention elections. Circuit court judges are appointed by the governor and run for election after a year. Their elections have partisan primaries and non-partisan generals. Orphan’s court judges run in partisan elections. District court judges are nominated by the governor, confirmed by the state senate and do not run in elections. Nominating commissions make recommendations to the governor on appellate, circuit court and district court judges.

Circuit court elections are normally sleepy affairs in which sitting judges, who go through a vetting process and are appointed by the governor, are confirmed by voters. But not this year, when circuit court challengers were able to break through to the general election in both Montgomery and Prince George’s Counties. Suddenly, non-elections turned into real elections. And in MoCo, it wasn’t pretty.

The campaign pitting challenger Marylin Pierre against the four appointed sitting judges had all the nastiness of MoCo’s most negative political campaigns. Charges of racism, lying, dirty tricks and more were hurled back and forth with little regard for the dignity of the bench. Let’s remember that these are supposed to be JUDGES, not politicians. These are the people who decide civil cases, who decide child custody, who rule on domestic violence and who sentence us to fines, jail or both. In many ways, judges are more important to our daily life than elected officials. They should be expected to adhere to a higher standard than the mud splattering practices of politics. But how much incentive do they have to do so when their jobs depend on elections?

Both sides had legitimate issues with the electoral process we just witnessed. The sitting judges emphasize the rigor of their vetting process and want voters to respect it. Here is how the sitting judges slate described it:

The process started with a lengthy and comprehensive application covering all aspects of their education, breadth and depth of law practice, and personal background. Each judge’s application was submitted to no fewer than twelve diverse bar associations, each of which conducted its own investigation and interviews. In addition, the Bar Association of Montgomery County conducted a referendum wherein each applicant’s qualifications were subjected to a vote by every member of the bar association. The results of both the referendum and the specialty bar association interviews were provided to the Judicial Nominating Commission. The Commission then conducted its own independent investigation of all applicants and thoroughly vetted and interviewed each. A list of the most highly qualified candidates was sent by the Commission to the Governor, who interviewed and appointed the best of the best.

Folks, readers of this blog do their homework in figuring out which candidates to support. But individual voters don’t have the tools to replicate this painstaking process. Instead, we are left to assess judicial candidates as we do politicians when in fact their work is fundamentally different.

That leads us to another problem: state law does not give judicial candidates the same latitude for making public statements that other candidates enjoy. MD Judges, Rule 18-104.4 states that judicial candidates “with respect to a case, controversy, or issue that is likely to come before the court, shall not make a commitment, pledge, or promise that is inconsistent with the impartial performance of the adjudicative duties of the office” and “shall not make any statement that would reasonably be expected to affect the outcome or impair the fairness of a matter pending or impending in any court.” Assuming candidates respect these rules, how are voters supposed to divine their positions?

That’s not all. Pierre’s supporters will be quick to point out how tilted the playing field was against her, especially in fundraising. In 2019 and 2020, Pierre raised a grand total of $18,849. In those same two years, the sitting judges’ slate account raised $445,113. In fact, the slate account dates back to 2001 and is periodically updated to include whichever sitting judges are on the ballot. Its contributions read like a who’s-who list of the MoCo legal industry – the very people who will be litigating cases in front of the judges to whom they are donating. Some may be inclined to defend this system as a meritocracy, but once the political contributions start flowing, it bears more than a passing resemblance to an oligarchy.

Oligarchies have drawbacks, but what happens when they lose? A cautionary tale comes from Anne Arundel County in 2004, when Republican lawyer Paul Goetzke was one of two challengers to knock out sitting judges, producing an all-white bench for the first time in a decade. Goetzke blasted the incumbents because they were appointed by Democratic Governor Parris Glendening, ran on a tough-on-crime platform and said he wanted “criminals rehabilitated in jail, not in their neighborhoods.” Within a year, lawyers around the state supported censuring Goetze for “unconscionable” and “intimidating” actions against defense lawyers. In 2017, a state investigator “found Goetzke violated judicial standards on impartiality and fairness, bias, prejudice and harassment and decorum, demeanor and communications with jurors, among others.” Goetzke retired for medical reasons six months later.

Goetzke is no anomaly. Judicial elections often attract strange characters. Retired Circuit Court Judge Steven I. Platt, who was a judge in Maryland for almost 30 years, had many stories to share in his 2014 essay calling for an end to judicial elections. Judge Platt wrote:

During the years from 1970 to 2014 while I have participated in and observed contested judicial campaigns, I have never seen any of the qualities which are desirable in a judge discussed as an issue in any contested campaign by a challenger. Instead I have witnessed the following issues being raised in campaigns for “Orphans Court” (Probate Court)—(1) “Whether a Licensed Practical Nurse (LPN) could do more for orphans than those lawyers.” (2) “Whether orphans who commit crimes should go to jail.” (3) “The skyrocketing rates of intestacy” (4) “The Orphans Court Judges positions on abortion and (5) Whether as a candidate for reelection to the Orphans Court I would take an orphan away from a “parent” who spanked the orphan and/or do I spank my own children?

As a candidate for a 15 year term on the Circuit Court I was asked many questions. My favorite came from a lady who identified herself as a “concerned citizen”. She wanted to know “whether the Sitting Judges favored ‘condoms in the schools’ and/or ‘prayer’ in the schools.” The answer I wanted to give was “We favor one or the other but not both”. I did however resist that temptation.

My point is very simple. It is that even though the history and examples cited are anecdotal, they illustrate that at best judicial contested elections distract and at worst they destroy the effort to secure a diverse and qualified judiciary.

The above evidence indicates that circuit court judge elections are vulnerable to low or no voter information, domination by oligarchy, negative politics, muzzling of candidates and unpredictable consequences depending on who wins. (Let’s bear in mind that circuit court judges serve 15-year terms, far longer than most politicians). Compared to elections befouled by these sorts of flaws, the vetting process is a better option. Let judicial nominees be vetted by their peers, nominated by the governor and confirmed by state senators, who can reject any who are truly out of bounds. If necessary, judicial terms may be shortened and retention elections can be used to weed out judges who go rogue after appointment. Whatever is done, the current election system is broken and must be terminated for this reason:

If we treat judges like politicians, don’t be surprised if they act like them.

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