By Adam Pagnucco.
Tomorrow, this year’s county operating budget spectacle will come to its dramatic conclusion. This is arguably the most significant budget since the Great Recession. Like the budgets of FY11-13, this budget is likely to establish trends that will impact county finances – and taxpayers – for years to come.
Let’s go back in time. The Great Recession devastated county finances and caused County Executive Ike Leggett and the council of that era to slaughter (or at least injure) many sacred cows. They doubled the energy tax, broke collective bargaining agreements, cut employee benefits, cut more than 1,000 work years through attrition and established a ten percent reserve target. The state responded by tightening its maintenance of effort law on school funding, which provoked the county to freeze its local per pupil contribution for four years. All of this produced tight budgets for a long time, a period ending in the 8.7% property tax hike of FY17.
This year will see several tax hikes designed to shore up both the operating and capital budgets. On the operating side, County Executive Marc Elrich’s recommended 10% property tax hike is ostensibly aimed at funding MCPS, but in actuality, it is designed to pay for increases all over the government. Part of those increases were driven by pandemic-era hiring that relied on one-time federal dollars but now require long-term funding. Another part was driven by new collective bargaining agreements with county unions (MCGEO, the fire fighters and police) that add $100 million in annualized spending. If the major parts of this budget are passed, they will raise taxes, add costs and possibly even trigger more tax increases in future years. All of this is known by the county council. They have been told about this by their central staff over and over.
So what will happen now? Most of my sources predict that the council will approve a property tax hike in the range of 4-5 percent. We shall see if that number is correct, but if it’s in the ballpark, it will validate long-standing prophecies that Elrich would get part but not all of his tax hike. These are the major factors shaping this decision.
The approval of collective bargaining agreements locked in most of Elrich’s budget.
On the county government side (this excludes MCPS, the college and Park and Planning), compensation accounts for roughly 70% of spending. When the council unanimously approved every penny of the county’s collective bargaining agreements, they locked in the vast majority of Elrich’s budget. Let’s bear in mind that the raises in those agreements ranged from 6-13% and were accompanied by benefit improvements. These agreements rivaled the pre-Great Recession agreements in generosity, but back then, the economy was much stronger and thus they were arguably more affordable.
Why did the council do it? First, they were reluctant to buck labor. They have done it in the past but do so only under duress. Second, they are legitimately concerned about difficulties in recruitment and retention, which generated a lengthy conversation about vacancies. That said, every year’s increase adds to next year’s base. Compensation is growing faster than revenues and the council needs a plan to deal with that.
The council does not believe MCPS’s claims about its finances.
MCPS management and its unions have been feuding for years, but they called a (possibly temporary) truce to team up and go for full funding of their budget. However, most of the council does not believe that MCPS needs every penny of its request and a staff analysis by former MCPS senior executive Essie McGuire backed them up. The council is poised to give the school system roughly 70% of its increase because they believe that that is enough to fund MCPS’s new collective bargaining agreements. If MCPS tries to go back on those agreements, they will face condemnation by both the council and the unions.
And what of the Montgomery County Education Association (MCEA), which staged a sit-in at a council meeting last week? I asked some of my council building sources for one word to describe their opinion of what happened. Their responses included distasteful, petulant, bullying, unproductive, destructive and sad. One source commented, “I have many more words that are not fit to print.” Another source said this about the union and the school board’s op-ed playing the race and sex cards against the council.
It was more aggressive than it should have been. That plus the MCEA madness was a bad, bad combo. MCEA and MCPS really did not understand how to operate in this environment. Neither showed any willingness to play ball until it was too late. Very unproductive.
All of the above said, let’s remember that MCGEO President Gino Renne has been using tough tactics against politicians for years and he has been generally effective. And I bet MCEA’s members appreciated seeing their union take a stand for them.
MCEA wields the Apple Ballot so council members have an incentive to make nice with them before the next election. Indeed, the council and the union can – and should – make common cause in asking pointed questions about MCPS’s financial practices regarding instructional salaries and fund balances. The real problem here is for MCPS management, which has no Apple Ballot to deploy. Because of its funding authority, the council has the ability to make management truly miserable so the latter needs to turn down the temperature. That means – for starters – no more op-eds hurling accusations of racism and sexism.
Voter unease against the property tax hike was real.
Early on, the council understood that there was general unease among voters about a tax hike as large as ten percent. The realtors and Empower Montgomery stoked that anxiety through campaigns that sent a significant volume of email to the council opposing the increase. These factors did not defeat the tax hike entirely but they played a role in pushing the ultimate tax rate lower. In MoCo, that might be as good as it gets.
The tax and budget votes may not be unanimous.
Because it is using a loophole in state law, the property tax hike can evade the charter limit and therefore only requires 6 votes to pass. However, because of rules on exceeding spending affordability guidelines, the overall budget requires 8 votes to pass. The council would not bother to hold a final budget meeting unless at least 8 votes were secured. However, don’t be surprised if some no votes get cast, in part to draw distinctions for the future.
The council is already thinking about next year.
Looming large over all of this is the structural deficit built into Elrich’s budget, which council staff predicted could lead to future tax hikes. Let’s reprint what Council Member Gabe Albornoz said on the day that the council approved the collective bargaining agreements:
I am going to support the GO [Government Operations] recommendation but I think all of us see this cliff. We’ve all been through this before. And it is not sustainable. And unless something changes, and I can’t imagine that after going through the exercise that we are going through right now with the tax increase, that that will happen again any time in the near future, then we need to, as we have in the past, work with our brothers and sisters in labor to make sure that future contracts reflect what the reality is that has been laid out in this report. Because the math here is clear. If we can’t afford the salaries we are about to pass now, a year from now, two years from now, three years from now, the only place to go to reduce the county’s budget, and when you consider over 80 percent of that budget is made up in staff and personnel, we would have to reduce staff and personnel as we’ve done in the past.
Albornoz may have said this but a lot of his colleagues are thinking the same thing. The last thing the council wants is a hellish budget process every single year, with unions, businesses and taxpayers all burning them at the stake for different reasons. The day after this budget passes, the council must start planning how to avoid another headache next year.