By Adam Pagnucco.
Many years ago, I had a boss in the labor movement who talked about the abuse of “other people’s money.” As a young construction worker, he deplored the cavalier use of members’ dues money by the generation of leaders who then held power in his union. Once he ascended to the top of the union, he cleaned house at the central office, replaced the obsolete headquarters building (which was next to the U.S. Capitol) with a money-making Class A trophy office building and plowed tens of millions of dollars in new revenues into organizing campaigns. He told me, “This is the members’ money. It should be used for them.”
My boss was tough, smart and fearless. He would take a dim view of recent events in our county government.
Let’s start with rent control. The untold story in its passage was the role played by taxpayer money. The two organizations who led the charge in lobbying for rent control, the Montgomery County Renters Alliance and CASA, are 501(c)(3) nonprofits who have been receiving county service contracts for years. The county council approved a new noncompetitive contract award for the Renters Alliance just months before the rent control campaign started. The Internal Revenue Service prohibits a 501(c)(3) organization from devoting “a substantial part of its activities” to “attempting to influence legislation,” but that did not stop the Renters Alliance and CASA from pushing a majority of the county council to pass rent control in 2023. As if that were not enough, CASA has two other affiliates who engage in political activity – including in our county’s elections – that it refers to as “the CASA family.” As for the Renters Alliance, it is now lobbying the state for more legislation. Despite all of this, I have heard of no steps taken by county government to fence off taxpayer-financed nonprofit contract money from legislative advocacy.
CASA packs the council hearing room for rent control.
The county’s rent control law started shutting down development even before it was passed, is wiping out trading values in the county’s apartment market and has resulted in our getting “redlined” by national real estate investors. That was all predictable considering the huge body of academic literature revealing rent control’s damaging impacts on housing markets. It is now interacting with state and county laws on building energy performance standards (BEPS), which mandate energy efficiency improvements in many commercial and multifamily residential buildings. There is not just one but two applicable BEPS laws – one at the state level which has attracted litigation by a coalition including Leisure World and another at the county level for which regulations were just approved. The two BEPS laws are not identical. Which one covers property owners in Montgomery County? Does anyone know how expensive compliance is? What will be the impact on condo owners with fixed incomes in older buildings? (An aside: Council Member Evan Glass’s bill adjusting impact tax payment timing is a good idea, but does not come close to offsetting the baleful impacts of the policies described here.)
A Renters Alliance mass email from July 17, 2023 advocating on the county’s rent control law.
These are not hypothetical questions. Over and over, my sources tell me that the county has become “radioactive” for real estate financing. Lenders and investors in prospective projects are aware of rent control and have responded by cutting off financing for projects in our county. What will be the combined impact of BEPS and rent control on bottom lines? That’s hard to answer because the two laws are in direct conflict. Why would lenders and investors, not to mention developers, take the risk of building here when jurisdictions across the river have stronger economies and do not impose these risks?
And so we get to the housing package proposed in January. In the absence of rent control and BEPS, it would be a sensible mix of land use reforms and incentives designed to promote office conversions and workforce housing. Council Member Andrew Friedson, one of its authors, is often an atoll of rationality in a sea of utopianism. To his credit, Friedson voted against rent control. But the package relies on taxpayer subsidies and 25-year property tax breaks to try to overcome the destructive economics imposed by the county on the real estate industry. Given what my real estate sources are saying, I am skeptical that it will do so.
So let’s connect the dots. Our elected officials approve taxpayer funding for organizations who then lobby them to pass rent control. Rent control along with conflicting and expensive BEPS laws is strangling the county’s real estate industry. So more taxpayer money will now be used to try to plug the holes created by those policy choices.
How about not passing these policies to begin with? It would save a lot of economic headaches as well as allow your tax money to be directed towards funding schools, police, fire fighters and other services – which is where it belongs.
Your money. My money. Other people’s money.
Is this any way to run a government?