By Adam Pagnucco.
In response to MCPS’s gigantic capital budget request, much of which made it into County Executive Marc Elrich’s recommended budget, Council President Natali Fani-Gonzalez did something that deserves respect: she told the truth. At a media briefing quoted by Bethesda Today, she said flatly: “We don’t have the money. We just don’t.” Predictably, the admission is leading to talk of more tax increases.
Fani-Gonzalez deserves credit for being honest. But our elected officials should be honest about one more thing. They should explain WHY we don’t have the money.
Here are a few reasons for that.
Our county economy is not competitive with the rest of the region.
This is one of the longest-running themes on Montgomery Perspective. Every few months, I compare Montgomery County to our largest neighbors on a series of economic indicators. (Here are links to series in 2024 and 2025.) When compared to the ten largest jurisdictions in the region, we usually rank last, second to last or third to last, with Alexandria and Prince George’s County competing with us for the bottom slot. This has been going on since the Great Recession and constrains the ability of our tax base to keep pace with our needs.
We have had almost no job growth since the Great Recession.
We are experiencing escalating levels of outmigration in net taxable income.
As I wrote in series published in 2018 and 2023, Montgomery County has been losing hundreds of millions of dollars a year in net outmigration of taxpayer income. There are two reasons for this. First, the number of tax returns leaving the county has regularly exceeded the number of returns entering it for a long time. Second, people leaving the county make more money than those who are moving in. The result is a growing drain of the county’s tax base, further damaging its revenue capacity.
MoCo has one of the highest income taxes on the East Coast.
A comparison I published last year shows that Montgomery County’s combined state and county income tax rates are among the highest charged by states and counties on the East Coast, giving taxpayers a strong incentive to leave. That of course has not stopped talk of further tax increases as the state gave the county the option to charge another 0.1% last year.
Is MoCo’s income tax a reason why taxpayers are leaving?
MoCo has the highest energy taxes in the region.
As I wrote last year, MoCo’s energy taxes blow away all of its neighbors on a per capita basis, a strong deterrent to economic development. Look folks, I get that our politicians are now talking about the threat of data centers (which incidentally have helped Loudoun County cut its property tax in every year since 2016). But there is nothing to worry about, since such draconian taxes are sure to send almost all data centers to Frederick County or Virginia.
We have the highest energy taxes in the region, hands down.
One more thing. Despite the sky-high tax rates, the county’s energy tax collections have fallen from a high of $233 million in FY11 to $187 million last year. What does that tell you about the condition of the county’s economy?
The county has been clobbering the real estate industry, which is one of its biggest revenue generators.
Back in 2023, I cited a litany of measures that boosted costs and limited revenues in the county’s real estate industry, a unique combination in the region. The worst of them is rent control, which has destroyed private sector multifamily construction, leaving only a couple projects that require heavy public financial support. Property taxes are the county’s largest single revenue source and taxes on real estate account for almost 40% of MCPS’s capital budget. With this industry in trouble, OF COURSE we don’t have the money for school construction.
The money we did have has gone to large increases in employee compensation rather than the capital budget.
Despite all the economic challenges described above, the county found the money to fund compensation increases that were two to three times the rate of its revenue growth during the last three fiscal years. It’s a huge draw on county revenues since compensation accounts for 72% of combined county agency spending. Council Member Kate Stewart would like to use cash from the operating budget to fund the capital budget. That’s a good idea, but with compensation increases like this, it won’t happen in any meaningful way.
Compensation increases exceeding revenue growth are unsustainable, but county leaders keep agreeing to this.
Band aids won’t postpone the day of reckoning much longer.
Last year, the council used retiree health care funding to finance MCPS’s operating budget, a desperate one-time maneuver to avoid the county executive’s call for tax hikes. No responsible jurisdiction uses band aids and accounting tricks to fund its public schools, but here we are.
Lastly, there are the depredations of President Donald Trump, who is happily destroying the D.C. region’s economy. Our elected leaders blame him almost exclusively for our problems. But take a look at everything stated above, and you will see the obvious: even without Trump, we were running headfirst into a budgetary wall. Trump just moved it a little closer.
So that’s why “we don’t have the money.” Who among our elected officials will have the courage to tell this story?
Will we ever break out of this pattern? Or will the cycle of economic weakness, taxpayer exodus, tax increases and budget headaches continue?