By Adam Pagnucco.
Council President Natali Fani-González has proposed reducing collectively bargained compensation increases as part of a plan to avoid the tax hikes recommended by County Executive Marc Elrich. Part One explained the mechanics of collective bargaining in county government and outlined why the county’s unions oppose this idea.
So why is the council president doing this? There are really two reasons.
First, compensation accounts for roughly 70% of county agency spending. The council president would like to avoid the county executive’s $189 million in tax increases, which comprise almost half of his recommended $388 million spending increase. It’s hard to do that without targeting the biggest cost driver in the county’s operating budget.
Second, compensation in Montgomery County Government (MCG) has increased faster than the county’s future projected revenues six years in a row. The chart below from a recent council staff memo shows annual compensation increases (in blue bars) and average six-year projected annual revenue growth (in red line) since FY17. In FY24, FY25 and FY26, compensation growth was more than double revenue growth. That’s unsustainable and last year, the council’s own staff warned that trend could lead to future tax hikes. Well, the future is now.
Are these compensation increases justified? Let’s look at some data.
First, the chart below compares the compensation increases shown above (as well as FY16) to price inflation in the Washington-Arlington-Alexandria CPI-U.
From 2016 through 2023, both compensation growth and price inflation averaged 2.5% per year. Then they diverged. In 2024, compensation went up by 7.5% while inflation was 3.2%. In 2025, compensation went up by 9.6% while inflation was 2.2%. In 2026, compensation will increase by 7.1%. We will see if inflation reaches that level as President Donald Trump’s war in Iran continues.
How do county compensation increases compare to MoCo private sector wage increases? According to the U.S. Bureau of Labor Statistics, MoCo private sector weekly wages grew by an annual average of 3.3% from 2016 through 2025. That’s close to MCG’s annual average of 3.7% over that period. In the 2016-2024 period, MCG compensation grew by 3.1% a year while MoCo’s per capita income rose by 3.5% a year and the D.C. metro area’s median occupational wage grew by 3.2% a year. These numbers are comparable. However, they don’t fully account for the huge FY24-26 compensation spike. That’s the source of the current fiscal challenge.
This being government, fiscal challenges are intertwined with politics. In the last four fiscal years, the county executive has proposed paying for his labor contracts with tax hikes three times – a 10% property tax hike in FY24, a property tax hike followed by an income tax hike last year and both a property tax and income tax hike this year. The council approved the contracts but only levied a 4.7% property tax hike in FY24 and no tax increase last year. Instead, the council used a one-time diversion of retiree healthcare money to balance its budget in FY26. Now the council is trying to figure out what to do this year.
The central problem here is that the council approved collective bargaining agreements without having the ongoing revenue needed to pay for them. Now the bill is coming due. Labor doesn’t want to pay it. Neither do the taxpayers.
But someone will have to pay in the end.
What’s your bet, dear readers?