By Adam Pagnucco.
Faced with the herculean task of rewriting County Executive Marc Elrich’s recommended FY27 operating budget, which contains unpopular tax increases, the county council finds itself in a tight budget box. And just like the trash compactor in Star Wars, the walls are closing in.
The scene inside the council office building. Image credit: Lucasfilm, Ltd. and Slashfilm.com.
Let’s consider the walls of the box.
Elrich’s recommended budget increases total spending by $388 million (5.1%). Of that increase, tax supported spending accounts for $375 million.
That recommendation includes two funding mechanisms that many inside the council building dislike. First, there is his $165 million property tax increase, which almost every council member just voted against. (Council Member Kristin Mink abstained.) Second, the executive tapped $181 million from reserves to fund ongoing spending, an explicit violation of county policy holding that reserves must be deployed only towards one-time uses. Council staff has written that the executive’s use of reserves contributes to a projected $257 million structural deficit next year. Elrich also proposed a $24 million income tax increase.
The council’s goal is to avoid the property tax increase. Since the operating budget must be balanced, any decision to forgo the tax hike’s loss of $165 million in revenue must be offset with an equal amount of spending adjustments and/or new revenue. To get out of the box, the council must find that money.
One place to find it was the county’s collective bargaining agreements. Council President Natali Fani-González proposed savings from those agreements of $45 million, which would have offset more than a quarter of the forgone property tax hike. But yesterday, the council unanimously voted to fully fund those agreements including Fani-González. So there is no money to be found there.
What else? The council’s Government Operations Committee has proposed a huge restructuring of the county’s income tax. Its two elements are introducing progressive tax brackets (which would lose $65 million) and abolishing the $692 Income Tax Offset Credit for homeowners (which would raise $140 million). This is a net $75 million tax increase that would be paid by homeowners overall, with some benefiting on net and others losing. This is a bigger increase than the $24 million income tax increase that Elrich proposed.
At this moment, council staff now estimates that the council must find another $152 million to balance the budget without increasing the property tax rate. MCPS is a huge target since it is asking for a $180 million increase in its county operating appropriation despite losing enrollment. The teachers union knows this and is ringing the alarm bell. Council Member Will Jawando wants to dip further into reserves, which would make the structural deficit worse. (But at least Jawando has also proposed more substantive reductions of smaller amounts.) Fani-González has proposed reducing funding for municipalities by $26 million, but they will fight like hell to prevent having to rewrite their own budgets. And the council could divert retiree healthcare money again – another one-time move – but with the bond ratings agencies watching, would they really do it?
One source told me, “No one is going to love any of this.”
Another source said, “There’s no way out.”
But there has to be.
Right?