By Adam Pagnucco.
It’s a ridiculous question, right? Of course our county government should have a balanced budget. As a matter of fact, it’s official county policy. But what happens if that policy is ignored?
Folks, this is not an academic question.
First, let’s start with policy and law. Here is Montgomery County’s official policy statement on a balanced budget.
Structurally Balanced Budget
The County must have a goal of a structurally balanced budget. Budgeted expenditures should not exceed projected recurring revenues plus recurring net transfers minus the mandatory contribution to the required reserves for that fiscal year. Recurring revenues should fund recurring expenses. No deficit may be planned or incurred.
Furthermore, Section 312 of the county charter states: “The County may incur debt. No indebtedness for a term of more than one year shall be incurred by the County to meet current operating expenses.”
Combine the two and they require that annual operating budget expenditures must be covered by annual revenues and not be financed through long-term borrowing. Instead, reserves which are targeted at ten percent of revenues are available for revenue shortfalls. And under a policy resolution passed by the council in 2021, “targeted budget reductions” are supposed to be considered before tapping reserves.
On paper, this looks like a rigorous process to produce balanced operating budgets, but it has a loophole: supplemental and special appropriations. Supplemental appropriations are recommended by the executive. Special appropriations are specified by the county charter as “necessary to meet an unforeseen disaster or other emergency, or to act without delay in the public interest” and can be introduced by individual council members. Either of them can be passed at any point in the fiscal year and each of them must specify their source of funds. And here’s the kicker: they can be funded through tapping reserves – that’s right, the same money set aside to cover shortfalls and protect the county’s AAA bond rating.
When I worked at the council from 2010 through 2014, we were always looking for money but we did it through the budget process. And man it was tough. We waited until March, when the county executive sent over his recommended budget. This was during and after the Great Recession and money was scarce. Everything we proposed had to compete with everything else. Overseeing it all was the council’s tight-fisted taskmaster, the now-retired council administrator Steve Farber, who enforced the budgetary box we all had to operate within. You could horse-trade and make deals, but if you couldn’t round up the votes for your stuff, somebody else would grab the cash and you were out of luck. That was how the place worked in those days.
It never occurred to me to go outside our budget process to get money. Yes, special appropriations existed. But If I had tried to initiate one, a long line of angry council members and staff would have appeared at my front door to throw me out the window. As a result, because of the culture of the council at that time, I never dared to go there. And guess what? That was good for taxpayers because it disciplined us to stay within our revenues.
Those days are long gone. I will have more in Part Two.