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Elrich Releases $5.7 Billion FY 2020 Operating Budget; Increases Spending by 2.5%, No Tax Increase

Last week, Montgomery County Executive Marc Elrich released his Recommended Fiscal Year 2020 Operating Budget of $5.7 billion for the year that will begin July 1, 2019. It is Elrich’s first operating budget as since being elected County Executive in November.

According to County officials, the budget was designed to begin to deliver on the promises Elrich made to County residents during his campaign for County Executive. The budget increases County spending for the Montgomery County Public School system by $51.1 million and holds property taxes at the Charter Limit by reducing the tax rate by two tenths of one cent per $100 assessed valuation.

Elrich’s FY20 total budget increases spending from $5.6 billion to $5.7 billion, a 2.5 percent increase.

“I am proposing a substantial down payment on expanding access to quality early childhood education so that Montgomery County’s young children have a future of opportunity regardless of their race or family’s economic circumstances,” said Elrich. “I am increasing our investment in a strong, multimodal transportation system that can serve as the backbone of a growing economy. I am focusing our economic development programs on the small businesses of our County to foster long-lasting wealth for our community.”

“Finally, I am proposing funding changes to correct several long-term structural deficiencies while simultaneously satisfying the County’s longstanding goal to provide 10 percent of total adjusted governmental revenues in reserve. Balancing these competing priorities was not an easy task.”

Despite a $51.1 million increase in funding for MCPS to a total budget of $2.6 billion for MCPS, including $2.5 million above the required State mandated Maintenance of Effort level, Elrich’s proposed budget is $12.4 million below the amount requested by the Board of Education. The budget also includes a previously announced $7 million for an Early Care and Education Initiative.

However, education leaders in the County were critical of Elrich’s proposed budget. District 2 Councilmember Craig Rice, who is the chairman of the County Council’s Education and Culture Committee said Elrich’s proposed budget represented a “divestment in education.”

“For the past three years,” said Rice in a statement, “this County has been proud to say that we have put forth ‘education first’ budgets. These budgets fully funded the Montgomery County Board of Education’s requests and supported Montgomery College to the extent practicable. It is with great regret that I can’t say the same about this year’s recommended budget. In fact, I believe that it’s exactly the opposite. It puts education last. This recommended budget jeopardizes many of the children and adults in our community who need the most help.”

“The County Executive’s proposed budget represents a divestment in education both at the K-12 and higher education levels,” continued Rice. “This will endanger the great progress we have made in reducing the opportunity and equity gap in our schools. Montgomery County Public Schools (MCPS) and Montgomery College are experiencing an all-time high level of diversity that makes these recommendations even more troubling.”

Montgomery County Board of Education President Shebra Evans and Montgomery County Public Schools Superintendent Jack Smith released a statement on the proposed budget saying, “While this budget did not meet the amount identified in the Board’s request, we believe we will still be able to implement our priority initiatives, including the expansion of prekindergarten. However, it will require us to reduce some planned efforts and delay others.”

The statement went on, “Over the next two months, we will work with our partners on the County Council to determine if there are opportunities to restore some of the funding outlined in our initial operating budget request and to minimize the impact of any reductions on students and schools.”

Elrich said the County has been facing financial challenges for the past decade, “The last decade has been an extremely challenging period for governments across the country - and particularly in the National Capital region. During this time, Montgomery County has been buffeted by the 2008 global economic meltdown and the painful 2013 regional recession; the ripple effects of which are still felt. Solid economic growth is in a dance with lingering uncertainty. The new federal tax law has introduced more uncertainty and volatility in revenue forecasting for all governments. And the Supreme Court’s Wynne decision has permanently reduced income tax revenues by an estimated $30 million annually.”

“As a result of these trends, within days of taking office, I was presented with the troubling news that the final closeout of FY18 had turned up an unexpected gap of $44 million due to an underperformance of revenues and overspending in the Fire and Rescue Service and Transportation departments,” said Elrich. “FY18 revenue growth unexpectedly slowed to an anemic 0.3 percent or $14.5 million over FY17 actuals. Income tax revenue estimates flatlined due to massive changes to Federal tax law. Property tax receipts underperformed due to unanticipated reductions in commercial property valuations.”

He added that revenues from transfer and recordation taxes fell as the square footage of new construction dropped, and an affordable housing policy change totally exempted several large residential developments from all impact taxes. He said that unexpected increases in motor fuel costs were the leading cause of overspending in operating expenses for Fire Rescue Service and Transit, while overtime drove the overspending of personnel costs, particularly in the Fire Rescue Service.

“Unfortunately, the volatility of the income tax has continued into FY19 and FY20,” said Elrich. “Estimated quarterly payments were down by more than 30 percent in the final quarter of Calendar Year 2018. This required a downward revision of income tax estimates of $85 million across the two fiscal years. This decline is in line with recent downward state income tax revisions made by the Maryland Board of Revenue Estimates. The combination of steady job growth with declining quarterly payments suggests volatility in the highest income brackets caused by fluctuations in capital gains. I am hopeful our revenue forecasting will regain equilibrium as our residents get through the first tax year cycle with the new, Federal tax code.”

To address the gap in the current fiscal year, Elrich has proposed a $45.7 million savings plan.

“While the adopted savings plan was critical, the subsequent decline in revenue estimates requires additional action. Therefore, I am proposing we forgo our contribution to the other post-employment benefits (OPEB) Trust Fund for FY19. Instead, I am directing these funds into our reserve accounts to satisfy our longstanding fiscal policy goal of holding 10 percent of adjusted governmental revenues in reserve as protection from additional economic shocks.”

“The decision to delay OPEB funding for a year is, I believe, the most prudent course of action with just months left in the fiscal year,” continued Elrich. “It is important to note that this action does not alter our commitment to current or future retirees. Their healthcare benefits continue to be fully funded. However, this action will allow us to increase our FY19 reserves to nearly 10 percent. It also allows me to propose an FY20 budget that funds services; provides a modest compensation increase for our dedicated County employees as fully negotiated with their representatives; satisfies our adopted fiscal policies; and addresses some of the structural problems, which have plagued County government over the last few years.”

“I intend to put County government on a more sustainable path, and this budget begins that process,” said Elrich. “I have already directed my senior management team to develop a 10-year plan that is grounded in reality and sustainability. I envision a plan that details the challenges our community faces and presents affordable ways to address them. This budget provides funding to correct several long-term deficiencies. The budget provides resources to fix conditions that drive expensive overtime expenditures in a variety of departments. The budget also recognizes that computer systems and data storage needs must be adequately funded, or else other programs are cannibalized to pay the bills. Almost all new programmatic funding in the budget is offset by an equal amount of reductions. All other new funding in the budget for County government is to cover expenses related to fixed costs ranging from debt service and risk management to employee contracts and employee healthcare.”

County Council President Nancy Navarro issued the following statement on the proposed budget, “I am gratified that the recommended operating budget holds the line on taxes and increases the County’s reserve to the targeted ten percent by 2020. The Council will look carefully at how the County Executive balanced the recommended budget including: decreasing our annual contribution to other postemployment benefits (OPEB) in fiscal year 2019; the funding provided for negotiated compensation agreements with County bargaining units; and funding allocations made for other agencies.”

“The recommended budget does not fully fund the budget requests from the Montgomery County Board of Education, Montgomery College or the Maryland-National Capital Park and Planning Commission,” she added.

“Some shared priorities in the recommended operating budget include: the down payment of $7 million to fund our Early Care and Education Initiative that I spearheaded; increasing investments in the small business sector; establishing FLASH bus service on US 29; opening the Wheaton Library and Recreation Center in the summer of 2019; and improving the lives of our residents by increasing rental inspections, working to end homelessness and fostering home sharing options for seniors,” said Navarro.

“The Council will work collaboratively with Executive staff and community members throughout this review. We look forward to receiving the views of our residents during the budget process,” said Navarro.

The County Executive’s budget highlights focus on the Elrich Administration’s Priority Outcomes and Headline Measures:

Thriving Youth and Families

• $7 million for an Early Care and Education Initiative, a joint effort of the County Government, Montgomery County Public Schools, and Montgomery College to ensure that the achievement gap gets closed.

• $2.6 billion for the Montgomery County Public Schools system – an increase of $51.1 million from FY19 and is $2.5 million above the State’s Maintenance of Effort level.

• $800,000 to ensure that the Wheaton Library and Recreation Center opens in late summer 2019.

• $9.1 million in grants for individual human services programs through community grants.

• The recommended budget also preserves funding for the County Council’s community grants.

A Growing Economy

• The recommended budget begins paving the way to support opportunities that will create, retain, and attract good jobs by helping businesses to grow in our County.

• Creation of a Regional Business Service Hub Program that will proactively interact and reach out to local businesses and entrepreneurs for assistance needed to grow and expand jobs.

• Developing a County-based Kitchen Incubator/Food Hall to help entrepreneurs translate their great ideas into successful products and training a workforce to engage in the food and hospitality industry.

• Add funds to continue providing technical and financial support through the Small Business Assistance Program and the Impact Assistance Fund to eligible small businesses adversely impacted by County-led redevelopment projects.

• Funding for the Microlending Program will allow continued financial and technical assistance to County entrepreneurs.

• Supporting the MOVE Program to attract new businesses and expand local ones to reduce the County’s vacant office space.

• Funding support to expand the County’s bioscience and high-tech industries at all talent levels. Some highlights include:

• Retooling the County’s business incubator system to better serve start-ups and early-stage technology companies with technical mentorship and capital access opportunities;

• Providing County matching funds to local recipients of Federal Small Business Innovation Research and Small Business Technology Transfer (SBIR/STTR) grants from the National Institutes of Health (NIH);

• Continuing the UltraMontgomery Initiative to provide a high-speed fiber network that connect people with opportunities and drive economic growth by linking our business, academic and Federal institutions, and transit-oriented, smart-growth communities.

• Continue redevelopment efforts by leveraging County assets to generate private investment and grow business opportunities in Bethesda, Wheaton, White Flint, White Oak and smaller scale neighborhoods throughout the County.

A Greener County

• Funding a few targeted initiatives to help move the administration’s environmental objectives forward.

• Including $1.4 million for the new limited-stop FLASH service on US 29 to bolster public transportation options and reduce vehicle miles travelled.

• Purchasing 10 electric Ride On buses in FY20.

• Funds to convert street lights to more energy efficient Light Emitting Diode (LED) fixtures through the capital budget.

• Installing solar and other clean energy technologies on County facilities. To date, the program has produced enough clean energy to power more than 800 homes.

Easier Commutes

• Funds to continue implementation of a new-limited stop, high frequency FLASH bus service on US 29 between the Burtonsville Park-and-Ride Lot and the Silver Spring Transit Center.

• The new service will open in May 2020. The line will include 18 state-of-the art stations and a fleet of 16, 60-foot, articulated buses, improving mobility and transit reliability on the corridor with 7.5-minute headways in the morning and afternoon peak periods and 15 minutes at all other times, while supporting Elrich’s commitment to improve transit equity in a corridor where 65 percent of residents are minorities, 31 percent speak a language other than English at home, 30 percent of households earn less than half of the area median income, and 12 percent of households have no car.

• Continuing work on BRT for the MD 355 corridor.

A More Affordable and Welcoming County

• More than $500,000 in budget enhancements to bolster inspections and tenant rights – including $218,000 in additional funding for the Renter’s Alliance to provide information and services to tenants; $144,450 to fund two, vacant housing code inspector positions; $102,647 for tenant advocacy services; $100,000 to enhance the Housing Code Inspections Delivery System; and $74,365 for tenant-landlord outreach and educational activities.

• $41.3 million budget for the Montgomery Housing Initiative Fund, a 16 percent increase ($5.7 million) from the FY19 approved budget. Part of this increase is an additional $2.6 million transfer from the General Fund to the fund. Furthermore, an additional $4.77 million loan repayments are reallocated in FY19 and $17 million in FY20 for the Affordable Housing Acquisition & Preservation CIP Project.

• Funding for the creation of a Senior Home Sharing Pilot Program. This innovative program will connect senior home providers who have a spare room with home seekers interested in a long-term housing option. This home-sharing arrangement can work when renters find it difficult to find affordable rental housing and home providers either need extra income or prefer living with another person who can offer social connection and/or assist with tasks, errands, and costs related to property maintenance.

• Adding an additional $1 million in the Services to End and Prevent Homelessness budget to help continue this path to reach functional zero chronic homelessness in Montgomery County.

Safe Neighborhoods

• Adding funds for a legal assistant in the Gang Unit of the State’s Attorney’s Office, a position that was previously funded with grant funds but is important to retain to continue effective gang prosecutions.

• Adding a new forensic scientist in the Crime Lab to ensure DNA and other evidence is analyzed in a timely manner.

• Adding funds to purchase 250 new dashboard cameras for Police patrol cars and adding a position to process public information requests for footage created by those cameras and the Police Department’s body-worn camera program.

• Funding the full annual contract for Next Generation 911 service, which will expand the ways people can seek assistance from just a phone call to text and video.

• Adding 20 positions in the FRS to begin closing the structural deficiency identified in CountyStat’s Net Annual Work Hours report and adding to the overtime budget to address historic wage increases.

• Adding overtime to address failures to respond during the periods in the morning and evening when career personnel are being replaced by community volunteers, who cannot always match the career shift hours when transitioning from the work that supports their families to the unpaid work that supports the community.

Effective, Sustainable Government

• Funding changes to correct several long-term structural deficiencies while simultaneously satisfying the County’s longstanding goal to provide 10 percent of total adjusted governmental revenues in reserve.

• Developing a 10-year plan grounded in sustainability that details the challenges the community faces and presents affordable ways to address them.

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