MoCo Budget: Even the Tough Calls Are Not Enough

A new County Council staff memo lays out a grim budget scenario: the council could implement some of the toughest fiscal measures at its disposal and it may still not be enough to close the deficit.

The memo deals with problems in two Fiscal Years. In FY 2010, which is the current Fiscal Year (7/1/09-6/30/10), the county suffered a net loss of $18.8 million in state aid cuts. The County Executive is due to send a package of $30 million in cuts to the council in late October to offset the aid cuts as well as to serve as a buffer against more revenue writedowns. The Executive wrote to the council, “Service reductions and mid-year layoffs may be required to produce meaningful and reliable savings.”

In FY 2011 (7/1/10-6/30/11), matters are projected to get worse. The forecast deficit for next year is $364.4 million. The staff lays out the following options for major reductions, with cost figures in millions:

1. No general wage adjustments (COLAs): 123.3
2. No step increases: 27.6
3. No retiree health insurance (OPEB) pre-funding: 64.5
4. Reduce reserves from 6 to 5 percent: 40.0
5. Eliminate most PAYGO from the capital program: 30.0
Total: 285.4

As the report says, every one of these options is controversial. The public employee unions gave up their cost of living increases for FY 2010 but not their step increases. Not pre-funding retiree health insurance obligations just delays the hit down the road. Cutting reserves risks a credit downgrade from Wall Street. PAYGO is a practice of paying for a small share of capital projects using current revenues. Abolishing it increases the amount of borrowing the county needs to construct new projects. The key point is that as bad as every one of these options is, even if they are all passed together, the council still would be $79 million short of closing the deficit. And the deficit could go higher if the state cuts aid again or more revenue writedowns occur in November 2009 or March 2010.

The staff is urging that the council go directly to the bottom line: labor costs. They note:

Like other jurisdictions across the nation, we are “managing” the current fiscal squeeze. Many have already had to take more aggressive steps than we have, including no step increases, furloughs, layoffs, and in some cases actual cuts in salary and benefits. If economic reality is now in fact the “New Normal,” “managing” the fiscal squeeze going forward may not be enough. Instead, we will have to break new ground by making harder choices about budget priorities and focusing more systematically on the four-fifths of the budget that for us, as for other local governments, goes to salaries and benefits for our employees.

That means there are an awful lot of heads on the guillotine.