Saturday, May 08, 2010

Berliner Breaks Down the Budget

Council Member Roger Berliner sent the following analysis of the county budget situation - and especially the prospect of furloughs in the schools - to his constituents. While he does not tip his hand, his take is worth a read. Following is an excerpt from his online newsletter.

Balancing The Budget

Before the end of this month, the Council will reach a final decision on how we balance our County's $4.3 billion budget. The choices facing us are all bad. Our task is to find the least painful and most equitable way to close what has grown to nearly a $1 billion gap.

In the last month, the budget crisis got even worse than we had anticipated. There was a huge, unanticipated drop in tax revenues and a warning from the Wall Street rating agencies that called upon us to return the County's level of financial "reserves" from 5% to 6% in FY '11 if we want to protect our AAA credit rating and keep the cost of our borrowing for school and other construction projects as low as we can.

This combination of factors translated into a bigger hole - almost $200 million bigger. The County Executive proposed addressing that hole in two ways - (1) making further cuts in county government, Montgomery College, and our Parks, just to name a few; and (2) increasing taxes by about $150 million.

The proposed increase in taxes has raised many concerns. $133 million of the increase comes in the form of a 100% increase in energy taxes, significantly impacting homeowners, renters, and businesses. One example should suffice to illustrate just how high these taxes would be: under the County Executive's proposal, we would be recovering more in energy taxes from businesses than PEPCO charges for the underlying service of delivering energy. If this proposal is approved, it has the potential to further damage our local economy.

From my perspective, we should strive to live more within our means and tax less. But to do that, we need to find other places to make cuts. County programs, which represent almost 50% of our budget, have already been cut severely. For example, libraries, recreation, parks, and the Department of Transportation will all be facing significant cuts. In addition, over 400 county government employees who currently have jobs are going to be losing them. In fact, County Government has reduced its work force by 10 % since 2008. And finally, if the County Executive's proposal were adopted, all county government employees (including the Council) face 10 days of furloughs which equates to a 3.8% cut in pay and is projected to save $15 million.

My three colleagues on the Management & Fiscal Policy Committee (MFP), two of whom are former school board members, have proposed an alternative. They have proposed saving $50 million instead of $15 million from furloughs, and they proposed doing that by calculating the savings that would be generated if everyone - including our school system - were to participate in 5 days of furloughs instead of 10 for just county employees.

For the school system, if the Committee's recommendation were to be accepted, this would mean further cuts of $33 million dollars. While the Committee believes that furloughs (on non-instructional days) would have the least negative impact on our children and the classroom, the County Council is not the final authority on how this $33 million savings would be achieved, if it were required. That is the job of your elected school board, which is a State agency. They may reach a different decision. Our job is to appropriate dollars to the school system in broad categories like "administration" and "instruction". The school board decides what happens within those broad categories.

The school system has responded in very strong terms to the recommendation of the MFP Committee for further cuts to MCPS's $2.3 billion dollar budget. They had reluctantly agreed to a reduction of $137 million from their original request of $2.26 billion, but made it clear they drew the line there. Now the line may be moved again. And the school system, from the Superintendent on down, is fighting tooth and nail against it.

In assessing the equities, there are, of course, compelling arguments on both sides. Here is one version of "arguments for and against" further cuts in the school budget to meet the county's budget crisis.

Arguments For:

In the face of a new, unanticipated budget hole of $200 million, it is fair to expect the school system, which represents more than half of the county's budget, to contribute a modest amount to that solution. Even if the $33 million reduction were adopted by the Council, not a foregone conclusion, the school system would only be contributing 15% to filling that $200 million hole, reflecting the extent to which the school system is our number one priority. Homeowners, renters, businesses, county service cuts, and other county employees would make up the rest.

While it is true that the school board's requested budget request was already reduced by $137 million, only between $15-25 million of those cuts will directly touch the classroom. The cuts were largely offset with increased state-aid, by delaying contributions to future teacher retirement obligations (which the rest of county government is also delaying), eliminating step and COLA increases (which no county employee is getting in FY '11); and cuts in central staff. And even with those cuts, the school system still received "level funding" (no decrease from FY '10 allocation), a far cry from the devastation wrecked on other agencies, like the library system, where cuts of 24% are projected. In fact, the percentage of the county's budget devoted to the school system actually increased.

The Council can not mandate furloughs to MCPS. However, furloughs of school system employees have been used by other counties to address their budget problems and it does appear to be the least harmful option in terms of impact on our kids. As it stands, county employees could be furloughed 10 days, and they ask why others shouldn't be called upon to share the pain, share the sacrifice. A 5 day furlough could be taken without reducing instructional days and it would mean a 1.9% reduction in pay for all employees across agencies. In addition, the MFP Committee is exploring options for making the furloughs more progressive, i.e., asking more from those who earn more and less from those who earn less.

The cuts previously agreed to reduced funding for the school system below the state's mandated "maintenance of effort" level, calling upon the county to seek a waiver or face a penalty. A further reduction does not change that need. If the waiver is denied, as it was this year, our State delegation will be tasked with securing legislative relief from any penalty, as they did this year.

Arguments Against:

The school system argues as follows: while there is rhetorical appeal to the "equity" argument, all things are not perfectly equal. Some argue that no investment by the county is more important than the school system, and it should not be asked to give more. When the County cuts services in other parts of the budget, there is a realization that there will be a reduction in performance. We do not expect that of our school system. We expect our school system to continue to perform at its historic levels of high accomplishment, critical to our quality of life and the attractiveness of Montgomery County for businesses and our economic base.

Teachers will still have to prepare for their classes and unlike some county employees, teachers are not eligible for overtime; they are only paid for 10 months work; and many need to get second jobs to keep their families above water. And some say: what about the maintenance workers and building engineers and school bus drivers? They hardly can afford a cut in pay. Moreover, the Council does not control whether the cuts in the school budget will be used for furloughs so the school system may take other measures to achieve the required budget savings such as elimination of magnet programs, further increases in class size; transportation cuts, etc., that will affect students directly.

The current level of cuts, without furloughs -- $137 million -- will require a waiver of the state's Maintenance of Effort mandate. The school system has said it will work with the County in seeking to win that waiver, but only if the $137 level is not increased. If it is increased, and the school system may choose to oppose the waiver request, which will make it even more difficult to obtain the waiver and/or to get the penalty absolved by the legislature.

According to the school system and school unions, the County should not genuflect before the altar of the ratings agencies, the same people who brought us our financial meltdown. Instead, the county should gradually increase the reserves, but more slowly, thereby freeing up needed resources that could be used to eliminate furloughs completely. In addition, raising taxes on energy is a better option that taking more cuts from the school system. Who comes first, businesses upset about increases in energy taxes or our children they ask.


As you can see, there are compelling arguments on both sides of this issue. I have been meeting with and talking to representatives of our school system on a daily basis, including two meetings with the principals of the elementary schools in District 1 to listen to and understand their perspective. I also hear daily from citizens concerned about the deep cuts in social services and programs for our most vulnerable residents, parks, libraries, recreation, and environmental initiatives; and how hard it is to live here and do business here given our high taxes.

These are difficult times and we face difficult decisions. Know that I am doing my best to weigh all of the factors -- the competing equities among our workforce; the need to protect vital, safety-net programs and public safety; to do the least harm possible to our terrific school system; and limit the burden on taxpayers in difficult economic times. It is what you sent me here to do and I promise to do it in the most thoughtful way possible.

As always, I encourage you to share your perspectives and priorities with me.