One year ago today, we wrote a post about the sudden halt in pay increases and the sudden rise of furloughs facing Maryland county employees in FY 2010. In the present fiscal year, those circumstances are arguably worse.
According to this month’s state Spending Affordability Briefing and our research from last year, the number of counties granting cost of living adjustments (COLAs) to non-school employees was 20 in FY 2009, 5 in FY 2010 and 1 this year, with another county decision still pending. The only COLA currently being granted is by Calvert County, which is offering a 0.5% raise. Non-school employees received step increases from 20 counties in FY 2009, 8 counties in FY 2010 and 4 counties in FY 2011.
The number of counties granting COLAs to school employees was 22 in FY 2009, 10 in FY 2010 and 3 this year, with two more county decisions pending. The three counties granting school employees COLAs are Cecil (1.8%), Allegany (1.0%) and Calvert (0.5%). School employees received step increases from 21 counties in FY 2009, 14 counties in FY 2010 and 9 counties in FY 2011.
State employees are getting no COLAs and their furloughs effectively cut their pay by 1.2-3.8%.
Wage increases are out and furloughs are in. In FY 2009, we know of just one county that furloughed its employees: Prince George’s. In FY 2010, 10 counties had furloughs and 12 had layoffs. In FY 2011, 9 counties had furloughs and 6 had layoffs, with another county considering layoffs. Anne Arundel leads the state in maximum furlough days (12) while Prince George’s leads in layoffs (183 workers in the school system with more to come in the rest of the government).
How will FY 2012 look? Consider the fact that the Governor, the Senate President and the Speaker of the House have said they will close the state’s $1.6 billion general fund deficit without tax increases. Next, consider that federal stimulus money is running out and that aid to local governments constitutes over 40% of state general fund spending. State aid accounts for over a quarter of the counties’ revenues. Five counties (Anne Arundel, Montgomery, Prince George’s, Talbot, and Wicomico) have limitations on their ability to raise property taxes written into their charters. And the state could send a hefty chunk of teacher pension obligations down to the counties. All of these factors hitting at the same time will force the vast majority of the counties to scrutinize their labor costs.
So it’s not over yet.
Thursday, November 18, 2010
County Employee Pain Goes On
Friday, November 12, 2010
Leggett: Deficit "Close to $200 Million"
Following is a memo from County Executive Ike Leggett to Council President Nancy Floreen on Montgomery County's growing budget deficit. In the memo, Leggett estimates that the voters' repeal of the ambulance fee, rising enrollment at MCPS and likely cutbacks in federal aid and spending will inflate the FY 2012 deficit from $145 million to close to $200 million. Revenue from the ambulance fee was included in this year's budget and its repeal will probably necessitate mid-year cuts. Leggett does not account for a possible state handoff of teacher pensions.
MEMORANDUM
November 10, 2010
TO: Nancy Floreen, President, County Council
FROM: Isiah Leggett, County Executive
SUBJECT: FY11 Savings Plan
Per our recent conversation and discussion I will be submitting to the Council in December an updated and more comprehensive savings plan. This savings plan will respond not only to the loss of Emergency Medical Services Transport Fee revenues (EMST fee), but also account for other material factors that are adding to the FY12 budget gap including potential reductions to County tax revenues and continued stagnation in the unemployment rate and the local and national economy. In late September, the County’s fiscal team provided a fiscal update to the Council that indicated that the projected gap for FY12 was at least $145 million.
Since that time, we have been notified by Montgomery County Public Schools (MCPS) that due to rising enrollment, the cost of complying with the State mandated Maintenance of Effort (MOE) requirement has increased by $13.5 million. Further, the results of the most recent national elections will very likely lead to a reduction in federal grants and other aid to the County and the State, reduced federal spending locally, as well as potential reductions in federal hiring and wages. All of these would adversely affect County income tax and other revenue streams.
I need to emphasize that the rejection of the EMST fee was not a one-time event, but had a multi-year continuing fiscal impact that must be addressed. This revenue loss has caused not only a significant fiscal imbalance of over $14 million in the current fiscal year, it will cause an imbalance in the planned FY12 operating budget of an additional $14 million, for a combined fiscal impact of over $28 million. Restoring balance in both the current year and in the out years of the approved fiscal plan requires immediate action to reduce spending. In addition, it should be noted that the EMST fee revenues were included in the materials presented to the rating agencies this spring where representations were made that the County would maintain a structurally balanced budget.
While uncertainties exist concerning the precise effect of these events on County revenues and the local economy, it is clear it will be a significant negative impact. When our revenue forecasts are completed over the next few weeks we will make appropriate adjustments to the previously submitted savings plan that will incorporate the most recent revenue and expenditure estimates. However, we must be cautious adjusting our overall revenue estimate based solely on one revenue distribution given that our project FY2012 budget gap is now estimated at close to $200 million.
The approach I am recommending with the FY11 savings plan is consistent with our previous efforts. Each year since FY08 I have transmitted a mid-year savings plan in the fall to address both known problems in the current year as well as fiscal challenges projected for the coming year. Our joint efforts in this regard have been successful and we have managed to craft savings plans that have identified millions in cost reductions that have contributed substantially to resolving our budgetary challenges.
As in the past, I am open to discussing and working with the Council on revisions to the plan previously submitted to the Council. However, the process for approving these reductions should begin as soon as possible so that the appropriate steps can be taken by our departments to notify those affected by the cuts and begin conserving resources in the current year. We have only seven and one-half months to address a full year problem. The longer we defer action, the more difficult it will become to realize these savings. Inaction will require only larger reductions in services in FY12.
I understand the Council’s desire to avoid these spending cuts and the resulting reductions in County services, so do I. However, economic conditions, downward revenue trends, and the rejection of the EMST fee permit no alternative course of action to maintaining a responsible and balanced budget. My recommended course of action reflects our commitments to the taxpayers as well as the rating agencies.
Wednesday, October 06, 2010
The Ambulance Fee Cut List
As both the Post and the Gazette have reported, County Executive Ike Leggett has proposed a list of budget cuts to offset possible repeal of the ambulance fee by the voters. The council seems unlikely to adopt any cuts prior to the fate of the ambulance fee referendum is known, but this is the first blueprint of what may happen if the fee is rejected.
The newspapers have quoted extensively from Leggett's transmission memo, but these sentences are worth repeating. "I have asked those whose actions have made these service cuts necessary; what expenditure reductions or revenue increases would they suggest to offset the loss of $14.1 million in continuing and growing revenues each year to the County budget?" Leggett wrote. "I previously posed this question to some Councilmembers back in August, but I am still waiting for a response."
Following is a list of all cuts recommended by the Executive in the event that the fee is repealed.
Monday, September 27, 2010
Welcome to the New Normal
Over the last two years, a number of adjectives have been used to describe the county’s ongoing budget crisis. “Unprecedented.” “Abysmal.” “Devastating.” “Unthinkable.” Well, maybe those adjectives were suitable as the county’s Great Recession got underway, but now they’re obsolete. Budget disaster here is the New Normal.
In the spring of 2008, the big budget battle was whether county employees would be asked to give up two points from their cost of living adjustments. (They would get to keep the remaining two to three points.) In the end, the County Council broke the charter limit and the employees kept their raises. But by the end of 2008, things had gotten so bad that the school employees voluntarily gave up their raises and the other unions followed. In late 2009, most of the employees’ collective bargaining agreements came up for renegotiation. Raises were off the table. By the spring of 2010, the terms of debate had shifted to whether all employees would be subject to furloughs of equivalent impact. Now layoffs are openly discussed.
That’s quite a long ways to come in just two years, folks!
This is the New Normal. And part of why it is the New Normal is that the county’s way of dealing with its problems often involves temporary measures. The FY 2011 budget includes both furloughs as well as a sunset energy tax. If both of those measures prove insufficient, they will likely be renewed and other temporary fixes will be installed. But that approach almost guarantees that planned expenditures will exceed estimated revenues in each year. And then the council will have to weigh the needs of warring constituencies, the unions, the predictably negative editorials of certain newspapers and, of course, the bond rating houses. It’s a recipe for gray hair, excess eating and lots and lots of Prozac.
Consider some of the points made by a recent budget memo sent to the council from its Staff Director and from the Executive Branch’s budget officials.
1. On a year-to-year basis, Montgomery County’s jobs base is still down. Its unemployment rate is bouncing around between 5% and 6% with no clear trend down. Both of these factors will affect income tax collections.
2. In 2009, the inflation rate was just 0.23%. That’s important because the charter limit on property taxes is tied to inflation. When inflation is low, the county has little ability to raise the amount it collects in property taxes, its greatest single source of revenue. The 2008 Ficker Amendment mandates that all nine Council Members must vote in favor of overriding the charter limit and raising property tax revenues above the rate of inflation. We expect that the next council will not be able to muster nine votes for such an increases. The low charter limit puts even more pressure on spending.
3. Existing home sales, home prices and new construction are all below the levels of 2000-2005. This will hold back property assessments, recordation taxes and transfer taxes – all major sources of county revenue. Again, that puts more pressure on spending.
4. The county’s Office of Management and Budget (OMB) is recommending that all departments will have to cut their budgets for next year by 10-15%. That comes on top of this year’s cuts, in which several agencies took double-digit reductions.
Additionally, three long-term factors loom large over the budget.
First, the General Assembly is poised to shift a portion of teacher pension liabilities to the county. The plan that passed the Senate in the last session would have cost Montgomery County $69 million or more annually by FY 2014. No one can say how we will pay that money.
Second, the county still has to deal with the state’s Maintenance of Effort law mandating that it at least maintain per-pupil local spending on education each year. The county received a waiver from that requirement last spring (and got a fine overturned by the General Assembly), but all bets are off for 2011. In bad budget times, this law’s effect is to concentrate cuts away from schools and towards other county functions, like public safety. There is clearly a limit to the county’s ability to do that.
Third, the best thing the County Council did on the budget this year was to pass a package of fiscal process reforms recommended by the County Executive. The goal of these reforms is to put the budget on a path towards sustainability as well as to protect the county’s AAA bond rating. One of their key components is to steadily build up the county’s reserve level from 6% of revenues to 10% over the next ten years, both to protect the bond rating as well as to prevent mid-year emergency cuts in bad times. If the council is to make progress on that goal, it will have to put aside more money for reserves just as it is cutting spending. That will be extraordinarily difficult, but necessary. Because if the county does not stick to a long-term plan for restoring some sense of order to its budget, the New Normal will be “normal” for a long, LONG time.
Tuesday, June 01, 2010
Leggett Proposes Fiscal Reform
County Executive Ike Leggett has sent the County Council a plan for long-term reform of the county’s fiscal practices. Leggett’s proposals will be hard to follow, but he deserves credit for putting them on the table.
Leggett’s plan consists of three main elements.
1. Increase the Reserve Target
Right now, the county government aims to set aside 6% of its revenues into a reserve fund. Leggett would increase that target to 10% over the next ten years to counter volatility in revenues and spending. Leggett claims that other large jurisdictions with AAA bonds are moving to that target but does not name which ones are doing so.
2. Move to Structural Balance
Currently, the county matches all revenues and all spending in balancing its budget. The problem is that some of these items are one-time in nature (like revenue spikes and furloughs). Leggett would mandate balancing budgeted expenditures against recurring, or, permanent and ongoing, revenues. This is a subtle conceptual shift but it is aimed at preventing temporary solutions to permanent problems. The FY 2011 budget is a good example of this because of its reliance on furloughs and a “temporary” energy tax hike of two years. (Does anyone believe that tax is temporary?)
3. Use One-Time Revenues Responsibly
If the county is lucky enough to get a one-time revenue windfall, Leggett would establish strict policies regarding its use. The highest priority for any windfall would be to buttress the reserve. If the reserve is fully funded, then the money would be used to fund capital projects (as an alternative to bonds) or to pay down pension or retiree health liabilities.
This is tough medicine. The council does not like to tie its own hands on how it spends money. These policies together would direct money to reserves, capital funding and necessary benefit payments and force the county to consider structural issues in its budgeting. They would collectively discourage seat-of-the-pants budget maneuvers in the last week of deliberations – a time-honored tradition in MoCo. More ominously, they would put pressure on workforce reductions before county employee pay increases could resume.
One notable item omitted by the Executive is any halt to his newly proposed practice of using public bonds to finance private capital projects – a practice strongly defended by his spokesman. It is an awesomely irresponsible act to put private subsidies on a credit card at a time when the bond rating agencies are ready to pounce. Council Members George Leventhal and Mike Knapp have introduced a bill to outlaw this. Their bill should be included in any package of fiscal reform.
Reasonable people can also disagree on whether 10% is an appropriate reserve target. “Why does it have to be so high if we can’t spend the money?” asks one source. The issue calls for an examination of what other highly-rated jurisdictions are actually doing.
But overall, the Executive’s proposal is well taken. What he is really doing is taking on a culture of spending that became especially acute in his predecessor’s last term. Leggett also shares some responsibility by presiding over spending increases during his first three years in office. At least he is now changing course.
When the county’s revenues recover – as they inevitably will – there will be a temptation by some to declare, “Happy Days are here again!” Goodies will be handed out left and right, the county’s long-term issues (like retiree health care) will be neglected and when the next bust comes, the county will face another billion-dollar disaster. That cycle has to end.
Dieting is tough. But bloating to the bursting point – which is what just happened – is even tougher.
