Forehand vs. Kagan on Nuclear Energy

From the District 17 Senate forum on July 19.

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Consequences of the Budget, Part One

The FY 2011 budget passed by the Montgomery County Council is an historic event. Many things that would have seemed unthinkable just a few years ago happened at the same time: double digit funding reductions in many departments, no pay increases for employees, furloughs, repeal of a negotiated pension benefit, serious questions about the county’s AAA bond rating and an absolute drop in county spending. This was a moment when the unreal became all too real.

Let’s understand that few of the above decisions were made willingly. The nearly billion dollar deficit was created by a horrendous recession and a resulting massive drop in income tax collections. Suddenly, the county’s tax base was nowhere large enough to support the $4+ billion government it had built up in good times over prior years. Some, like County Executive Ike Leggett, Council Members Marilyn Praisner and Phil Andrews and a few merit staffers had warned that the big spending increases approved during Doug Duncan’s last term would be unaffordable over the long run. But no one believed the crash would hit with such acute and devastating force.

The County Executive proposed a Fiscal Year 2011 budget that reduced county spending by 3.5%. The budget passed by the council contained an overall reduction equaling that amount, but there were differences with the Executive’s proposal. For the record, here is a comparison between the Executive’s last budget of April 22 and the final budget passed by the council.


The events of the last few months will have wide-ranging implications in a variety of ways. First, the specific tax hike chosen by the county to help close the deficit will have dire competitive consequences. Second, the County Council’s relationship with the school system and the unions has fundamentally changed over the medium term. Third, the extremely serious challenges for the county’s long-run financial viability are becoming impossible to put off. And finally, all of the above will have political impact. Over the course of this week, we will examine each of these items in turn.

Taxes

The most consequential decision in the budget process was one that was made by both the County Executive and the County Council very early on: not to break the charter limit on property taxes. The county’s charter requires a supermajority vote by the council to raise property taxes above the rate of inflation. The council voted to break that limit four times in seven years (FY 2003-2005 and FY 2009) in fiscal times that were not nearly as bad as now. The voters replied by passing the Ficker Amendment, which raised the supermajority required to break the limit from seven council votes to all nine. County elected officials perceived pushback from the electorate and vowed not to break the limit again – especially not in an election year.

This decision had a powerful impact on the budget. Property taxes account for 51% of all local tax revenues. The county already charges the maximum amount allowed by state law – 3.2% - on its income tax and that accounts for another 39% of local taxes. So now 90% of the county’s revenues were off the table for increases. The energy tax, which accounts for just 5% of local taxes, was the biggest remaining revenue item and so the executive branch targeted it for a hike.

But the problem with the energy tax is that it disproportionately impacts business customers, who pay 73% of the total levy. The Executive originally proposed increasing the tax by 39.6%. But warnings by bond rating agencies prompted him to revise the increase to 63.7% and a revenue writedown caused him to propose doubling it.

A council memo illustrated the devastating competitive consequences of that idea. Here is a comparison of the rates commercial customers would pay between different jurisdictions if MoCo’s energy tax had been doubled.


In the end, the council increased the tax by 85% but split the increase 50-50 between residents and businesses. Business customers faced a 58% tax hike. One council source explained it this way:

I think the decision to reduce the energy tax for the business community was a significant move for a council that is often thought of as anti-business. We reduced it by 42% from what Ike originally proposed through a combination of reallocation to residential customers (i.e., voters) and reduction of the overall tax by 15%. Ike’s proposal was almost obscene in terms of its impact on small business.

That may be true, but because the county made a political decision to avoid the property tax, it instead chose to rely on a job-killing measure that targets employers to help close its budget gap. (Fairfax chose to raise its property tax rate to deal with its own budget crisis.) Even with the reduction in the energy tax hike passed by the council, MoCo charges a FAR higher rate than its competitors. And MoCo raised this tax right after losing Northrop Grumman. Here is a transcript of a conversation between two business owners that will almost certainly take place at the next board of trade networking luncheon.

Business Owner A: “I’ve maxed out on my office space and am looking to move. What do you think about Montgomery County?”

Business Owner B: “They have a big, liberal government that spends a lot of money. And when they get into trouble, they sock it to business.”

Business Owner A: “Guess I’m not moving there!”

This sort of talk will go on for a long, long time and will be a BIG problem in attracting jobs. No new economic development authority will compensate for it.

We’ll look at the schools tomorrow.

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Three Hospitals Call for Lower Energy Tax Hike

Holy Cross Hospital, Montgomery General Hospital and Suburban Hospital have sent a joint letter to the County Executive and the County Council asking for a reduced energy tax increase (which the Executive has proposed doubling) that would be levied on a temporary basis. Following is the letter.

May 5, 2010

The Honorable Isiah Leggett
Montgomery County Executive
Executive Office Building
101 Monroe Street
Second Floor
Rockville, MD 20850

The Honorable Nancy Floreen
President
Montgomery County Council
100 Maryland Avenue
Rockville, MD 20850

Dear County Executive Leggett and Council President Floreen:

On behalf of Holy Cross, Montgomery General and Suburban Hospitals, we are writing to share our serious concerns regarding the proposed 100 percent increase in the county energy tax.

At the outset, we want to emphasize that we understand and appreciate the difficult budgetary decisions you and the members of the County Council face. There are no easy decisions associated with having to close a billion dollar budget gap – particularly as the demand for services due to the economy increases. We also recognize all stakeholders need to be part of the solution.

For our hospitals, the proposed increase collectively equates to $1,200,428, broken down as follows:

Holy Cross – $560,000
Montgomery General – $298,734
Suburban – $341,694

A tax of this magnitude, on top of significant hospital Medicaid cuts and an increasing demand for services as a result of the economy, will have a material negative impact on our continued ability to provide services the residents of Montgomery County need and deserve.

Following the budget cuts contained in the state’s FY 2010 budget, hospitals were forced to absorb an additional $27.5 million in cuts taken by the Board of Public Works and $106 million in averted uncompensated care funding. This difficult situation was further exacerbated by the heavy impact of the February snowstorms. And, the FY 2011 state budget recently adopted by the General Assembly contains a further $123 million in Medicaid reductions to hospitals.

Unlike other businesses, hospitals in Maryland cannot simply pass additional costs onto our customers. As you know, the rates Maryland hospitals can legally charge are established by the Health Services Cost Review Commission. And, unlike hospitals in other states, we cannot cost-shift government underpayments and taxes to private commercial insurers. These additional costs come off the already slim and decreasing margins of our hospitals.

Unlike other energy consumers, hospitals are limited in their energy conservation options. Hospitals are 24/7 operations, very dependent on technology, and required to comply with a multitude of government regulatory requirements. Turning off lights, lowering the heat, etc. are often not viable options for us.

As not-for-profit entities, the margins hospitals generate are reinvested back into our facilities, our employees, and our communities – the exact types of reinvestments that serve to strengthen Montgomery County’s economy. In addition to the community health and wellness programs each of our hospitals provides independently to Montgomery County residents, we have partnered with the County on many occasions to further address the unmet health care needs of our communities. Examples of our support include: expanding clinics to serve the Montgomery Cares population, and funding for the recent community health needs assessment by the Urban Institute.

The energy tax proposal represents a real and significant additional cost to the hospitals in Montgomery County. As the debate moves forward, we ask that you take these factors into account and we request consideration of a lower increase in the proposed energy tax for the not-for-profit hospitals in Montgomery County. In addition, we believe it is critically important that the increase in the energy tax be sunset. Any increase in the energy tax should be a short term bridge to enable the county to continue to provide essential services during these extraordinary economic times.

Thank you for your consideration of our perspectives. We would welcome the opportunity to further discuss with you the issues and implications for our hospitals.

Sincerely,

Kevin J. Sexton
President
Holy Cross Hospital

Peter W. Monge
President
Montgomery General Hospital

Brian A. Gragnolati
President
Suburban Hospital

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Business Groups Band Together to Fight Energy Tax

Thirteen business organizations have sent a joint letter to the County Council protesting the County Executive's proposal to double the energy tax. They have attached some truly eye-popping numbers on what the tax would cost MoCo businesses.

Following is the letter and the data supplement.

April 29, 2010

Councilmember Nancy Floreen, President
Montgomery County Council
100 Maryland Avenue
Rockville, MD 20850

Re: Expedited Bill 15-10 Taxation-Fuel-Energy Tax – Rate and Resolution to Change Fuel/Energy Tax Rates

Dear Council President Floreen and Councilmembers:

As organizations representing more than 5,000 businesses throughout Montgomery County, together we are writing to you to express our deep concerns regarding County Executive Leggett’s proposed energy tax increase.

As you face what are some very difficult budget decisions this year, we would like to make you aware of what some of the negative impacts will be on job retention and creation if you choose to enact the 100 percent increase in the energy tax proposed by the County Executive. We believe that this approach, while filling a short term budget gap, ignores what are some serious long term implications of the action.

Many of our business members have worked very hard over the past few years to reduce their energy consumption levels in order to reduce energy costs and preserve jobs. The 100 percent increase not only wipes away these cost savings that have been achieved but places yet an additional burden on businesses, small and large, that they simply cannot afford. Our commercial property owners tell us that their delinquency rates from small local and regional retailers are higher than ever, and every day landlords in Montgomery County are working on rent relief agreements in order to keep these businesses in their current locations. Many of these businesses, because of various constraints, simply cannot pass this cost on to their customers.

In addition to the impact on current small business owners, the increase runs totally contrary to Montgomery County’s economic development strategy. Montgomery County’s focus on high technology and biotechnology will be undermined by tax increases to some of these companies of over $500,000 annually. These companies have indicated to us that the size and scope of this increase means that engineers, nurses, and many other skilled workers will not be hired because of the increased costs of doing business here in the County.

While many have applauded the idea that this tax hits our federal government facilities, it seems an inopportune time to place a burden on these federal facilities while we are in a difficult competition to keep the Department of Health and Human Services in Montgomery County. In the next 3 years, 60 out of 90 federal agency leases in Montgomery County will be up for renewal. We need to be in a strong position to compete with the District of Columbia, Prince George’s County, and Northern Virginia to retain these tenants.

We believe that this is the right time for County government to reexamine its priorities, focus on essential government services and take a serious look at government consolidation in order to eliminate duplication of services and achieve savings.

The only way to have a sustainable future for Montgomery County is to be competitive with our regional neighbors and grow our tax base through the attraction and retention of jobs. This tax increase significantly undermines the County’s ability to achieve this objective.

Thank you for your consideration.

Sincerely,

Ms. Janice M. Freeman, President
African American Business Council

Margaret O. Jeffers, Esq., Executive Vice President
Apartment and Office Building Association of Metropolitan Washington

Marilyn Balcombe, Ph.D., President/CEO
Gaithersburg-Germantown Chamber of Commerce

Ginanne M. Italiano, President & CEO
The Greater Bethesda-Chevy Chase Chamber of Commerce

Jane Redicker, President & CEO
Greater Silver Spring Chamber of Commerce

James Dinegar, President & CEO
The Greater Washington Board of Trade

Edward “Guy” Curley III, President
Maryland-National Capital Building Industry Association

Richard Ehrenreich, Executive Director
Mid-Atlantic Association of Cleaners

Steve Elmendorf, Esq., Legislative Committee Chair
MD/DC NAIOP

Georgette Godwin, President & CEO
Montgomery County Chamber of Commerce

Virginia Mauk, Executive Director
Olney Chamber of Commerce

Andrea Jolly, Executive Director
Rockville Chamber of Commerce

Renee Winsky, Chief Executive Officer
Technology Council of Maryland

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Is the Energy Tax a Job Killer?

On March 15, the County Executive proposed increasing the energy tax by 39.6%. On March 25, he proposed increasing it by 63.7% because of threatened downgrades to the county’s bonds by credit rating agencies. On April 22, he proposed doubling it to compensate for a $168 million revenue writedown. The tax is politically convenient since the vast majority of it falls on business consumers. But is this any way to encourage the creation of badly needed jobs?

The energy tax is structured to fall disproportionately on businesses. Currently, residential customers pay $0.005224 per kilowatt of electricity and $0.044986 per therm of heating fuel per year. Business customers pay $0.013843 per kilowatt of electricity and $0.119214 per therm of heating fuel per year. So businesses pay 2.65 times the rates of residential customers and account for 72.8% of all revenues the tax takes in.

The Executive’s March 25 proposal would have hiked rates 63.7%, pushing up the average residential bill by $62 per year and the average non-residential bill by $1,539. The total revenue raised by the tax would have increased from $132 million in FY 2010 to $217 million in FY 2011. (The tax raised just $26.1 million in FY 2003, so it would be increasing by more than eight times in eight years.)

In a hearing about that tax hike last Tuesday, Pepco representative Charles Washington presented data on what that would mean. Washington testified:

As demonstrated below using actual randomly selected commercial accounts, this increase will have a real impact on County businesses. One restaurant in Silver Spring will see an increase of over $3,000 a year. A hotel in Bethesda will see a tax increase of approximately $41,000 a year. The County’s successful Biotech companies will see increases of hundreds of thousands of dollars of year, with at least one projected to see an increase of over half a million dollars.

Washington also said this:

The County’s Fuel/Energy increases since 2003 have always disproportionally impacted commercial customers. However, this proposed increase crosses a notable threshold. Pepco, a distribution company, collects approximately $88.6 million in distribution revenues from commercial customers in Montgomery County. As illustrated below, if the County Executive's proposal is approved, the County would collect over $130 million from those same customers. In essence, the County will be collecting more from the energy tax than Pepco collects as a power delivery company to maintain and operate our electric system.

That’s right, business customers will be paying more to the government for their electricity than to Pepco!

At the same hearing, a representative from Suburban Hospital testified that her facility would pay more than $200,000 in extra taxes from the proposal. The Washington Adventist system and Holy Cross Hospital, each of which are bigger than Suburban, would presumably pay hundreds of thousands each. The plight of the hospitals is quite dire since the rates they charge to patients are set by the state and they cannot simply pass on the increases. The hospitals are likely to take the extra costs out of charitable care services provided to the poor. These same poor people will be suffering from huge county budget cuts.

Since the hearing, the County Executive has revised his proposal to double the energy tax. So all of the above data on tax increases must be increased by half to be current. That means the biotech company cited by Pepco would be paying over $750,000 in extra taxes every year.

The proposed tax hikes are occurring in the context of significant economic decline in the county. Employment has fallen from a peak of 472,567 in December 2006 to 443,022 in September 2009 (the most recent month available from the Bureau of Labor Statistics), a drop of 6.3%. The county’s unemployment rate was 5.9% in February 2010, up from 2.5% in April 2008. Income tax revenue is down by 13% in FY 2010 and net taxable income has declined by massive amounts at the bottom and top ends of the income distribution.


Furthermore, the tax hike threatens to exacerbate the county’s increasing competitiveness gap with Fairfax. If the county doubles its energy tax, its consumers will be paying over $260 million per year in FY 2011. Fairfax, which is a slightly larger county, plans to collect $50 million in energy taxes in FY 2011. So Montgomery’s businesses could be paying five times more in energy taxes than their competitors in Fairfax.

Given the county’s nearly billion dollar deficit and the colossal cuts planned for public services, it makes sense that the county would consider some tax component in its deficit reduction package. In any other year, the council would probably break the property tax charter limit, thereby enacting a small tax increase spread across a large number of payers. But this is an election year and the county leaders do not want a powerful symbolic issue like a charter limit break to be a major story close to election time. So the resulting energy tax hike is both large and narrowly targeted: at the people who create jobs.

In his last State of the County address, the County Executive said, “There may be nothing more important to the well-being of our community than protecting, creating, and attracting jobs…” His planned $4 million subsidy for Costco is allegedly intended to further job creation. He is supporting an initiative by Council President Nancy Floreen to create a Montgomery Business Development Corporation, again to encourage job creation. But none of this means anything if the county’s marquee employers face hundreds of thousands of dollars in fresh tax increases while small businesses suffer yet another threat to their eroding bottom lines.

It is always important to evaluate a politician’s words against a politician’s deeds. Remember this the next time an elected official claims to favor this tax hike while also discussing the need for more jobs.

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Energy Efficiency Loans Help Save Both the Economy and the Environment

By Lisa Piccinini.

In just a few weeks Maryland legislators will hold hearings for House Bill 1014 and Senate Bill 720 – the Clean Energy Loan Programs. Introduced by Delegate Sue Hecht and Senator Thomas Middleton, the bills hold tremendous potential for Maryland’s business owners, residents, and for our environment. If passed, the bill will go into effect June 1 of this year.



The bill calls for a program providing loans to residential property owners for the financing of energy efficiency and renewable energy projects. Basically, its aim is to help residents save money by providing means to obtain a loan for the upfront costs of increasing home energy efficiency. The bill also applies to commercial property owners.

The cost-effective upgrades or retrofits that these loans would provide for include things such as insulation, water heating, and appliance efficiency. Potential upgrades would be identified by an energy audit performed for every property prior to loan approval. The audit identifies energy-efficient and cost-effective projects for the property that would generate yearly energy cost savings. Through this program the loans will be repaid by the property owner via a surcharge on the owner’s property tax bill, over a period not to exceed 15 years. The loans could be provided by banks, non-profits, or through the Maryland Clean Energy Center. This innovative way to finance loans encourages home owners to consider becoming more energy efficient.

The bill is a perfect opportunity for the state to encourage jobs, economic spending, and show national leadership. Because each potential loan begins with an energy audit, the bill encourages energy auditing companies operating within the state. Once a loan has been approved and retrofitting begins, the installation requires manpower; again, a source for jobs. The state would show strong support of auditing and retrofitting companies, as well as of renewable energy businesses, by allowing loans for residents to obtain their services.

Jobs, of course, spur spending in the economy. But so do increased savings. A resident who saves money on heating and cooling in their home, for example, can spend that money elsewhere in the economy. In fact, the average U.S. resident spends $1900 per year on utility bills, with 43% of that money going to heating and cooling systems. Just having ducts thoroughly sealed can save a home as much as 20% in heating and cooling costs. Leaking ducts are just one example of what an energy audit would locate as a source for an increase in energy-efficiency. Residents can easily calculate estimated energy savings through the American Council for an Energy-Efficient Economy savings calculator.

It is important to note this bill is a call for leadership on the state’s behalf. Maryland has already proved a commitment to the environment through passing the Greenhouse Gas Reductions Act, but that is only a step in the right direction. Passing this bill would continue Maryland’s positive trend of leadership and avoid falling to the wayside as other states move forward. Gunnison, Eagle, and Pitkin Counties – all in western Colorado - have shown such leadership, introducing clean energy and energy efficiency investments through loans covering the upfront costs of the investments. In Boulder County almost 400 energy projects began the first summer the program was implemented, allowing small businesses to add critical new jobs. Maryland’s loan program could show similar results.

Finally, this is a chance to foster environmental stewardship of this great state. Although our focus is often on the bay, we need to care for all elements of Maryland; this means decreasing the emissions we release to the air. One substantial way of doing so is by becoming energy efficient in our homes and exploring renewable energy options. Proper home maintenance and upgrades can reduce environmental emissions by up to 50%. These loans would allow Maryland residents to do just this.

So check out your energy bill. This program could be your next step to you saving – both money and the environment. Call your state representatives and express your support for this bill.

Lisa Piccinini
UMD for Clean Energy Media Director
University of Maryland

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Environmental Checkup

While the current administration continues to fight serious efforts to combat terrorism or global warming by reducing our energy consumption, we can still take still can take small steps at home to cut energy use. Wasting energy is an expensive habit, so one of the nice benefits of cutting down is you save money over the long term. Here are a few things I did this summer:

(1) Replace Ordinary Light Bulbs with the New Fluorescents
The new light bulbs may look strange but they use just a fraction of the energy of ordinary light bulbs. We tried out just a few of the new bulbs at first but have now replaced most of the bulbs in the house. I've heard all of the complains about the new sorts of bulbs. We found that it just takes some experimentation to figure out the ones you like.

I recommend going with the "soft white" bulbs as these produce light just like regular bulbs. The "natural" or "daylight" bulbs produce daylight type light which some like but may clash with the light produced by other bulbs in your home. "Cool" light appears most like traditional fluourescent bulbs and we didn't care for it.

Some of the fluorescent bulbs don't produce quite as much light as their regular equivalents so you may want a slightly stronger bulb on occasion. If you replace a 60-watt bulb with a fluorescent which is supposed to be equivalent to a 75-watt bulb, however, you'll still use far less energy (and the wattage on the fluorescent is much lower so don't worry about the wattage being too high for the socket). Nevertheless, we found that using the fluorescent bulbs rated to be equivalent to regular bulbs worked find in virtually every case.

Yep, they are more expensive than regular bulbs though we found good prices at Home Depot on packets of them. Moreover, you'll save money over the long term and you won't have to change the bulbs nearly as often because they really last.

(2) Replace Old Windows
This one took a bit of hard swallowing because replacing windows is expensive. Our home is relatively old and the panes upstairs were original to the house complete with lead weights as frames and just one pane separating the inside and outside of the house. Unfortunately, single-pane windows don't insulate very well.

We replaced our upstairs windows with modern double-paned windows. The newfangled windows have a vacuum separating the two panes, which provides much better insulation and thus saves money on heat and air conditioning. They also keep out a bit more noise than the old windows. It will take time to recoup the money on this one, but it should pay for itself over time as well.

(3) Check Your Doors for Drafts
The doors on our house were old. Besides letting in quite a bit of air (and the occasional bug) at the bottom, they weren't quite square on their frames anymore. Making sure that the doors are properly sealed on all sides is a pretty simple and relatively inexpensive way to prevent drafts which are the equivalent to have large holes in the side of your home and can really jack up your heating and cooling expenses. We're also hoping for fewer visits from members of the insect community.

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