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The Council Connection — the County’s overall fiscal picture

Council Connection Masthead

Council President’s Message

The Council has passed the budgets for the upcoming fiscal year (July 2018 to July 2019). In recent newsletters we have reviewed the MCPS and public safety budgets. This week, however, we step back to review the overall fiscal picture.

Revenue
This was a restrained budget year as the Council grappled with revenues that were lower than anticipated and only allowed for an increase in expenditures in a few highest priority areas.

Although the local economy continues to perform well with low unemployment, strong job growth, and rising incomes, tax revenues have remained below expectations. Tax revenues for this fiscal year are down $106.1 million from the budget we approved last summer. The revenue shortfall stems in large part from a significant decline in revenue from capital gains, but other revenues were softer than expected, too. Recognizing the need to get ahead of the problem, the Council approved over $125 million in reductions to the FY18 budget mid-year.

While revenues are below expectations, they did allow for a modest increase in FY19, which through the budget process was almost entirely devoted to MCPS.

The Council did not raise taxes in this year’s budget. In fact, the weighted average real property tax rate fell by 1.98 cents this year, and by a combined 4.50 cents over the past two years.

The property tax will generate approximately $1.8 billion in revenue, about a third of total revenue. The next largest revenue source is the income tax at an estimated at $1.6 billion. The income tax rate remains unchanged. Read more about the Council’s decisions on the property tax here (pdf). More information on the other revenue sources can be found here (pdf).

What does this all mean for the average household? Adjusted for inflation, the County share of taxes relative to personal income has remained virtually unchanged for the last five years.

Expenditures
The operating budget for the upcoming year totals $5.6 billion, a 2% increase from the previous year. There are real differences though by agency. MCPS expenditures will rise by about 3%, Montgomery College will rise about 1%, and Montgomery County government (provider of public safety, libraries, HHS and other services) will rise at 0.2%.

I always find that the rate of increase overall is the most useful number to focus on when trying to understand the overall budget picture. This year’s increase, 2% overall, is very modest. Consider that in 2004, 2005, and 2006, the County budget increased by over 10% annually each year.

You can find a rough breakdown of how expenditures are programmed in the chart below.

County Expenditures Pie Chart

The chart above demonstrates our priorities: MCPS funding is about half of all County spending with the next largest program being public safety. Debt service, though, is not far behind, which is why we are reducing our borrowing levels in our capital budget.

Reserves
This Council strengthened its commitment to fiscal discipline in this budget, by setting aside additional funds for our reserve. By adding enough new funding in this budget to have a fund equal to 9.4% of our revenues, the County stays on track to meet its 10% goal by 2020. After making adjustments to our retiree health fund (OPEB) for the FY18 revenue shortfall, we also fully funded our FY19 commitment to OPEB.

Sufficient monies in reserves are critical for us to weather downturns in our revenues, which we have experienced regularly over the years — including this past year.

Healthy reserve funding helps the County maintain our coveted AAA Bond Rating, the highest possible. The AAA Bond Rating means we get the lowest interest rates, allowing us to build more schools and facilities with our capital funds.

Don’t just take my word for it, here is what the ratings agencies say:

“The County’s budget management demonstrates a strong commitment to bolstering its reserve cushion in preparation for the next downturn,” said Fitch. “Given the County’s conservative management practices and emphasis on increasing reserves, operations are expected to remain strong.” Moody’s noted that “the county’s financial flexibility remains sound,” while S & P indicated that the County’s “financial practices are strong, well embedded, and likely sustainable.”

Big picture
The Council produced a budget that is restrained and responsible and meets critical goals for fiscal discipline. It does not raise taxes, and ensures the County will continue to provide the superb services that so many of our residents appreciate so much.

Next week we will turn to budgets for transportation and parks. Stay tuned.

Cordially,

Hans Riemer Signature

Hans Riemer
Council President

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Councilmembers Riemer, Elrich and Leventhal Introduce Anti-Poverty Bill

Montgomery County Councilmember Hans Riemer today introduced a bill to increase the county’s local Earned Income Tax Credit (EITC), which is called the Working Families Income Supplement.  Councilmembers Marc Elrich and George Leventhal are co-sponsoring the bill.
Originally created in 2000, the Working Families Income Supplement was set at 100% of the state’s EITC for ten years.  In 2010, the County Council changed the law to allow the supplement to be set at a lower amount due to a “fiscal crisis” and “severe reduction in revenue.”  Bill 8-13 would return the supplement to a 100% match in three years.  An amendment by Councilmember Leventhal would allow the council to waive the policy by supermajority vote, preserving flexibility during fiscal emergencies.
“Many families struggle to make ends meet in Montgomery County and for the lowest income families the challenge is even greater.  The county’s Working Families Income Supplement, in concert with State and Federal components, improves the ability of families to meet the cost of necessities,” said Councilmember Elrich.  “With improvements in the county’s fiscal outlook, we are able to begin to undo some of the damage the last few years have done to our safety net programs and the Working Families Supplement is one of the most effective and direct forms of assistance in our toolbox.”
Dating back to 1975, the federal EITC extends tax credits to working people with low incomes.  Eligible recipients can have incomes as high as $46,227 (or $51,567 for married people filing jointly) with three or more qualifying children.  The Center for Budget and Policy Priorities estimates that the EITC kept 6.25 million people above the poverty line in 2010.  An academic literature review by the National Bureau of Economic Research finds “overwhelming evidence [that] the EITC encourages work among single mothers” by increasing their after-tax incomes.  Another studyby the Brookings Institution finds that the EITC “has grown to be called the nation’s largest federal anti-poverty program” and “has had significantly beneficial effects for its recipients and their communities. These include encouragement of work, reduction of poverty, and boosting of local economic activity.”
“The Working Families Income Supplement is the most effective means we have of reducing the prevalence of poverty in Montgomery County, especially among children,” said Councilmember Leventhal. “There can be no question that the supplement succeeds in its primary objective to encourage people to work more hours and transition off of welfare, but it also provides a host of ancillary benefits such as a short term safety net, improving children’s school performance, and improving health outcomes for children and their parents alike.”
While twenty-two states and the District of Columbia provide EITCs, New York City and Montgomery County are the only local jurisdictions that provide them.  In 2011, the county had 33,840 recipients comprising nearly 10% of its households.  The average payment to recipients was $381.81.  A full restoration of the supplement would bring the average payment level to greater than $500 and could make a crucial difference in the lives of many county residents.
“I’m pleased to be working with Councilmembers Elrich and Leventhal on this bill,” said Councilmember Riemer.  “They have been champions of the county’s working class for many years.  Councilmember Leventhal has been recognized for his work on housing and health care, while Councilmember Elrich has been working for renters for decades.  Together, we can continue their efforts to make life easier for county residents who depend on our EITC.”
Source: Montgomery County Council’s Legislative Information Office. For a link to the full press release, please click here.