Montgomery County Must Revise Current Budget Due to Unexpected Revenue Shortfall

The operating budget is short nearly $120 million


Published:

Montgomery County leaders will have to create a savings plan after revenues failed to meet forecasts, resulting in a budget hole estimated to be nearly $120 million.

County Executive Ike Leggett proposed in a memo sent to the County Council Thursday that cuts be made to balance the $5.4 billion budget due to the drop in revenue. He wrote that he has asked executive branch departments to cut 2 percent of their budgets. He encouraged legislative and judicial branch departments to also consider 2 percent cuts.

“I appreciate the difficulty of this circumstance, but given the revenue shortfalls we are experiencing, this action will be necessary to maintain the county’s fiscal health,” Leggett wrote.

Leggett said in an interview with Bethesda Beat on Monday that the problem was caused by less than expected revenue coupled with increased spending over the past two budget cycles.

“We have a situation where current or projected revenue may be down combined with aggressive expenditures in the last two budgets,” Leggett said. He added that there’s no significant revenue growth expected in the county, so “the most obvious adjustment is to reduce expenditures now.”

The proposed cuts to the county’s fiscal 2018 budget comes less than two years after the council unanimously voted to raise property taxes by 8.7 percent and raise recordation taxes. The council approved a $64 million increase in the fiscal 2018 budget over the 2017 budget, and an increase of $219 million in the 2017 budget over 2016.

The county’s fiscal year runs from July 1 to June 30.

Leggett’s memo notes that the November income tax distribution it received came in “significantly below expectations” and that this year’s income tax revenue is $64 million less than was forecast. The county’s finance department projects a total revenue shortfall of $95 million for fiscal year 2018 and it noted that the general fund closed fiscal 2017 $25 million below expectations. Taken together, the operating budget is short about $120 million compared to forecasts.

The County Council will have to approve a savings plan to address the shortfall.

Leggett said he expects to send a plan to the council that includes spending cuts and hiring freezes in about 10 days. He noted that the county has approved measures such as reducing its workforce and raising taxes in previous years to deal with declining revenues during and after the recession, which has left officials with few politically palatable options to address the revenue shortfall other than cuts.

 “We’ll work our way through this quickly and adopt a savings plan that will address the shortfall and keep moving forward,” Council Vice President Hans Riemer said Monday.

He said projections are sometimes off, but this large of a shortfall was unexpected.

“Projections are often made of peaks and valleys, but when you step and look at the big picture, at the economy here, we’re in strong shape,” Riemer said. “Even in an environment where we’re in strong shape, you can have revenue that doesn’t meet projections.”

Riemer said he doesn’t expect the county to lay off any staff as a result of the shortfall. But the county likely will not hire people into positions that remain unfilled.

“It’s not a setback for the county,” Riemer said. “We’re going to continue to support the programs we support. It’s a recognition that we live in constrained financial times and it’s been that way for a number of years.”

County Council President Roger Berliner said Monday “no one at the county government anticipated this development.” He noted the stock market is doing well and unemployment is low.

“It’s an unwelcome surprise for sure,” Berliner said. The council is expected to begin reviewing the savings plan in January after it returns from its winter recess.

Del. Bill Frick (D-Bethesda), who is running for county executive, said Monday that Leggett warned the council about adding too much money to the budget during the reconciliation process and he believes council members didn’t listen.

Frick said the reconciliation list has been about $20 million more per year than what Leggett previously proposed. In fiscal 2015, the council approved $21 million more in tax-supported revenue than Leggett proposed, $13 million in fiscal 2016 and $17.5 million in fiscal 2017, according to data provided by the county’s Office of Management and Budget.

The reconciliation list is used each year by the council to provide funding for policies or initiatives that council members support that they feel the county executive may have not adequately funded.

“I think it’s gotten out of control,” Frick said. “I think the public’s going to be pretty concerned about the cuts, especially if they wind up affecting things that are bigger priorities for the public than the priorities the council has been spending on.”

In a statement Monday, Frick described the budget news as a “ringing alarm that calls for new leadership.”

George Leventhal, one of three council members along with Berliner and Marc Elrich running for county executive in 2018, said Monday the council passes a savings plan every couple of years or so.

“We’re a well-resourced county and we’ll work our way through it,” Leventhal said. “I’m aware that a candidate for executive is exaggerating its significance. Once you’ve been in county government for a while you know that we take these things up every few years and they’re amicably worked out between the executive and the council.”

“Mr. Frick’s knee-jerk reaction underscores his lack of familiarity with county government,” Berliner said. “He’s wrong on every level.”

Berliner noted the county has consistently received AAA bond ratings from all three of the top rating agencies—including this year. He also pointed out that Leggett praised the most recently approved budget for balancing the county's needs and priorities.

“It’s irresponsible and wrong to suggest the county government hasn’t been fiscally responsible,” Berliner said.

Leggett said revenue losses are expected to continue long-term and the county should begin preparing for a lean fiscal 2019 budget proposal.

The county executive is expected to begin pitching his fiscal 2019 budget proposal at community meetings in January. The council will review it during the spring before likely approving the budget in May.

Correction: One of Roger Berliner's quotes was incorrect. "Mr. Frick's knee-jerk reaction underscores his familiarity with county government" should have been "Mr. Frick's knee-jerk reaction underscores his lack of familiarity with county government." We regret the error, it has been corrected.

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