THE COUNTY TAXPAYER
www.MCTL.org Montgomery County Taxpayers League September 2007
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INSIDE THIS ISSUE
New Government, but Old Spending and Development
Problems – Marvin Weinman
IG Annual Update
Who Pays the MCPS Legal Bills? – Robert Monsheimer
MCPS Services for Montgomery County Residents Only –
Robert Monsheimer
The County Grants Process – Phil Schneider
County Council Rejects Municipal Status for Rollingwood –
Cleo Tavani, MCTL Immediate Past President
A Charter Amendment for 2008 – Phil Schneider
Newsletter Editor – French Caldwell
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Letter from the President
As Funding Gap Grows, Time for Multi-Year Sustainable Budgeting
Marvin Weinman
President, Montgomery County Taxpayers League
The Taxpayers League' major goal is education of the
public on county fiscal matters. As the government
collects our taxes there are differences of opinion on how
your tax dollars should be spent.
The FY 2008 budget, which includes a six year fiscal plan,
is realistically a one year funding plan with a 9.1%
increase in Total Revenues. The average Total Revenue
annual increase for the four previous years was 8.43%. A
review of the revenue projections for the next four years
presented in the FY 2008 budget showed average Total Revenue increase of a mere 4.58%, about half of the 9.1%
FY 2008 figure. Even more interesting was the fact that the Total (projected) Revenue in the FY 2008 budget for the
common years in the FY 2007 budget, FY 2009 through FY 2012, was $714.5 million less for the FY 2008 budget
than it was for the projected values for the same years in the FY 2007 budget.
This is illogical as the compounded salary increases for the new three year contracts for 28,000 county employees
and the Other Post-Employment Benefits (OPEB) will create the need for a significant increase for revenue resources
in FY 2009 and beyond. The result is an identified funding gap of $267.8 million for the upcoming FY 2009 budget.
The five years, FY 2009 through FY 20013, shown in the FY 2008 budget has a identified gap of just under $1.9
billion.
Further compounding the next year' budget problems are anticipated reductions in intergovernmental state funding.
The Governor has indicated there will be cuts in funding to the counties. His current targeted cut for Montgomery
County is 24%. A possible reduction in Property Tax revenue can also be anticipated due to the national mortgage
and foreclosure crisis.
That's just the tip of the iceberg. Actuarial analysis has indicated the Actuarial Accrued Liability (AAL) for all current
employees as of July 1, 2006 is estimated to be $2.6 billion. The full yearly funding level has been identified as $240
million per year.
The Executive and the Council, with early identification of FY 2009 major funding problems, need to take early FY
2008 budget action to prioritize appropriations. The solution will require a combination of spending reduction,
additional user fees as a source of revenue, impact taxes and as last resort minor tax adjustments for county
residents.
As the fiscal challenges mount, the Montgomery County Taxpayers League will work with the Council in a positive
manner on behalf of the interests of the citizens of Montgomery County. The primary goal of the Taxpayers League is
education of the public. We are willing to meet with groups to make a presentation and answer any questions you
might have on Montgomery County fiscal matters.
New Government, but Old Spending and Development Problems
The 2006 elections resulted in the most significant changes in Montgomery County Government in recent years. A
new County Executive and four new Council member' were elected to serve with five incumbent Council members. As
one might anticipate there was an initial period of coming together by the Council and a new style of public outreach
by the County Executive.
There were some initial efforts by our newly elected officials to make early efforts on policy adjustments and passage
of legislation to address their perceived unaddressed issues of concern. This was accompanied by the efforts of the
reelected Council members to deal with ongoing issues with the help of analysts in the Office of Legislative Oversight
(OLO). The excellent work of the department on the number of reports the Council had requested provided data and
recommendations that if implemented could be lead to significant benefits to the citizens of the county with potential
cost savings as an added benefit.
The new county government faces several challenges that have grown from short-term, year-to-year budgeting
strategies. As a result there is a structural imbalance between current commitments and projected revenue arising
from failing to account for the following:
- the infrastructure spending impact of Development
- long-term commitments in county employee contracts, and,
- the full cost of retired county workers' pensions and medical benefits.
The County Executive' March release of the FY 2008 Recommended Budget and the Planning Board release of the
Annual Growth Policy (AGP) established the Council agenda priorities for the remainder of the FY 2007 council
session. An AGP document is produced by the County Planning Board every two years for review and approval by the
Council by November 15th. The stated intent of the document is " be an instrument that facilitates and coordinates the
use of the powers of government to limit or encourage growth and development in a manner that enhances the
general health, welfare and safety of the residents of the county" However, a task force established by the Council is
searching for an additional $100 million in new revenues to make up for infrastructure shortfalls. The Comprehensive
Annual Financial Report (CAFR) for the five fiscal years 2002 through 2006 show the planned Impact Tax Budget to
be collected from developers was an anticipated to be $138,467,256. The actual amount collected was $38,840,311,
only 27.8% of what was budgeted. Clearly the development community did not pay its fair share when you consider
the profit opportunities provided to them by the county. Furthermore, the infrastructure shortfall is almost exactly
equal to the shortfall in impact tax collection.
The budget process eventually resulted in a record breaking approved $4.16 billion dollar budget, a 7.2% overall
increase from the previous year. Total Local Taxes, revenue provided by the public, increased 8.6% from the
previous year. Unfortunately many approved appropriations in the FY 2008 budget will create significant future year
budget commitments. These concerns were reflected in council staff documentation and public concerns about the
sustainability of future budgets. The expectation of expanded FY 2009 budget revenue requirements are based on
the need to support the compounding cost of the negotiated three year labor agreements, the cost of the new federal
funding requirements for medical and retirement benefits for retirees and the anticipated historic supplemental
appropriations cost occurring as a results of construction contract overruns.
The new GASB federal accounting standard Annual Required Contribution (ARC) for current employee's retirement
benefits will increase payments to the retirement fund from $80 million to $240 million a year for the next five years for
a total of $1.2 billion. Labor contracts for the next three years will be compounding at yearly rates between 7.5% and
8.8%. Most of the over 33,000 county employees covered under the new three year contract will see their
compounded salary increases range from 8% to 9.3% annually, as opposed to the average cost-of-living increases
for most working people in our region which are 3.5% or less.
Where will the additional revenue come from? We are already at the maximum state allowable tax rates for our two
largest revenue sources, property and income taxes. Property taxes are capped at a maximum of 10% more than the
previous year' taxable assessment and income taxes remain at the allowable maximum, 3.2%. The FY 2008 revenue
for these two sources is projected to provide 65.5% of the FY 2008 budget. With the weak housing market and the
volatility of the stock market it is very difficult to forecast FY 2008 revenue. There are two ways to manage a difficult
budget situation, reduce spending or raise taxes. Under the current fiscal plan scenario a FY 2009 override of the
Charter Limit looks inevitable. The Council needs to acknowledge the current fiscal problems and take action now to
manage expenditures and examine new revenue sources that minimize the impact on the general public. It is not
responsible to just let things proceed to a point when it is too late to limit the impact of non-critical spending.
As with previous years, the FY 2008 budget is a one year budget and is unsustainable over the remaining five years
at the proposed revenue estimates. The salary and compensation costs along with other post employment benefits
will continue to compound while special interest will continue to press for funding for questionable wants. It appears
that for the FY 2009 budget, and future years, the Council and the County Executive will look to a Charter Limit
override and additional public taxes to fund projected spending commitments.
INSPECTOR GENERAL UPDATE OF ANNUAL ACTIVITIES
Over the past year, the Office of the Inspector General (OIG) conducted several audits and investigations that
resulted in significant savings or the recovery of taxpayer dollars. In addition, he successfully implemented an
independent Fraud Hotline which gives County employees and contractors the opportunity to confidentially report
allegations of wrongdoing.
The OIG audited overtime compensation policies and procedures in County Government. An interim audit report
issued in April 2007 included findings and recommendations for conditions that needed immediate corrective action
by the Fire and Rescue Service (FRS), the Department of Finance, or the Office of Management and Budget.
Management agreed with our conclusions overall and indicated corrective action would be taken. The audit identified
approximately $1.1 million in questionable overtime payments based on documentation available to us during the
audit. In May, as a result of the audit and other factors, the recommended FRS fiscal year 2008 overtime budget was
reduced $3 million by the Council.
The OIG Fraud Hotline was implemented in December 2006. It received 40 complaints through the Hotline in fiscal
year 2007, 14 of which have been successfully closed. The OIG is interested in receiving tips related to activities such
as: computer crimes, significant waste of funds, abuse of authority, whistle blower reprisal, contract or procurement
fraud, theft of County property, and workers' compensation fraud. If you would like to submit a Hotline complaint,
please call 1 (800) 971-6059 or fill out an online report at www.tnwinc.com/webreport.
In response to a Hotline report, the OIG recently conducted a review of gift card use for foster children program
activities managed by the Department of Health and Human Services (DHHS). The review found that significant
weaknesses existed in the internal controls for gift cards, such as weak inventory control and a lack of management
oversight. DHHS officials agreed with our conclusions and reported corrective action would be taken in response to
our findings and recommendations.
The OIG was involved in various fraud investigations during fiscal year 2007. For example, a County employee pleads
guilty to felony theft in connection with a pyramid scheme she operated on County property and with the assistance of
the County' e-mail system. Another case involved a man who pleads guilty of defrauding the County of $65,000 by
falsely posing as a recovery agent for unclaimed funds. This is your opportunity to make a positive difference in your
county government. If you believe you have identified cases of fraud, waste and abuse reporting it will result in an
independent review of your concern and a response related to your identified concern.
Who Pays the MCPS Legal Bills?
MCPS has made some controversial decisions in the last year and is being sued on numerous fronts. So who pays
the additional costs, why or course it comes out of taxpayer dollars.
Recent lawsuits that will be costly and time consuming include new sex education curriculum, closing of Special
Education centers, controversial and unwarranted exclusion of special education services, and a new suit against the
BOE in connection with MCPS refusal to tell a student' parents that he was addicted to dangerous narcotics.
When looking at the annual budget a very small portion appears for legal services, but be aware that the bills for the
recent actions were not included in the FY 08 budget. Where will MCPS find another 2 to 3 million? Your and my
pockets, whether directly or indirectly, are paying for BOE controversial positions.
MCPS not only has to pay for outside attorney when they lose but they also have to pay for the winning sides
attorneys. The recent flyer lawsuit cost $219,000 for MCPS attorneys and $250,000 for the wining side.
The BOE reports on Legal bills each month, I ask you to read this line item and to see what controversial positions are
costing you. Remember for each $137,000 spent here a dollar per student is lost for direct services.
MCPS Services for Montgomery County Residents Only
Earlier this decade, MCTL board member Rob Monsheimer served on the Blue Ribbon Panel of MCPS to find ways to
hold down costs. The committee approved a suggestion from the Unions that MCPS make sure that all incoming 9th
graders along with first time students provide proof they live in Montgomery County. The year after implementation of
the new rule growth of the student population immediately decreased and while articles state that it is declining birth
rates, expensive houses and decreased immigration, they never talk about the policy and now we know why. MCPS is
very careful not to ask if they are legal residents but just whether they reside in Montgomery County.
In an article in the "Examiner" it was revealed that MCPS is accepting a potential flawed form of residency supplied by
CASA of Maryland. To get these ID' you don't need to provide proof of residency, so a nonresident can now look like
a resident of Montgomery County.
CASA states that they have issued over 10,000 of these controversial ID' If this results in only 1000 students being
allowed services they are not entitled, it will cost taxpayers over 14 million dollars this year alone.
MCTL encourages taxpayers to write the Board of Education and ask them to no longer accept the CASA of Maryland
ID' as proof of residency in Montgomery County. Remember, the children will get education where they reside so you
are not impeding education, just moving the burden to the appropriate Jurisdiction.
The County Grants Process
The Taxpayers League did not take part in this year' Grants Advisory Group (GAG), a group of citizens, appointed by
the Council to help it with the process of awarding grants, (taxpayer money) to non-profits. The Council selected
MCTL board member Phil Schneider again this year, but he withdrew when it became apparent that the process was
designed to make the work of the GAG meaningless.
First, only a small part of the grant money was to be included in the requests that the Grants Advisory Group would
review. The largest grants and the most money, was reserved for the Arts and Recreation commission, whose make-
up is a mystery, to award as they saw fit. Next, the Executive Branch has its own pot of money and its own Grants
process and receives applications, and makes recommendations to the council independent of the Grants Advisory
Group. And lastly, there are the applications from non-profits that are GAG' responsibility, that go directly to the
Council and are reviewed by the GAG.
In the prior year, when we were represented, there were about 200 applications reviewed by the GAG, from about 120
non-profits. The GAG consisted of 8 people. All the applications were evaluated based on criteria the GAG
established, since the Council did not set any, and given grades from 1 (highest) to 5 (lowest) based on these criteria.
Those that helped the most people from amongst the poor, the lower income groups, the disabled, the elderly, the
homeless or other needy groups, and had the best record of success or the best chance at future success, got the
highest grades. The entire collection was then ranked according to the grades.
This obviously upset some of the non-profits, especially those that received low grades (perhaps because they were
going to use the money to pave their parking lot or to provide assembly/hiring halls to ease the burden of hiring day
laborers for wealthy contractors in the building trades.) So this year, the Council put one of their own political
appointees in charge, increased the size of the GAG from 8 to 33, and ruled that there was to be no grading, ranking,
tiering or scaling of the applications. Read and comment only. Basically, the Council was looking for cover for what
was to become an " scheme" which provides certain council members with funds to reward constituents or buy votes
for future elections. The selection and determination of size of grant would be left entirely to the Council. To get
funds, an applicant had better curry the favor of one of the council members, or better still, the County Executive, or
the Arts and Recreation Commission.
Whatever happened to helping those who need the help? Fortunately, there is a big overlap and most of the non-
profits end up using at least some of the money for things we would like to have done. But the whole process is not
very transparent and lots of taxpayer moneys end up paying for projects for which most citizens would not vote if they
knew about them, or that have overrun their budgeted amount and are being covered by grants funding, or are simply
being carried out by the people who deliver a chunk of votes to some council person. Do we need another music and
arts venue when we are still paying the costs of previous white elephants that need ongoing subsidies like American
Film Institute, the Imagination Stage, Strathmore Center, the Germantown art center, the soccerplex, the Olney
theater, and on and on. We should be very pleased to have such centers of culture, but funds should be solicited
from those that use them or those that wish to contribute to them rather than hidden in the Grants which are
supposed to help the most vulnerable in the county. Most of the projects included in the Grants applications are
worthwhile, but many should be financed by those that benefit from them, or that want them or that feel the need to
contribute to them on a voluntary basis, rather than by taxpayer money that is intended to help the needy in our
community.
As an alternative to this failed Grants process, for the upcoming budget year, the Council should clearly identify the
amount of funds available, the purposes for which these funds must be used, the matching funds, if any, required by
the nonprofits and prepare and circulate, in advance, a set of Requests For Proposals to which all non-profits that
qualify can respond. A citizens advisory group should then be given the task of reviewing, commenting, grading and
ranking the responses for the final decisions to be made by the council members. The whole process should be open
and transparent. All grants, including arts and recreation, humanitarian, Executive Branch, Council and any others
should be included. It is, after all, our money, not the Council' or the Executive' that is being distributed. Under these
conditions, the Taxpayers League will be pleased to participate once again.v
County Council Rejects Municipality Status for Rollingwood
On July 19, the Montgomery County Council unanimously rejected the proposal from citizens residing in the
Rollingwood community to become a municipality. The Rollingwood advocates were seeking greater self-governance
and more clout with County and State officials. They wanted access to the "legacy" funds available to municipalities
for a higher level of services than provided by the County.
First District Council member Roger Berliner, who represents the Rollingwood area, summed up the feelings of the
County Council : "I have reluctantly concluded that advancing the interests of Rollingwood…would be in conflict with
the needs of our larger community." As the basis for his decision he cited: " analysis and advice provided to the
County over a decade ago on this very issue was sound then and sound today. In 1997, the Office of Legislative
Oversight released Report 97-1, ' Study of Service Structures in the Central Business Districts and Other Urban
Areas.' This report recommended that the County limit approval of new municipal incorporations to those
circumstances where there is ' compelling need for local control over code enforcement, the exercise of annexation
powers, or other powers unique to a municipality'."
As the President of the Montgomery County Taxpayers League in 1997, I represented the MCTL in contributing to
that report and am listed in the acknowledgments. My input focused on the inequity caused by the moneys received
by the already existing 19 municipalities and three State-created special taxing districts (STDs). (I have lived in
the Special Taxing District of the Village of Friendship Heights since 1970 and served a term on its governing body.)
For over ten years, the League has tried to explain and change the arcane and unfair State legislation giving existing
municipalities an automatic 17% of what that jurisdiction' residents pay in the County piggyback income taxes whether
the community needs the money or not. This payment is not based on the needs of the community, not on the
services provided but on arcane State laws enacted when counties did not provide an array of services such as street
lighting and trash collection. The legislation was essentially to give these early municipalities the authority to tax
themselves to pay for these services. Now in 2007, some of the Montgomery county municipalities levy very low
property taxes, have bulging reserve funds and enjoy an array of services beyond the level provided by the County.
For Fiscal Year 2005, these municipalities and STDs siphoned off $24 million from the County piggyback income tax
for such goodies as free trash collection and expedited snow removal leaving the County with that much less to
finance essential services such as public education and public safety. One of the Montgomery County municipalities –
Section Five of the Village of Chevy Chase – has so much money that it levies no property tax and gives a " rebate" to
its residents. If Rollingwood were allowed to incorporate, the County would lose another million dollars.
In my testimony for the League at the Rollingwood hearing, I also expressed our concern about the loss of the
sovereign legislative powers of the County Council to enact countywide laws. The Council recently enacted so-called
comprehensive revisions to the County' Streets and Road Code. But the Code is not truly comprehensive because a
municipality can exempt itself from any County legislation unless it is a health measure. If there is any public program
which needs to be enacted on a comprehensive regional basis it is sound traffic patterns to deal with the congestion
of a large urban county.
For over 55 years, no new municipality has come into existence in Montgomery County which had not previously been
a State-created special taxing district. Allowing any new municipality to come into being, would be setting a precedent
for every urban district, condominium, impact tax area and neighborhood of more than 300 residents.
The FY08 work program for the MFP Committee includes the recommendation of Council President Marilyn Praisner
for an overview of revenues and other financial data for municipalities and special taxing districts in Montgomery
County. It is hoped that this new study, coupled with OLO Report 97-1, will provide the County with the needed data to
undertake State-level action to correct the long-standing and grossly inequitable method of funding these "legacy"
sub-County units of government. These decisions about municipality status and funding will affect Montgomery
County citizens and communities for many years to come.
A Charter Amendment for the 2008 Election Ballot
The Council passed a budget this year that conforms to the Charter Limit, restricting property tax revenue increases
to the cost of living, plus new construction allowances. The Council was able to accomplish this and still increase all
departmental and school budgets by 7 to 10 percent because of the increase in revenues from a very healthy
economy that produced higher income taxes, and higher property taxes from inflated assessments. Montgomery
County has the highest override permitted on the State income taxes (60 percent), and has the highest year-over-
year property tax assessment increase allowed (10 percent), of any county in the state of Maryland.
At the same time, the Council approved, and included in the budget, labor contracts with the county employees and
the school employees, that grant salary and wage increases for the next three years of 8 to 9 percent per year. There
are step increases of 3 to 4 percent, plus cost-of-living increases of 4 to 5 percent. (As a point of reference, the
Federal COLA' are about 3 percent). Since salaries and wages make up about 80 percent of the county operating
budget, there will certainly be pressure on the council to exceed the Charter Limit and increase property tax revenues
above the cost-of living index. At the present time, this violation of the Charter Limit can be accomplished by a vote of
7 of the 9 council members. While at one time this was thought to be a major impediment to increasing the taxes, with
the present council, getting 7 or 8 or 9 votes to raise taxes is no problem. If taxpayers take no action, there is little
doubt that the Charter Limit will be exceeded in the next two budgets.
This council has refused to listen to pleas from taxpayers for restraint and reasonableness in handling the wage
negotiations and so can be expected to continue to spend taxpayer money in future years without listening to the folks
that pay the bills. The only way to put a lid on taxes is to put an amendment to the Charter on the ballot in the 2008
election that would require that the Charter Limit on property taxes be limited to the cost-of living UNLESS A LARGER
INCREASE IS APPROVED BY A PUBLIC REFERENDUM AT A SPECIAL ELECTION CALLED FOR THAT PURPOSE.
The Taxpayers League is prepared to participate in such an effort and is looking for feedback from county taxpayers
as to the desirability of such actions, and the support such actions would engender. Let us know how you feel about
the real chance that property tax increases will exceed 15 or 20 percent per year for the next few years.
AN OPEN INVITATION TO ALL MONTGOMERY COUNTY TAXPAYERS
The Montgomery County Taxpayer League is the lead organization with the depth, focus, and activism on county
fiscal matters. It is not affiliated with any political party. The primary purpose is to monitor the budget process, protect
the accessibility of independent persons to the government, and identify problem areas in the spending programs of
the Montgomery County Government. We provide a voice for the silent majority of our citizens without creating a
personal agenda. We have made an impact but much more needs to be done. You can help increase the
effectiveness of the Taxpayer League by joining us or by making a contribution. This will enable the league to make
an even greater impact. The League has no paid staff, all contributions help defray the administration costs. These
include web-site costs, newsletter, issue ads in the media, pamphlets, etc.
Sincerely,
Marvin Weinman
President
(301) 946-3799 e-mail: MCTaxpayersLeague@MSN.com web: www: MCTL.org