Montgomery officials might keep controversial energy tax increase

December 12, 2011

Montgomery finances are rosier — sort of.

As they gear up for budget discussions, officials are expected to announce Tuesday that the county is facing a shortfall of at least $135 million next year — a far smaller hole than in past years.

But the budget gap is prompting some county officials to consider keeping an unpopular tax increase on fuel and energy use that they promised to sunset next June.

When the Montgomery County Council meets Tuesday for the last time this year, county officials are expected to ask department heads to trim their budgets by at least 1 percent.

Still, the budget forecast is significantly improved from previous years, at the peak of the recession. There was a $300 million deficit in fiscal 2012 and a $970 million hole in fiscal 2011, which ended in June.

Now, county officials say they have trimmed the budget’s low-hanging fruit and are open to keeping at least some of the tax increase.

“If we don’t have the sunset, we simply have more flexibility,” County Executive Isiah Leggett (D) said in an interview. He said he proposed the sunset last year to persuade a majority of council members to support the tax increase.

County officials stress that the budget numbers are preliminary, and many factors — including the state’s budget for fiscal 2013 — could change Montgomery’s financial situation. Gov. Martin O’Malley (D) will make his state budget proposal next month.

But council President Roger Berliner (D-Bethesda-Potomac) said Leggett has already indicated that he will propose in March a budget with the energy tax extended.

If county officials keep some of the tax increase, they would anger some business leaders who are already frustrated with the county. Two pieces of legislation considered by legislators this year — a big-box store bill and a peace resolution urging Congress to reduce the defense budget — have caused some to label Montgomery anti-business.

“They characterized [the energy tax increase] as a short-term thing,” Gigi Godwin, president and chief executive of the Montgomery County Chamber of Commerce, said. “We’re opposed to anything other than the sunset.”

As was the case with the big-box store bill and the peace resolution, progressive groups are pushing for retaining the tax increase. In a letter Wednesday, the leaders of six county government unions urged legislators to keep the increase.

They said that a tax on energy use “is good public policy” because it encourages conservation and that government budgets “cannot be solved by cuts alone.”

Meanwhile, government employees see the increase as a way to bolster their chances of retaining at least current wages and benefits. “The county is still in a delicate financial position, and to exacerbate that makes no sense,” said Gino Renne, head of the general government employees union, the United Food and Commercial Workers Local 1994.

Employee pensions and health-care costs are a major reason for next year’s projected shortfall, county officials said.

A key assumption to county projections is the sunset of the energy tax increase, which was approved by the council last year to close the fiscal 2011 budget gap. The increase, which caused the energy tax to balloon by 156 percent for residents and 60 percent for businesses, brought the county about $110 million a year.

Letting the tax expire might lead to community backlash, said Michael Sanderson, executive director of the Maryland Association of Counties. “If the county lets the tax expire and has to cut services, or public education, or public safety . . . there will be, no doubt, people who will be frustrated,” he said. “It becomes a tough decision.”

What also could worsen Montgomery’s situation are the effects of the euro-zone fiscal problems and the failure of the federal debt “supercommittee,” which set in motion across-the-board cuts in the federal budget.

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