Council Questions Duncan Tax Proposal
Some Members Favor One-Year Credit

By Tim Craig
Washington Post Staff Writer
Wednesday, April 19, 2006

Some Montgomery County Council members questioned yesterday whether the county could afford to cut the property tax rate and increase spending at a time when long-term financial obligations are mounting.

County Executive Douglas M. Duncan (D) has proposed a 9.5 cent reduction in the tax rate. With the county facing a potential $800 million shortfall within six years, some council members said they favored scrapping Duncan's proposal in favor of a one-year tax credit.

Last month, Duncan drew widespread praise among council members when he unveiled his $3.9 billion spending plan for next year that funded an array of government services while reducing the tax rate.

But council budget analysts question whether Duncan's combination of spending increases and tax cuts is sustainable given the county's long-term financial outlook.

"The current fiscal plan suggests that serious challenges lie ahead," Stephen B. Farber, the council's staff director, wrote to council members this week.

Montgomery has a $300 million surplus this year, some of which has been spent in supplemental budgets. But Farber said the county might struggle in a few years to pay rising employee benefit and pension costs while maintaining the level of services Duncan proposed in his budget.

Some council members said at yesterday's meeting that they prefer a plan offered by council member Steven A. Silverman (D-At Large) to Duncan's proposed tax rate cut. Silverman's plan would give homeowners a one-time credit of up to $468 per household. Supporters of that idea said a property tax credit would offer more tax relief for lower-income residents while doing less damage to long-term finances. The county could also exempt businesses from a tax credit.

A cut in the tax rate could have longer-term financial implications: The county would lose at least $128 million a year until it increased the rate again.

"It gives us a little more flexibility in the long term," council member Nancy Floreen (D-At Large) said of a one-time tax credit.

David Weaver, a spokesman for Duncan, said the administration continues "to support property tax relief through a rate cut, but [it is] willing to work with the council on alternative approaches."

With county coffers overflowing this year, neither Duncan nor the council has made spending cuts a priority. But budget analysts said that despite the strong economy, the county might need extra money soon to maintain the size of the county budget, which has doubled since Duncan took office.

Duncan, whom some critics accuse of lavishly spreading taxpayer money around to bolster his bid for the Democratic nomination for governor, fully funded the school system and Montgomery College and proposed more than $100 million in new public safety, traffic and environmental programs.

Property taxes are determined by multiplying the rate by the assessed value of a home. Because assessments across the region have soared in recent years, government leaders have sought ways to blunt the impact of rising property values.

In Montgomery, Duncan has proposed reducing the property tax rate to 85 cents per $100 of assessed value. Even with that reduction, the owner of a $300,000 home would have a $91 increase, according to a council staff analysis.

Farber said Duncan's long-term budget projections overestimate revenue. By fiscal 2012, the county could have an $800 million shortfall, he said. Duncan's budget team has predicted a number closer to $100 million.

But the county has a growing list of bills, council members said.

The Governmental Accounting Standards Board, a group that makes the rules for how governments disclose their finances, is urging state and local governments to start setting aside money in fiscal 2008 to cover the cost of retiree health benefits.

In Montgomery, the policy means that the county will have to earmark $160 million per year.

The state of Maryland, Baltimore County and some other jurisdictions plan to start setting aside money in the fiscal 2007 budget. Duncan chose not to.

Since the late 1990s, Duncan has also negotiated a series of generous contracts with public employee unions. The contracts, along with below-par stock market returns, are starting to erode how much real money is in the county's defined pension plan, according to the analysts.

In 2000, the pension plan was 99 percent funded. But this year it is 76 percent funded -- which is below the national average for similar plans -- leaving a $675 million unfunded liability.

"I think it is important to realize what our looming obligations are," said council member Marilyn Praisner (D-Eastern County), who has proposed a 5 cent tax rate cut and a one-time $211 credit to each household.

Weaver noted that the county has a perfect bond rating. "Our fiscal planning is very strong."

But Marvin Weinman, president of the Montgomery County Taxpayers League, wondered whether that would last.

"You've got to cut spending," he said.