Montgomery Bracing for A Record Shortfall
$401 Million Gap May Mean Tax Increases, Service Cuts

By Ann E. Marimow
Washington Post Staff Writer
Wednesday, November 28, 2007

In sobering terms, Montgomery County's elected leaders began to confront the government's deepest-ever projected budget shortfall yesterday, warning residents of possible tax increases and tempering expectations for what the county can afford as they try to close a $401 million gap.

County Executive Isiah Leggett (D) has called on departments and agencies to shave 2 percent of existing spending, including $36 million from the public schools, a figure that education officials said would be "extraordinarily difficult to meet."

In his call for belt-tightening, Leggett said the numbers suggest that even with spending cuts and tax increases, residents should be prepared for a reduction in public services.

"Our worst fears, as it relates to the housing market and the national economy, are being realized," Leggett said yesterday. "There may be delays and outright cuts; it means we will not be hiring as readily as we may have anticipated, and it could mean some local revenue enhancements."

It's too soon to know which areas would be affected by the shortfall, 9.6 percent of the $4.2 billion in projected spending for fiscal 2009, which begins in July. To cope with a budget gap four years ago, county leaders cut library hours, postponed maintenance on equipment and delayed salary increases for county employees for several months.

Among the big-ticket items in the coming year are the county's health-care program for uninsured residents, early childhood education, the technology system and funding to put more police officers on the street.

"This is not an easy exercise," said County Council member Duchy Trachtenberg (D-At Large), chairwoman of the council's Management and Fiscal Policy Committee. "Some hard decisions will have to be made."

Spending for the budget year that begins in July is expected to increase by 8.5 percent, but revenue is not keeping pace. Montgomery, like much of the Washington region, has been hit by slowdowns in job growth and the housing market. Transfer and recordation taxes collected when property changes hands are projected to be $71 million less than expected. Income tax estimates for fiscal 2008 and 2009 are collectively $107 million less than projected.

The $401 million gap could widen as the county negotiates costly health and retirement benefit contracts for employees and calculates the effects of new income tax exemptions passed in Annapolis, in addition to $500 million in state budget cuts.

"This is the largest gap we've ever seen, which is sobering and somewhat unexpected," county budget director Joseph Beach said.

In the wake of the General Assembly's passage this month of a hefty tax package, Leggett said he is reluctant to turn to additional tax increases. But he and the council could be under pressure to consider breaking the county's charter limit on property taxes: A change could raise as much as $237 million. County leaders have adhered to the limit in all but three of its 17 years on the books.

To be successful in reaching his target of $64 million for mid-year cuts, Leggett needs the cooperation of agencies, including the Planning Board, Montgomery College and notably the school system, which accounts for almost half of the county budget.

Brian Edwards, chief of staff for Superintendent Jerry D. Weast, said school officials were reviewing Leggett's request yesterday. "It would be extraordinarily difficult to meet that request," Edwards said. "It's too early to say if there's anything we can do at this point." Ninety percent of the education budget pays for teachers, administrators and other staff.

This year, school officials and parents protested smaller cuts that Leggett had proposed in the last budget cycle, eventually winning concessions.

The projected $400.9 million shortfall is the county's largest ever. But at this time in fiscal 2004, an estimated $303 million deficit represented 10.6 percent of the projected budget.

That year, the council imposed tax increases on income, phone lines and energy and exceeded the charter limit on property taxes.

The council's longtime staff director, Steve Farber, recalled the painstaking process of identifying $25 million in cuts.

"It was no picnic," he said.

For that reason, Leggett and his budget writers wanted to give departments and agencies the flexibility to cut their budgets without council approval for specific trims.

"The creation and review of these plans was a time-consuming task that often created more anxiety in the community than was necessary and forced exemptions and exceptions that frequently frustrated the goal of the plans," he wrote to the council.

But that approach encountered resistance from council members, who control the county's purse strings.

"At some point, the general has to translate into the specific," council member Roger Berliner (D-Potomac-Bethesda) said Monday, after a presentation by Beach. "Are you asking us to approve a target and wash our hands of the specifics?"

By Tuesday, Leggett's budget writers had agreed to involve the council in a line-item review.

Yesterday, the council urged Leggett's budget writers to act quickly to identify trims. The county executive must submit a blueprint of a balanced budget to the council by March 17.

Council member Marc Elrich (D-At Large) encouraged the administration to look for savings in government operations, saying "we can do a better, more efficient job in delivering more services and looking more closely at choices to spend money."

Council member Phil Andrews (D-Gaithersburg-Rockville) said that the pace of spending in the county is unsustainable and that the operating budget has grown by $1 billion since fiscal 2004.