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Budget squeeze tightens for Montgomery

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By Michael Laris
Washington Post Staff Writer
Friday, April 23, 2010

Just five weeks ago, Montgomery County Executive Isiah Leggett proposed a $4.3 billion budget packed with what he called painful choices, including raising taxes and cutting popular programs.

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Then on Thursday he presented a $197 million postscript -- and it soon became clear how much tougher the choices have become in the sharply escalating debate over how Montgomery raises money from taxpayers, compensates its employees and decides who gets government help.

Leggett (D) called for a $101 million boost to the fuel energy tax, which hits residents, businesses and the federal government. He called for a reduction in an increasingly expensive tax credit program for poorer residents, less frequent bus service and $35 million in cuts in existing county contracts.

He also reversed course on an agreement he made last year to give thousands of police officers, firefighters and general government employees unusual retirement benefits known as "phantom" cost-of-living increases.

Under the deal, the county makes pension contributions based on raises that were not given. Leggett said the County Council, which endorsed the arrangement last year, was poised to repeal it, and Leggett now supports ending it as well. The repeal proposal came this month from council member Phil Andrews (D-Gaithersburg-Rockville), who had voted against the original plan.

Ending the phantom COLA would save more than $7 million in the next fiscal year, and at least $200 million over 40 years, officials said. Leggett faced an angry and up-close rebuke from Gino Renne, one of the county's top union leaders, moments after the county executive outlined his stance. "You make it very hard to do business with you," Renne told him, their faces inches apart.

But Leggett argued that circumstances have changed and that he must make difficult decisions to protect the county's fiscal health.

Two big things happened in the 38 days between Leggett's original budget proposal and this batch of major adjustments. First, income tax revenue dropped, along with county and state officials' expectations for income tax revenue in the coming year. And a bond rating agency put the county, long proud of its stellar financial reputation, on a watch list for downgrade.

"There are an awful lot of things we've had to adjust and change in the past weeks," Leggett said. "The numbers are very clear at this point."

Leggett's new proposal calls for increasing the county's reserves from 5 percent to 6 percent, which is the level called for under county policy. The reserves have been a key focus of bond analysts. "We're building in a cushion and flexibility for the future," Leggett said.

Council member Marc Elrich (D-At Large) said he was frustrated that the county was being scrutinized by the bond agencies for using its reserves in bad fiscal times. "I feel like a Third World country and the IMF is dictating to us," Elrich said, referring to the International Monetary Fund. But he said he was supportive of many of the initiatives anyway. "It appears to be the rules of the game," he said.

County officials said government is having to come to terms with economic realities.


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