The county weathered the post-Sept. 11, 2001, recession better than most jurisdictions around the country, but the job market remains sluggish, according to a report released this month by the Economic Advisory Council of Montgomery County and the county Department of Economic Development.
For the past six years, the council, which is made up of local economists and business leaders, has offered an annual independent evaluation of the county's economic progress, including a report card. The report card grades the county in five broad areas: employment conditions, economic base, business environment, construction activity and development capacity, and public services and public sector capacity.
The county received its best grade for fiscal 2004, an A plus, for its "highly skilled, knowledge-based economy." It received its worst grade, a D, for its investment in transportation.
"We are pleased that our grades continue to improve in several key areas, but our goal is to get straight A's," County Executive Douglas M. Duncan (D) said in a press release. Duncan, a likely candidate for governor in 2006, also used the occasion to criticize state leaders. "When it comes to critical areas like transportation, education, economic strategy and the environment, the State must play a larger role and live up to its responsibilities," he said.
This year, the General Assembly chose not to fund much of Duncan's "Go Montgomery!" initiative -- a 10-year, $1 billion plan for new roads and mass transit designed to ease the county's traffic problems. In recent years, the state has also cut back on grants to local governments for transportation, said Mahlon Straszheim, chairman of the Economics Department at the University of Maryland. He led the committee that put together the report card and accompanying comments.
The county is looking for other sources of funding in part because income tax revenue is not expected to rise enough in coming years to keep up with the growth in the county's operating budget. The budget has been growing about 7 percent a year, said Straszheim, but incomes have not been rising that fast. As a result, the county received a C for a measure that compares public expenditures with revenue capacity.
The county's unemployment rate, 2.6 percent, remains the lowest in the state, even though the county lost 2,000 jobs in fiscal 2003. Straszheim attributed the sluggish job market to companies that remain hesitant to hire even though business is picking up. "There was a recession, and firms are still very concerned about rising costs," Straszheim said.
He said that, for the first time since the council began issuing the report card in 1998, the county lost jobs in the professional and technical services sectors. Federal contractors drive those sectors, and they did very well in fiscal 2003, increasing their share of federal contracts by 34 percent, to $4.7 billion. That made up for an 8 percent decline in the previous year.
The finance and insurance industries enjoyed the largest job gains. Insurance employment grew by 5 percent in fiscal 2003. Securities dealers and brokers expanded their ranks by 4 percent.
The insurance and finance sectors have grown more in the county than in the rest of the state, Straszheim said. He attributed the health of those sectors to the high income levels in the county and the recent frenzy of mortgage refinancing.
Meanwhile, the pace of commercial construction in the county is slowing, the report card said. Office vacancy rates rose through fiscal 2003 and the first half of fiscal 2004. During the second quarter of fiscal 2004, the vacancy rate for office space was 9.5 percent.
Montgomery had less speculative building than other parts of the region, namely Northern Virginia, and Straszheim expects that to keep rental prices relatively stable. He said office construction isn't likely to pick up until job growth does.
Higher costs for building materials are affecting construction and build-outs for tenants, the report card noted. Costs for build-outs have increased to about $40 to $45 a square foot from about $25 to $30 last year. Labor costs remain stable.
In the residential market, the dramatic rise in housing values over the past several years appears to be slowing, the report card found. Prices for single-family homes increased 14.8 percent in fiscal 2003, slower than in fiscal 2002, when prices rose 19.8 percent. "The long-term forces driving housing prices are going to continue," Straszheim said. "That said, the growth in housing prices has leveled off in the past six months. There was a real bubble in 2003 and early 2004."
The hot real estate market means that property tax revenue is growing at a much faster rate than income tax revenue, Straszheim said. He and his colleagues say county leaders should consider investing some of the property tax windfall in transportation. "The biggest problem in the county is transportation," Straszheim said. "If anything affects the quality of life adversely, it's the cost of getting around."