Montgomery council favors 4.7% tax hike, using reserves to close funding gap

Discord over a property tax increase animated debate in Maryland’s most-populous county, leading to a closed-door consensus and clashing visions for the future

Montgomery County Executive Marc Elrich. (Ricky Carioti/The Washington Post)

The Montgomery County Council is slated to vote Thursday on a $6.7 billion operating budget built on a property tax increase for residential and commercial properties that galvanized debate over how best to meet the county’s growing needs and who should pay.

The draft increase, which would take the weighted average real property tax rate to roughly $1.02 per $100 in assessed value from about $0.98, is less than half of that proposed in March by County Executive Marc Elrich. The journey to consensus divided the leaders of Maryland’s most populous county, ultimately leading to a closed-door agreement and clashing visions for the future.

One council member opposed a tax increase altogether. Several voiced concerns that a 4.7 percent jump would not be enough and predicted that the funding gap would make future budget negotiations even more difficult.

The council coalesced last week around the rate of tax increase and $110.7 million in cuts to Elrich’s plan, but members differ on a key strategic decision: drawing down more than $159 million in one-time funds to close the funding gap.

Here’s what you need to know:

Driving the rate increase

The budget proposal Elrich unveiled fully funded Montgomery County Public Schools’ nearly $3.2 billion operating budget request, which sought a 10 percent increase in the county’s investment in the school district.

School officials argued the increase, an additional $296 million, was necessary to raise teacher salaries, keep class sizes stable and pay for initiatives including making the Advanced Placement and International Baccalaureate programs free, and increasing the number of seats for preschool programs.

School district leaders applied pressure in the debate, publicly wondering whether failing to meet the full request could jeopardize teacher and staff salaries and lead to larger classes.

The council ultimately proposed an 8.5 percent increase in county funding from last year, saying it expected the school district to fully fund already-negotiated raises for teachers and other school staffers.

In a letter sent to the council Monday, the president of the county’s Board of Education and the schools superintendent thanked council members for their efforts. But the funding level on which the council settled was not enough for the Montgomery County Education Association, the labor union that represents local teachers. It accused the council of bowing to “powerful moneyed interests” that advocated against Elrich’s proposed 10-cent property tax increase.

“The county council showed that they care more about their political future and donations from developers than they do about doing what is right for children, youth, and families,” the union, which has consistently endorsed Elrich, said in a statement last week.

Getting to 4.7 percent

Elrich elicited strong reactions with his initial proposal for a 10-cent increase in the weighted property tax rate for residential properties and commercial businesses, riling critics including homeowners, businesses and developers who stand to lose money from the tax increase, but drawing support from teachers and families that want to see more money put toward public education. The move would have increased costs for a homeowner with an assessed property value of $500,000 by an additional $511 to $533.

Faced with the possibility of a recession and the existing high interest rates that have cooled the housing market, the council reached consensus early that the top line increase would need to come down. After the council identified a list of high-priority initiatives, some council members favored a 5.7 percent property tax increase that would have financed the entire list. But the majority felt that number was still too high and favored cutting some priorities to bring the tax increase down.

But the compromise did not sit well with everyone. Although the council shaved down the tax hike, it did not cut enough to balance the spending plan’s ongoing expenses without dipping into rainy-day funds and other one-time funding sources — a move typically reserved for emergencies and one-off expenses.

“The bottom line is this is not sustainable,” council member Kate Stewart (D-District 4) said in a statement.

Council member Andrew Friedson (D-District 1) said in an interview that the council could have balanced the budget without raising taxes if it had been willing to make tough choices, such as cutting new government positions from the budget or repurposing job vacancies instead of adding more than 100 new roles even as nearly 1,500 positions remain vacant after pandemic-era staffing erosion.

“We had a choice, and we continue to have a choice, of whether we live within our means,” Friedson said.

Elrich said his administration has not had a fair chance to restructure vacancies because it has not yet determined which positions were disproportionately affected by the pandemic but need to be retained and which could be repurposed or cut to make the government more efficient.

Choosing a structural deficit

Several council members voiced concerns that the proposed budget relies too heavily on reserves and one-time funding sources, potentially creating a structural deficit that will make future budgeting even more difficult at a time of economic uncertainty.

The council approved the use of $159.3 million of one-time funds to balance the budget this year, meeting recurring expenses including expanding the budgets of many county departments by 5 to 20 percent after several years of budgetary stasis or reductions during the pandemic. The budget also adds significant funding for public schools and policing, and it supports affordable-housing options for county residents.

“Next year we have no way to pay for that,” Friedson said.

The council said the plan proposed by Elrich would have yielded a $145 million structural deficit, which he contested in an interview after the preliminary vote, pointing to the county’s $842 million of reserves at the end of fiscal 2023. Elrich also said he expected the county to have healthy revenue because of strong employment and a housing market that may rebound after interest rates fell from 9.1 percent to 6 percent in February.

“I don’t see a structural deficit,” Elrich said Friday.

But he said he did have concerns that the council was leaving Montgomery County Public Schools in a difficult spot by setting the property tax increase too low to meet the school district’s future funding needs.

“If [MCPS] follows the council’s advice, they will use one-time federal money [to balance this year’s budget] that will not be there after that,” Elrich said.

Left on the cutting-room floor

Even though the council met almost 98 percent of the county’s funding requests, some initiatives did not make it onto the final reconciliation list.

After weeks of public work sessions to determine the council’s top funding priorities, council members submitted lists ranking their must-have line items to council staffers so that cuts could be made before a final reconciliation list was made public Thursday morning ahead of the preliminary vote.

The council declined to put additional funding toward overflow shelter and other resources for homeless people even as the most recent Metropolitan Washington Council of Governments 2023 Point-in-Time survey showed a 53 percent increase in the number of Montgomery residents who experienced homelessness.

“I am concerned our unhoused population is growing and we are not adequately planning for this increase,” Stewart said in a statement after the council’s preliminary vote on the budget.

Stewart also said she had hoped to fund more mental health resources.

Council member Kristin Mink (D-District 5) criticized her colleagues for deciding cuts in private to bring the property tax increase down to 4.7 percent instead of 5.7 percent after the council had spent weeks holding public hearings where council members worked to identify their top funding priorities. The 5.7 percent tax increase would have funded all of the publicly identified, high-priority items, she argued.

“There was then a private process, compressed into three days, in which we made significant cuts to the items that had just been publicly deemed high priority,” Mink said. “There was very little space for meaningful discussion with colleagues, and none of it in public.”

Also among the initiatives that ended up being cut were increased funding for Vision Zero programs that support pedestrian and cyclist safety, and expanded funding for the Green Bank and other climate change initiatives.

Elrich said he particularly disagreed with the council’s decision not to invest further in the county’s environmental efforts. He also said the council failed to increase funding to pay for utilities and fuel to run county vehicles such as buses, police cruisers and firetrucks.

“We’ll have to pay those costs,” he said.