Montgomery County Taxpayers League

The Voice of Taxpayers of Montgomery County, Maryland
Montgomery County Taxpayers League

The Voice of Taxpayers of Montgomery County, Maryland

Latest Posts

“Is MoCo Becoming a Second-Class County?”

From an article by Adam Pagnucco in BethesdaMagazine.com:

“For years, county leaders have viewed the county’s budgetary, legislative and regulatory policies as separate from economic development. Let’s look at some of what our county has done. We have had nine major tax hikes in 16 fiscal years. We have led the region in passing costly new employment laws while we have been increasing those taxes, the only jurisdiction in the area to do both at the same time. Despite the tax hikes, we have suffered big budget shortfalls and are looking at more. We squeezed county per pupil spending for the public schools for seven straight years in part because our leaders did not like state law on education funding….We have increased county debt by five times the rate of inflation over the last eight years.”

 

County’s Dark Economic Prospects

According to new report from the County Council’s Office of Legislative Oversight (OLO) the county faces a difficult fiscal path ahead.  Basically, income will not be enough to cover expenses.  About 88% of the county’s programs are financed by income taxes and property taxes.  Income taxes can’t be raised because the rates are at the maximum level allowed by State law.  Property taxes can be raised above the tax-cap only with the approval of all nine Council members.

“Across the four County-funded agencies, employee compensation costs (consisting of salaries and wages as well as benefits) comprise 80% of all agency operating expenditures.

“The approved Fiscal Plan projects annual average revenue growth of 2.7% through FY24. This revenue growth will be insufficient to cover projected compensation costs if wages, social security, and group insurance grow at the same rates and retirement costs are held constant.

“A budget trade-off exists costs increases for existing positions compete for finite resources against the cost of adding new positions.”

 

Notes from the meeting of Oct. 17, 2018 – Dept. of Liquor Control

Meeting of October 17, 2018

Topic: “The Department of Liquor Control”

Speaker: Robert Dorfman, Director, Montgomery County Department of Liquor Control

The Montgomery County Taxpayers League (MCTL) met with the Director of the Department of Liquor Control (DLC), Robert Dorfman and his staff on Oct. 17, 2018.  He provided an overview of the DLS’s position on privatization and a video produced at no expense to the taxpayers that introduced DLS’s operations.  He also provided a written summary of DLC highlights, and noted a number of key staffing changes in marketing, warehouse operations and retail that he believes are already making a difference in DLS’s performance.  His verbal and written responses to MCTL member questions follows:

1. Montgomery County Sales – He and staff indicated that the county was dead last in the state for liquor and beer per capita sales last year partly because our high incomes and demographics are associated with lower consumption.  An MCTL comparison of state published sales for FY 2017 show that two comparable jurisdictions in population and incomes (Baltimore County and Anne Arundel County) had double our distilled spirit sales per capita.  Mr. Dorfman said the DLC is improving the marketing and attractiveness of its retail locations, but acknowledges it has fewer retail locations down-county than in the rapidly growing up-county.  Surveys of customers in DLC stores indicate a high level of satisfaction, but this does not include residents who buy liquor elsewhere.  Further, while DLC notes its prices are competitive, MCTL notes that other factors are equally important in drawing more customers to DLC retail sites.  These include service, convenience, and product selection. 

2. Restaurant Business Service – Service has improved for delivery and special orders according to Mr. Dorfman.  He said that restaurants account for only 4% of DLC sales, and questioned if older complaints by restaurants are still valid.  MCTL  asked if perceived conflicts of interest between DLS’s enforcement and sales activities could contribute to restaurant issues, or have a chilling effect on the level of complaints.  Mr. Dorfman and other DLC representatives present didn’t think so and noted that DLS’s enforcement program is a model followed by other counties in the state.

3. Truck Fleet and Warehouse Investments – Mr. Dorfman could not quantify productivity improvements or savings attributable to these recent investments.  He indicated that no staffing reductions occurred as a result of these investments.  22 new trucks have replaced older trucks that had been in service for 20 years which have reduced maintenance, temporary lease truck, and service interruption costs.  Warehouse improvements have included new methods and procedures and a new automated “Invoice Picking” system to improve inventory controls and flows.

4. Inventory Losses and Financial Performance Drivers – Mr. Dorfman said that last year losses were $363,762.  That was .18% of total inventory compared to an industry average of .25%.  Better controls over special orders with “flow racks” were noted as one reason. Four years ago MCTL compared DLS’s financial performance to nearby control states of Virginia and Pennsylvania.  These indicators have not changed, probably due to economies of scale available to higher volume state level operations.  An updated comparison of costs of goods sold as a percentage of sales is still 73%, much higher than Virginia or Pennsylvania (57% and 69%),  Net book value of depreciable assets ($45M) also shows DLC is high in comparison to Virginia ($52M) and Pennsylvania ($97) relative to their much higher sales volumes.  Slower write-offs of impaired assets, and slower depreciation schedules may also account for this and would boost reported profits.  County auditors did not express an opinion on DLS’s financial controls for their FY 2017 financial statements). 

5. General Fund Transfers – Transfers dropped last year to $18M from an average annual target of $30M to pay for the investments noted above.  Mr. Dorfman indicated that he believes DLC will make its forecast this year for transfers. DLC also collects state sales tax, but doesn’t collect any local sales tax.  MCTL has determined that working capital requirements of the business are a factor that limits investments, as do county capital project allocations.  DLS’s audited financial statements are included with the County’s audited financial reports (see link below, pgs. 36-39). 

6. Excessive Alcohol Abuse by Teens – DLC investigated source of illegally purchased alcohol by a teenager who died last summer following a party in Bethesda, and found DLC stores were not the source.  Enforcement and licensing programs are designed to quickly react to and resolve retailing problems.

7. Privatization Arguments – Mr. Dorfman cited the state of Washington as an example where retail outlets ballooned from 300 to 1,600 overnight creating enforcement and control issues.  He notes that under the 3-tier systems in our state, distributors and retailers really don’t control prices as much as they do for other products, and that distributors don’t compete for business. He believes DLC has made important changes to be more responsive to its customers and doesn’t feel that private distributors or retailers would do any better.

The MCTL favors privatization because liquor distribution and retail is not an inherently local government function.  We are the only county in the state that does this, and the last county in the nation to continue this practice.  MCTL believes that competition would improve service, selection, convenience and sales volumes, with two or more private distributors competing within the county for the business of hundreds of more conveniently located retailers.  MCTL is concerned about growing legacy and investment costs of the DLC operation and DLS’s inability to achieve sales volumes that would stabilize its business.   MCTL projections last done in 2014 showed annual county revenues for possible new distributor franchise fee agreements and sales forecasts could be $60M, higher than currently transferred to the general fund.  Also, a one-time revenue boost of $50M would be realized from winding down DLC operations, selling assets, after providing for a generous severance payment to employees.  This does not include additional local sales or property tax increases. 

Financial Statement Link, see pgs 36-39, first column 

https://www.montgomerycountymd.gov/finance/resources/files/data/financial/cafr/FY2017_CAFR.PDF

Questions for meeting of October 17, 2018

Presentation:   “Department of Liquor Control:

                               Are Major Improvements Making a Difference?”

Speaker:         Robert Dorfman, Director

                             Department of Liquor Control

                             Montgomery County

1.  A few years ago, Montgomery County was dead last in the state for liquor and beer per capita sales?  Has the situation changed since your tenure and by how much?

2.  How has the DLC improved its service to the restaurant business?  Would privatization of the DLC help or hurt this business?

3.  How has/will investments in truck fleet and warehouse upgrades improve productivity, and how much will be saved annually?

4.  How big were inventory losses last year and how does this compare to the prior year and to industry averages?

5.  Why did general fund transfers for purposes other than debt service drop to $10M last year?

6.  Has there been an increase in alcohol use, especially by teens, and do you have a program educating the public on excessive alcohol use?

7.  There are many reasons for and against privatizing the liquor business in Montgomery County?  The reasons against privatization include:  loss of a $30 million revenue stream; preservation of 350 union jobs, and State law constraints.  Some of the reasons for privatization include the legacy costs associated with DLC’s county government jobs, and the view that selling liquor is not an inherently governmental function.  Can you give us all the reasons against privatization with facts and figures to support your case? 

Next meeting: TBA

“More misguided spending will not fix Maryland schools”

Something to think about when you vote.   From the Baltimore Sun of June 24, 2018:

Maryland ranks 6th in the nation in teacher salaries and 10th in the nation in per-pupil spending, according to EdBuild. From 1998 to 2014, our research reveals Maryland increased education operating expenses by $3.8 billion in inflation adjusted dollars — a 45 percent increase. Yet the Kirwan Commission laments how poorly Maryland schools have performed over that time.

 

Why Progressives Need Economic Growth

From The Seventh State June 11, 2018:

Some on the County Council would like to expand pre-k education, a huge progressive priority and a great idea.  The problem is that it would cost – at minimum – tens of millions of dollars to be meaningful.  And when the county is already relying on tens of millions of dollars in employee and retiree health insurance money just to fund its current budget, there is no way that’s going to happen.

Irresponsible budgeting?

Posted  May 23, 2018, on Seventh State:

And next year is already projected to see a $76.8 million shortfall after this year’s shortfall, which was over $100 million.

Suppose you were an elected official reading that information.  What would you do?  Perhaps you might say, “Wow, things are kind of tight.  We need to cut back a little because if there is a downturn, we are going to have a problem.”

That’s not what happened.  Instead, the council tapped a total of $77.7 million in one-time fund transfers to finance ongoing spending both this year and next year.

The County Council continues to increase the budget in the face of falling revenues.  How long will this behavior go on?.

 

 

 

Questions for meeting of May 16, 2018

Topic:  “WSSC and its Financial Future”

Speaker:  Joe Beach, Chief Financial Officer, WSSC

                         Free and open to the public

The following questions have been sent to the speaker in advance of the meeting:

1.  What criteria does WSSC use in its decision-making process given the need for new pipes, old pipe repair and replacement, processing facilities, IT investments, etc. especially as WSSC is reaching its debt limit and thus must carefully set priorities for capital spending while maintaining quality and service levels?

2.  We understand the approved capital budget for WSSC includes a $250 million project to build a new anaerobic sewage treatment plant at Piscataway for bio energy.  While WSSC policy does not require that a return on investment justification be provided for projects, do the economics of this project justify this large expenditure of $250 million?  Or could the sewage be more economically transported to Blue Plains for processing.  The documented business case dt. 6/21/12 does not address this option.  Alternatively, are there other projects with a higher return on investment that have not been approved?

3.  Debt service is the largest driver of WSSC’s budget and is projected to hit 40% of its total expenditures in 2023.  We also note that the “new debt” projections for FY 2019, 2020, and 2021 jumped from:
In fall of 2014 (FY 16 budget): $327 million, $278 million, and $219 million for a total of $824million
In fall of 2016 (FY 18 budget): $505 million, $510 million, and $429 million for a total of $1.44 billion
In fall of 2017 (FY 19 budget): $558 million, $562 million, and $545 million for a total of $1.67 billion
New debt projections for the next three years have doubled. Could you address this?
4.  Debt shows big drops in FY 22 and 23 for new water and sewer debt issues.  Is this realistic?  Are the projections based on current known costs with no contingencies for unknowns.  Does this assume that there will be no change to the water loss rate which was 17.9% in 2016 and for sewer line infiltration of 40%?

5.  With the new rate structure, will the highest tier (the rate paid for practically all of the water used by the largest accounts – hotels, NIH, UMd students), meet the Public Service Service Commission’s (PSC) criteria for non-discrimination? Also would let’s say anything over $17.00 per kgal be unjustifiably high and thus not meet the PSC criteria?

6.  We also note a rate increase jump to 6% from 2020 to 2023.  Since presumably this will be determined by the size of the CIP, the operating budget, weather events, interest rate for debt issued and change in the number of customers, it is also obvious that the first two are well within the control of the WSSC.  Will the PSC weigh in as to whether such an increase is reasonable?  How often has the PSC done so in the past?

7.  The negative expenditure adjustments that begin in 2020 appear to be an artifice to make the debt service coverage ratio work. Is there a more rational explanation for this?

8.  The expenditure increases in the fiscal plan assume no new hires (except for attrition).  Are the collective bargaining agreements negotiated by the union affordable?  By how much will these increase the budget?  Also are the health and retirement benefits of WSSC employees similar to those of Montgomery County Government employees?

Next meeting:  TBA