Montgomery County Taxpayers League

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

The Voice of Taxpayers of Montgomery County, Maryland

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Divestiture by Retirement Funds : Testimony by MCTL President Joan Fidler

Testimony by MCTL President Joan Fidler before the County Council on Bill 44-16

Retirement – Fossil Fuels Investment – Restrictions

December 6, 2016

Good evening, Mr. President and members of the County Council – I am Joan Fidler, president of the Montgomery County Taxpayers League and I am here to testify against Bill 44-16, Retirement – Fossil Fuels Investment – Restrictions.

I would like to state at the outset that I am fully aware of the effects of climate change. I worked for 21 years at the US Environmental Protection Agency, the last 11 as a member of the Senior Executive Service. I was head of the Office of Bilateral Affairs where we worked with the rest of the world on climate-related issues.

So while we are sympathetic to your passion for climate issues, we cannot support confounding that passion with fiduciary responsibilities.

The $4 billion Employees Retirement System and Consolidated Retiree Health Benefits Trust funds are managed prudently and are faring very well – in fact, far better and are run more efficiently than similar funds at the state level.

But this bill allows symbolism to determine investment decisions. We believe that more important than symbolism is a fiduciary responsibility to maximize earnings for the 20,000 current and 30,000 future beneficiaries whose financial security relies on these funds.

The notion to divest from certain fossil fuel companies is a heartfelt impulse but has little bearing on prudent investment principles. Purity of moral principle would dictate that we drastically move away from fossil fuel companies that currently heat and light our buildings, that fuel our transportation, that run our computers. Purity of moral principle would dictate that we never invest in Coca Cola and Pepsi Cola and their sugar-laden drinks, or in Volkswagen that played fast and loose with emissions reporting, or in Wells Fargo that willfully cheated its customers. Where will it end?

The Standard of Care requires the Board to act “only in the best interest of the participants and their beneficiaries”. To which I would like to add the best interests of the taxpayers of the county – who funded both the ERS and the Retiree Health Benefits Trust to the tune of $200 million just this year alone. Are we now going to let each new idea of social condemnation narrow the investment portfolio? Will you increase the taxpayer burden if divestment decisions result in lower returns?

Though sympathetic to your impulse, the Taxpayers League cannot support this bill which puts us on a slippery and dangerous slope that would allow investment decisions to be driven by political considerations. I don’t need to remind you that Gardez bien is the motto of the county. Enough said.

Thank you.

Department of Permitting Services: Our Observations and Recommendations

On October 26, 2016, the Montgomery County Taxpayers League hosted a meeting with the Director of the Department of Permitting Services and with a representative from the Department of Finance focusing on the IG-17-001 report dated August 25, 2016, on revenue from reassessments.  More specifically, the interest of the Taxpayers League was in how the DPS was addressing corrective actions for improving building permit information to SDAT.  DPS made it clear to us that it is not in agreement with the appropriateness and cost-effectiveness of several of the IG’s recommendations.

After asking for a response from the DPS – and receiving none – the following observations and recommendations were sent to members of the the County Council on November 10, 2016, making a business case for an independent review of the Department of Permitting Services focusing on streamlined reassessments:

The DPS is responsible for a wide range of permitting services, and has to consider how best to allocate resources between competing public safety and economic development objectives as it processes its workload.

We believe that equitable and efficient tax collection depends on compliance by permit applicants and DPS and SDAT workflows. We think the DPS is at a critical juncture with SDAT, and that the County needs to improve property tax collections or face even higher tax burdens.

We were unaware of the complexity of the tasks performed by the 85 inspectors and 30 permit technicians, comprising 115 of the total 236 total employees at DPS. In addition to SDAT, DPS also interfaces with the Department of Finance, with MCPPC (for address data base to get tax IDs), and with the public. It appears that, over time, DPS has expanded its core mission to include the collection of impact taxes and funding and possibly even performing SDATs job. While we compliment the DPS on performing next day inspections, we wonder whether it is at the cost of weak follow-up for existing permits as we have heard of instances of occupancy permits in arrears when homes are sold.

In short, permitting is a complex business process. We believe that DPS must be managed to optimize property reassessment tax revenues while continuing to achieve public safety and economic development objectives. This may be a tall order for DPS with aging workflows and systems and a growing workload.

We estimate that inefficient DPS and SDAT processes cost Montgomery County $10M a year in reassessment revenues with the caveat that this number may be subject to estimating errors based on a small sample and based on assumptions about data to which we have no access. A new Finance Department internal control could detect and correct errors by comparing expired permits to assessments and measure and monitor the size of the problem. This is an important new internal control which should be added to the management plan of DPS. 

Based on the DPS and Finance presentation at our meeting, here are three preliminary observations and recommendations to make revenue collection more efficient:   

1.  Relationship with SDAT Needs More Controls  – SDAT may not be able to implement the changes needed to get timely and accurate reassessments without more help from DPS. DPS has reached out to SDAT with technology and technical assistance. However, SDAT only gets 10% of collections, which amounts to a poor incentive for the State. We learned that the Montgomery County pays ½ of SDAT costs and deserves more control over reassessments. The recent history of new DPS reports (those for occupancy permits, demolitions, residential and commercial use, and tax IDs) all took place in the last year under duress of audit and Council scrutiny and not as a result of continuous improvement by on-going control systems.

2.  Data Collection and Integrity Weaknesses   There are issues that need to be resolved related to responsibility for missing or incorrect tax IDs, erroneous or lowball cost estimates submitted by home owners on permit applications, alternatives SDAT has for information needed to trigger reassessments outside the 3-year cycle, and how cost validation could slow down processing by DPS permit technicians. We questioned DPS responsibility for verifying construction completion independent of builder notifications and were told that a recent procedure to compare sales to outstanding permits was now in place. In short, improved data could involve more work by DPS with higher costs but could also lead to higher compliance rates. We have learned that some expired permits were corrected with occupancy permits at the time of sale with no retroactive change to assessments. We are concerned that if key data does not get validated, it creates lots of rework, and sends a negative message to applicants.

3.  Accountability Gaps – Trade-offs between public safety and economic development objectives need to be resolved to improve DPS workflows. The limited controls over data or processing errors noted above lead to reduced property tax collections, in part because responsibilities and property tax revenue targets for reassessments are not set for DPS or for the Department of Finance. Inspectors are key to moving the process along and reaching milestones for reassessments, but it was noted that inspector productivity has not been benchmarked against Howard or Fairfax counties. It appears to us whatever standards exist may be the product of negotiations with the union and not by the establishment of objective, outside benchmarks. For instance, are there productivity standards for permit technicians? There are also legal questions about how far back the county can go to tax a major improvement that it did not reassess after the improvement was built, and also how far back the county can go to collect tax if a reassessment after improvement had errors such as not enough square feet, property quality or condition not accurate.

Given these observations, we recommend an independent review be performed of DPS workflows and Finance Department controls, as well as productivity and organizational accountabilities to determine what’s best for the county. The study would need to look at alternate workflows and automation and to replace legacy systems that would improve productivity, timeliness and quality. It would also need to look at strategic issues like improved accountability and controls for new and issued permit follow-up, and even new legislation to increase revenues by shifting responsibilities from SDAT to DPS to streamline reassessments.  

Questions for the of meeting of November 16, 2016

Free and open to the public

Topic: “What Factors will Shape the FY 2018 County Budget?”

Speaker: Steve Farber, Council Administrator, Montgomery County Council

Questions sent to the speakers in advance of the MCTL meeting of November 16, 2016

1.  Will the results of the national elections affect the projections for FY 2018 revenue and spending for Montgomery County?

2.  What do you project to be the revenue source mix for FY 2018 among property taxes, income taxes, grants and contract, fees and other?  Are there policy options in place for increasing the less volatile property tax share?  Is it likely that there will be another Charter busting property tax increase?   How could other revenue sources be boosted to match Fairfax County’s approach?

3.  Given that the Wayne case decision has been incorporated into the projections for FY 2018, will ITOC credit refunds, faster reassessments for property improvements, and collections of overpayments made to municipalities affect the revenue picture positively?  By how much?

4.  Other than spending increases that are likely to exceed the CPI such as negotiated salaries and benefits for MCPS and county employees, and debt service, what other spending increases are likely?

5.  With the FY 2017 funding of MCPS of $90 million over the Maintenance of Effort requirement, by how much will this increase the baseline of per pupil costs for FY 2018?  Given MCPS cost projections for FY 2018, is it likely that funding for MCPS will exceed the MoE limit once again?

6.  What are some of the bills passed at the last legislative session in Annapolis that will affect the Montgomery County budget in FY 2018 –  both positively and adversely?

 

Notes from the meeting of Oct. 26, 2016

Notes from the MCTL meeting of Oct. 26, 2016

opic: Are Slow Reassessments Hurting Property Tax Revenues?

Speakers: Mike Coveyou (substituting for Alexandre Espinosa)

Department of Finance, Montgomery County

Diane Schwartz-Jones

Director, Department of Permitting Services, Montgomery County

Questions sent to speaker in advance (below) are followed by an overview of the discussions at the meeting:

1. What were some of the causes leading to this loss of property tax revenue?  Were there gaps in accountability?

2. What is the annual budget for the Department of Permitting Services (DPS)?  How many inspectors are authorized in the DPS budget?  Have they increased or declined over the past 5 years? How are workloads projected for DPS inspectors?  Are there trade-offs between new vs improvements to properties?

3. How are inspector backlogs managed to ensure timely and accurate assessments?  What incentives do inspectors have to reduce backlogs? 

4. How are expired permits tracked and follow-up inspections performed?

5. Why are the processes for controlling inspections and the interface with the State Department of Assessments and Taxation (SDAT) not automated?

6. How do inspection backlog standards compare with those in Fairfax and Howard counties?

7. How does the Department of Finance project revenues for new and improved properties?  How much revenue was not collected in FY 2016 and 2017 due to procedural weaknesses at DPS? at SDAT? 

8. As a result of the Inspector General’s report, when will corrective actions be implemented and how much will they cost?  How much in additional property taxes will the county regain in FY 2018, 2019 and 2020 as a result of corrective actions? What role will SDAT need to play to make DPS changes implementable?

9. It is estimated that the county has lost $52 million a year in revenue through granting of Income Tax Offset Credits (ITOC) for non-owner occupied homes.  The county claims that it lacks the requisite State authority to remove these credits on failure to submit the form. But the county uses exactly the same qualifications to grant Homestead Credits. State law that authorizes ITOC directly references State law that authorizes homestead credits.  Why has the county not sought authority from the state to remove the ITOC from every property whose owner has not submitted a homestead credit verification form?  Can you justify this loss of revenue? 

The meeting was called to order at 7:03 pm by President Joan Fidler. Attendance was 16 including the two speakers.

It was an informative discussion. Here is an overview:

Ms Schwartz-Jones stated that the IG report on slow reassessments was misleading and that her office did not agree with the appropriateness and cost-effectiveness of some of the IG’s recommendations.

The annual budget of the DPS is $37.7 million with a total staffing of 236 positions. Of these, 85 are inspectors. However, the DPS is an “enterprise fund” and is self-funded through the fees it collects. It receives no direct taxpayer funding.

Most important, the DPS performs next day inspections, i.e., inspections are performed no later than the day after the request is received. Hence there are no inspection backlogs. In FY16, DPS received applications for over 60,000 permits and licenses (commercial, residential, trades, signs, zoning, etc.). Over 110,000 people were served at the DPS walk-in counters. In FY15 DPS performed over 157,000 inspections and reviewed over 92,000 plans.

DPS has a far-reaching mission and not only includes permitting services but allocates its revenues between competing public safety and economic development objectives. Thus it has inspectors for commercial building, fire prevention and code compliance, residential construction, land development and zoning and site plan enforcement.

Property assessments are performed by the Maryland State Department of Assessments and Taxation, but the local jurisdictions in Maryland pay half the cost of MSDAT’s expenses. In addition, DPS has supplemented MSDAT resources with the provision of technology and technical assistance. , There are differences in the terms”cost estimate”, “fair market value” and “assessed value”, mostly due to timing

A trigger for reassessment would be a substantially completed improvement that adds at least $100,000 in value to the property. This generally translates to an increase in 694 – 887 square footage for an addition. The DPS issued 762 permits between January 2014 and April 2016 for additions over 800 sf and 1,868 permits for additions under 800 sf..

Every property is reassessed every three years, so those properties which have large changes in assessed value between assessments are eventually assessed appropriately. However, if substantially completed improvements to a property add at least $300,000 in value, an assessment can be done between scheduled assessment cycles. While there is a loss of tax revenue due to the lag in reassessing improved properties, that loss is relatively minor, per DPS. Furthermore, to devote more DPS resources to faster reassessment would mean that resources would need to be diverted from other DPS areas.

Washington Suburban Sanitary Commission (WSSC) Needs More Oversight

Washington Suburban Sanitary Commission (WSSC) Needs More Oversight   –  October 29, 2016

The WSSC is the second largest monopoly in the state of Maryland. It is a bi-county agency providing an essential function but with little oversight. The Montgomery County Taxpayers League has chosen to shed some light on this $1 billion agency and has testified before both county councils. We offer some insight on the issue below:

Both the Montgomery and Prince George’s County Councils voted this week to “guide” WSSC to a 3.5% rate increase for its proposed FY’18 budget.  This is a spending control limit, and will serve as a guideline as WSSC formulates it’s budget for approval next spring. 

WSSC wanted a 4.5% rate increase. Montgomery County Executive Ike Leggett endorsed that proposal while PG county Executive Rushern Baker elected to make no recommendation.  But a higher rate increase could still occur since this vote only provides guidance to the WSSC when it prepares its justification for its recommended budget next Spring. The good news is that both county councils were persuaded that a lower rate increase would motivate WSSC to find cost savings recommended in a benchmarking study completed last summer. 

That June 2016 study found that WSSC had weak, inefficient practices for fleet management, utility services, and asset management/capital improvements and too many IT staff and engineers.. All these, of course, continue to impact reliability of service unless corrected.  It is important to note that these problems also contribute to high costs and will need new cost controls.  Of particular concern is the 4.5% pay raise given to WSSC employees in last year’s budget – higher than the pay raise for our county employees.  Also, both Councils noted that the new fee to replace aging pipes are now in place thus eliminating the need for WSSC to cover these costs in volumetric rate.

One major issue both county councils will confront again next spring is the state law which compels both councils to agree on any changes to the WSSC’s operating and capital budgets. In the absence of such agreement, the requested WSSC budgets must be adopted (Section 17-202(c)(2), Public Utilities Article, Annotated Code of Maryland).  This so-called default budget law gives WSSC extra leverage in budget negotiations and does not allow the regulators of this, the second largest monopoly in the state, to adequately press for changes in the budget. We would support an amendment that, in the absence of an agreement, would default to the prior year’s budget.

The Montgomery County Taxpayers League continues to urge both Councils to amend or get rid of this default budget law which essentially treats the WSSC budget as a cost plus contract: WSSC spends more and rate payers pay more, never less, regardless of performance.  And let us not forget Montgomery County’s motto? “Gardez bien”

WSSC Rates: Testimony by MCTL Member Gordon Brenne

Testimony of MCTL Vice-President Gordie Brenne September 25, 2016, before a committee of the Montgomery County Council concerning an increase in water rates proposed by the Washington Suburban Sanitary Commission:

Rates rose in the last ten years at an annual rate of 6.63%, almost 3 times the CPI (Levchenko, 7/19/16, pg. 2).  This is because cost controls are weak. In addition, fees for customer service and infrastructure maintenance were added last year to fortify revenues, but will undermine any cost control incentives in these areas.

You would think the revenue picture is rosy at this point.  But it’s not, and it will always be desperate because weak cost controls and declining water demand create constant pressure on revenue sources.  (WSSC is now faced with a judgement to change its rate structure to address the equity of higher tier pricing beginning from the first gallon.)

Even if our residents had deep pockets and could subsidize WSSC indefinitely, our family rates are 34% higher than Fairfax County (combined water and sewer rates of $11.69/1,000 gals vs. $8.71, OLO 2016-7, pg. 22- this is for an average family of 3), and we estimate business rates are 69% higher ($15.02/1,000 gals at 500 gallons ADC vs. $8.89, Sue Lacourse. 11/15).  Fairfax is our primary economic development competitor.  Our families are disadvantaged and we could be losing business opportunities and jobs because of this.  What are Fairfax best practices that we can adopt to lower our costs?  Is their overhead rate as high as ours?  Do they manage fixed costs differently than variable costs? Do their cost controls link to their strategic plan?  Do they outsource activities we don’t to capture cost savings?  Does their supply chain management system generate greater cost savings?  Do their sewer rates subsidize water rates like ours? What have they done to achieve a lower unbilled water rate and increase revenues?

Our recent letter to Joe Beach (7/27/16) outlined three areas that are key to reliability of service, and highlighted in the benchmarking report as having weak practices: Utility Services, Fleet Management, and Asset Management/CIP.  We’re still waiting for a response.  These three areas contribute to productivity weaknesses, result in growing fixed costs, and are key to bringing costs and rates under control.

Basically, WSSC operates on a cost plus contract basis with the taxpayers.  They spend more, we pay more.  There is no incentive to control rates and costs will continue to rise indefinitely.  Why aren’t there incentives in the budgeting and rate setting process to improve performance?

Council Member Berliner has stressed the importance of reliability and we believe high costs impede reliable performance.  Until these cost control questions are resolved, no rate increases should be approved. No pay increases should be budgeted, and a hiring freeze should be imposed until WSSC has implemented new cost controls and realigned rates to compete with Fairfax County.

Finally, a state law requires both counties to agree on changes to both the operating and capital budget proposed by WSSC, or the proposed budget must be adopted.  This ridiculous rule resulted in excessive salary cost increases last year, and will guarantee the same result again this year.  The council must amend this rule to allow common sense to reign in cost and rate increases.  We also recommend that a citizen advisory panel be established to provide common sense criteria for the rate study.

(Effective organizations use compliance drills as an opportunity to advance strategic objectives.  What other objectives do WSSC pricing strategies serve beyond compliance and revenue generation? Conservation, economic development, medical research, farming and aquatic sports come to mind, and I’ve barely scratched the surface.  Does WSSC have these objectives and corresponding demand estimates and pricing strategies covered in its strategic plan?  If so, revising rates will be easy. If not, it will be little more than a random experiment).

WSSC Rates: Testimony by Susan LaCourse

Testimony of Susan LaCourse September 25, 2016, before a committee of the Montgomery County Council concerning an increase in water rates proposed by the Washington Suburban Sanitary Commission:

My name is Susan LaCourse, and I am a resident of West Laurel. I would like to speak on behalf of the many WSSC customers who send this message: DON’T RAISE OUR RATES!

Over the past three years, I have networked with over a thousand WSSC customers through my petitions on Change.org (649 signatures) and MoveOn.org (198 signatures) and through my Facebook page, “Marylanders for Affordable WSSC Water”. Dozens of customers have posted comments that specifically condemn the WSSC rate increases over the past 12 years and cry out for relief. (One comment was, “Help!”) Public perception is that WSSC spends money extravagantly and wastefully.

Here are some examples of what we see as customers:

  • WSSC’s newish fleet of spiffy 4WD SUVs that I personally have repeatedly observed WSSC employees use to drive to meetings (almost never with more than one occupant).
  • The $60 million expansion at the Patuxent Plant (WSSC has very publicly pointed out that total consumption is flat or declining and will remain so for the foreseeable future, and peak usage is far below capacity, so how necessary is this expansion?)
  • WSSC’s Annapolis office suite in a brand-new, state-of-the-art building (with an automated, robotic indoor parking garage) on some of the most expensive real estate in Annapolis (7 State Circle) that presumably allows WSSC lobbyists easy access to the State House (How many other utilities own office suites on State Circle?)
  • The spiffy Headquarters building in Laurel (this is mentioned a lot by customers)
  • The rumored 6-digit “birthday party” that WSSC plans to throw for itself to celebrate its 100th year

I have also repeatedly heard customers conjecture about executive compensation, salaries, benefit packages, pension and retirement benefits, etc. etc.

These are just the extravagances that we know about. How much more waste is there that we are not aware of?

The argument that excessive rate increases are needed every year to replace aging pipes is as old and tired as the pipes themselves. Pipe replacement is just a small part of WSSC spending.

It seems that everyone (including WSSC’s own consultant) acknowledges that WSSC has a customer relations problem. It can’t be solved by hiring more staff (WSSC’s plan). WSSC would do far, far more to improve customer satisfaction if they did some belt-tightening and passed the savings on to customers, than if they hired 100 more customer service staff. And hiring more staff just makes the spending problem – and the public perception of waste – worse.

I encourage you to serve your constituents responsibly by not raising WSSC rates for FY18.

Respectfully Submitted,

Susan LaCourse

 

WSSC Rates: Testimony by MCTL Member Ed Amatetti

Testimony of MCTL Member Ed Amatetti September 25, 2016, before a committee of the Montgomery County Council concerning an increase in water rates proposed by the Washington Suburban Sanitary Commission:

For nearly 15 years, I was an auditor and consultant to dozens of regulated utilities, and municipal and county  utilities, including as large as Cleveland, Providence, and the greater Oakland area.   My work has included rates.

The proposed rate increase should be denied unquestionably.  Rate increases far above inflation for 10 years running and a poorly designed rate structure are reasons enough.  But I want to focus on another compelling reason: that being, we still do not have a handle of WSSC’s cost structure, which determines the utility’s revenue requirements, and therefore, rates.  The Commission knows precious little about WSSC’s costs and whether WSSC is performing even the most basic utility activities at an acceptable level of efficiency.   This remains the case even after reading the recently completed, long overdue benchmarking study, which was poorly designed and did almost nothing to shine the light on costs or quantitative operational performance. 

Case in point: Montgomery Council member Leventhal is quoted as saying he and the Montgomery Council did not object to the rate increase “because of WSSC’s need to repair and replace aging infrastructure.”  But rather than an argument for a rate increase,this is a giant red flag and an argument for review of WSSC maintenance activities.  Infrastructure rehabilitation and maintenance should be part of a utility’s normal activities, and included as an ongoing line item in the operating budget each and every year for determining revenue requirements and rates.  Thus, we have a situation where WSSC is being rewarded with yet another rate increase and a new customer charge for not having kept up with maintenance and repair even while rates increased at three times the rate of inflation for 10 years running.

In the meantime, we know little about the miles of transmission mains inspected, rehabbed, or replaced each year or the costs of these activities, and how this compares to other utilities with similar size, age, and composition of pipe and corrosiveness of WSSC ’s water.  We know nothing about the number or percentage of valves in the system inspected or replaced each year, by size and age, or the costs per valve associated with these activities – and how these compare to other utilities.  Are there water treatment options that might protect the infrastructure better?   Same thing with activity after activity — none of which have been audited or reviewed properly. 

Then we have the $60M treatment plant expansion moving forward at a time water demand is absolutely stagnant.  The recent study did not even review cost-benefit justifications for the proposed scope of this project.   Why is this absolutely — because these facilities get added to the Rate Base and make future rate increases far more likely.

These are not specious or unwarranted complaints.  Without this type of cost data, a case for reducing costs cannot be effectively made and effective oversight of the utility is futile.   If the current rate request is approved, I question the value of even having a regulated utility at all.