Montgomery County Taxpayers League

The Voice of Taxpayers of Montgomery County, Maryland

Budget

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

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?.

 

 

 

Testimony before the County Council on the Proposed FY 2019 Budget

Testimony before the County Council on the Proposed FY 2019 Budget

April 11, 2018

Thank you for the opportunity to testify on the proposed FY 2019 budget. I am Joan Fidler, president of the Montgomery County Taxpayers League.

I’d like to note that this is very definitely a $5.56 billion election year budget – no property tax increases and a decrease in the property tax rate. And kudos to the County Executive for increasing the county’s reserve fund to $492 million.

And now a cautionary note: income taxes continue to be volatile. We ask that despite pleas from many for “more money, more money, more money” that the only exceptions be for the most vulnerable in the county – the working poor, the homeless, veterans and the developmentally disabled.

Next, we believe it is extremely short-sighted and somewhat reckless to reduce the county’s contribution to the employee retirement fund by $21 million – let us not mortgage our future.

Regarding our public schools where funding has been proposed at $19 million over the mandated what we call the Maintenance of Emolument level, we ask that you require the school system to provide you with the specific goals that they plan to achieve along with performance measures and timelines. If they are unable to do so, then taxpayers are funding a budget of $2.59 billion with results of which we are unaware. The school system does have a strategic plan that I would describe as more poetry than prose.

And here are two ideas: (1) that MCPS establish at least one charter school, perhaps in easy county, focused entirely on innovation – perhaps one that attempts new ways to narrow the achievement gap, and (2) that MCPS establish an Inspector General position reporting directly to the Board of Education – MCPS is too large a system to be run by bureaucrats with no “lean, mean junkyard dog” overseeing its operations, and more important, its performance. The Board alone cannot do it.

And now to job creation. Our increase in job growth has been, let me understate this, abysmal. According to BLS, the growth of establishments in Montgomery County between 2011 and 2016 was SIX! We were dead last in the Washington region. Is the Montgomery County Economic Development Corporation really succeeding?

I end on a somewhat nostalgic note as this is the last time I will be testifying on the budget before this particular County Council. Four of you will not have to sit through such hearings again. And so we at the Taxpayers League wish council members Berliner, Elrich, Floreen and Leventhal the very best as you move on to other pursuits.

Thank you.

Questions prospective voters could ask candidates for county and state office.

Many voters have asked us to come up with thoughtful questions that they could ask of candidates for local and state offices.  Too often we hear the same promises of greater support for schools, better transportation and lower taxes.  But very little is said about how a candidate intends to achieve these goals.  Our questions below are designed for voters to ask candidates directly so they can get a specific answer as to how the candidates intend to fulfill their promises.

 

County Level:

1.  Now that debt service accounts for 10% percent of the county budget and is for all intents and purposes at its ceiling, how would you address school construction needs?

2.  The Department of Liquor Control is run by the county government and handles the purchase, warehousing and sale of liquor bringing in $28 million in revenue in a $5.5 billion county budget.  Do you believe that the county government should employ 442 county staff and cover their salaries and benefits or does this function belong in the private sector?

3.  The County Executive’s budget proposal for FY 2019 gives the school system $2.59 billion of which $19 million is over and above the mandated Maintenance of Effort level.

–  Do you believe that the school system, while it describes how it will spend the increase, should also show how the increase will produce results?  How would we know that such results have been achieved?

  • 45% of the MCPS budget is overhead (non-instruction), Should MCPS cut overhead costs before it gets an increase in county funding? By how much?
  • Public school budgets are created by non-elected public employees without formal input from the taxpaying public.  What would you do to make the taxpayers feel more confident that the schools are spending their tax dollars wisely? Is it time for an Inspector General for MCPS that would look not only at waste, fraud and abuse but also at program performance?

4.  According to Maryland’s State Department of Assessments and Taxation, there were just 19 new filing for new businesses in Montgomery County in FY16. In the year before there were 57 new business filings in the county. What specifically would you do, at the county level, to encourage business growth in Montgomery County?

5. In addition to reduced income tax forecasts, recordation/transfer and energy taxes are forecast to be lower than expected over the next 5 years.  What are some of the programs or services where you would reduce spending to balance the budget?

6.  County employees will get a 2% cost-of-living increase along with a 3.5% “step” increase in FY 2019.  Do you believe this comports with wages in the private sector in Montgomery County?

7. It has been said that collective bargaining gives unions an unfair advantage in arbitration, leading to pay raises way above market and the highest paid employees in the region.  Would you support changing the arbitration rules? Also would you support more transparency in collective bargaining negotiations so that the public is aware of the “going in” positions of labor and management and is allowed to express their opinions at a public hearing before the agreement is finalized?

8. County income taxes have varied significantly from forecast for the last 2 years.  Property taxes are less volatile, but stagnant, and subject to Charter limits.  Would you support increasing property taxes on home improvements by treating them as “new construction” and thus gaining more for the county in property taxes – without Charter limit restrictions? In other words, do you support the inequity of property owners of unimproved properties supporting those who have made major improvements to theirs?

9.  WSSC, the largest monopoly in the state of Maryland, has prepared a six-year fiscal plan that requires 6% rate increases to maintain the debt service it has accrued to meet its net revenues.  WSSC also has ad valorem taxing authority to raise county property taxes. What oversight would you propose to make WSSC an efficient and effective monopoly to avoid these annual rate increases or even an increase in property taxes? 

10. What specific experience do you bring to the office to which you wish to be elected which demonstrates your development or implementation of a program in the public sector.

State Level

1.  The Maryland State Retirement and Pension System has $20 billion in unfunded liabilities.  The last time the State fully funded the system was in 2000.  Further, the State pays $500 million a year to financial management firms to manage pension investments at no higher a return than low-cost index funds.  Should we continue to pay out $500 million a year to these firms?

2.  For every $1 that Montgomery County taxpayers send to Annapolis, we get 20 cents in return in direct aid.  Howard County, a wealthier county than ours gets 24 cents on every dollar.  How would you get us, at least, to Howard County levels?

3.  Our delegates to Annapolis inform us, every year, that they have passed a “balanced” budget.  True, in one sense.  However it excludes long-term liabilities which in pensions alone exceed 10s of billions.  How would you provide transparency in budgeting?

4. According to the State Department of Assessments and Taxation there were just nineteen new business filings in Montgomery County in FY16.  In the year before, there were 57 new business filings in the county.  What specifically would you do, at the state level, to encourage more business growth in the county?

5. Would you support Maryland Public Service Commission oversight of the WSSC, the largest monopoly in Maryland? Would you support privatizing the WSSC?

6. Do you favor the modernization of the state’s laws governing breweries? Breweries—most of which are small businesses—are limited to 2,000 barrels of beer they can sell to visitors in their tasting rooms. They can sell an additional 1000 barrels but only by adhering to a “buy back” provision requiring that they sell the extra beer to a distributor and then buy back their very own beer. This puts our breweries at a competitive disadvantage regarding surrounding states and hinders job growth and the concomitant increased tax revenue.

Next Meeting: Monday, April 9, 2018 – 7:30 – 9:30 pm

 Montgomery County Taxpayers League

 in partnership with

 Montgomery County Civic Federation

 

Monday, April 9, 2018  –  7:30 – 9:30 pm

Lobby Level Auditorium, Executive Office Building

101 Monroe Street, Rockville, MD 20850
PLEASE NOTE NEW TIME AND VENUE

Free and open to the public

                                                                       

Topic:   “ The Taxpayers’ Take on the FY 2019 Montgomery County Budget”
 
Speaker:  Alexandre Espinosa, Director, Department of Finance,  Montgomery County Government
 
The meeting will start with a presentation of the taxpayers’ view of the budget followed by a Q and A session with the Director, Department of Finance, Montgomery County.  Please bring your questions to the meeting. 

 

State Report Blast Dept. of Assessment and Taxation

A just-released 49-page fiscal compliance audit report on the operations of the State Department of Assessments and Taxation (SDAT) has found the state is foregoing millions in property tax revenue because of inefficient assessments.

“According to DAT’s records, only 275,461 of the 676,066 residential real properties (that is, 41 percent) that were to be reassessed during the 2015 assessment year received an inspection of any kind….DAT estimated that the use of oblique aerial imaging for real property assessments across the State should result in increasing the assessable base statewide by as much as $1.4 billion.”

Maryland is one of only two states in which property assessments are done by the state; in all others it is done by the local jurisdiction.

Improved Properties Are Not Being Reassessed Properly

Unimproved property taxpayers are subsidizing more expensive, improved property owners.  How big is the under-assessment problem?  A 2017 report estimates that Montgomery County’s residential property assessment base would be $2.7 to $3.6 billion higher, resulting in an additional $140M in annual property tax revenue.

Read the report by Gordie Brenne and Carol Placek

 

 

County Debt Is Serious Problem

From The Seventh State of February 21, 2018:bethesdamagazine.com:

“Over the last eight years, the county’s debt has been growing by more than 5 times the rate of inflation….Relative to the size of the population, the debt has been rising too.  When we compared the county’s total debt levels to population estimates from the U.S. Bureau of Economic Analysis, we found that total debt per capita has grown from $1,370 in 1997 to $3,768 in 2017….As for debt service, it has risen from $140 million in FY97 to $408 million in FY18.  If debt service was a county agency, it would be the largest agency in county government other than MCPS.” 

 

Accountability in Education Act: MCTL View

 

Testimony sent to the Senate Education, Health and Environment Affairs Committee

SB 302 – Accountability in Education Act of 2018

February 8, 2018

The Montgomery County Taxpayers League supports SB 302 – but with major reservations. The premise of the bill makes eminent good sense – the establishment of an Investigator General (IG) at the state level. No such investigatory body exists at present and oversight suffers. However, there are some problems with the bill.

  1. We do not see the need – nor the expense – of setting up a whole new commission with all its trappings to select the IG and to whom the IG will report. We have a State Board of Education that could very well fill that role. The Educational Monitoring Unit could be housed either in the Maryland State Department of Education or could be situated within the State Board with the investigative and analytical functions listed in the bill.
  1. Other than sub poena powers, we are not sure as to why many of the other functions are not currently being performed by the MSDE or through the oversight of the State Board.
  1. How will the functions of this new entity comport with those of the various boards of education in the state who currently perform many of the same functions. Will IG decisions over-ride personnel decisions protected by local collective bargaining agreements? Will corrective actions mandated by the IG be funded by the state?
  1. Will it benefit the Investigator General to support the establishment of inspectors general in the larger school districts? Should local jurisdictions elect to do so, will the state fund the establishment of these positions?

It appears to us that the premise of the bill is worthwhile; the creation of yet another free-floating commission is not. The tightening of oversight is worthwhile; the overreach in some of the functions is not. And lastly, though the bill does not intimate it, the establishment of inspectors general in some school systems would strengthen local oversight – and lighten the work load of the proposed Investigator General.

Joan Fidler, President

Montgomery County Taxpayers League