Montgomery County Taxpayers League

The Voice of Taxpayers of Montgomery County, Maryland

Budget

A Tax Story…

A Tax Story
starring the County Council and the Council Executive

Last year the County Council raised the recordation tax on home sales with the revenue increase estimated to bring in about $200 million in revenue over the next 6 years.   At the time, the council said about $125 million of the new revenue would go to school construction projects, while the other $75 million would be used to build affordable housing and other infrastructure projects.
 
That was last year.  This year – like right now – it appears that the County Council proposes to approve $4.2 million of these recordation tax revenues to cover the legal fees in the county’s lawsuit against Foulger Pratt et al over the costs associated with the Silver Spring Transit Center.
 
Plus ca change …..

Questions for the meeting of December 14, 2016

Topic: “The FY 2018 Proposed Budget for the Montgomery County Public Schools

Speaker:   Dr. Jack Smith, Superintendent, Montgomery County Public Schools

Dec. 14, 2016 — Free and open to the public — 6-7:30 pm. —  Rockville Public Library

  The following questions have been sent to Dr. Smith in advance of the meeting

1.  What are the costs related to the top three academic strategies – Achievement Gap, 21st Century Education and Special Education for FY 2018.  What percentage of increased spending is for these 3 strategies? 

2.  Data from prior superintendents and reports by the Council’s Office of Legislative Oversight (OLO) show that MCPS has expended an additional $2,000 per student annually in “targeted” elementary schools to reduce class size and provide supports to low-income learners.  However the achievement gap by student race, ethnicity and income continues to persist and has widened on several measures of college readiness, such as SAT and ACT performance.   How many schools did not meet district-wide performance targets?  Have you set improvement goals for these schools for FY 2018?  As you have highlighted narrowing the achievement gap as a major goal, would you consider sponsoring an independent review by outside specialists of gap closing strategies to determine which approaches are cost-effective – with a report to the public?

3.  Will you consider charter schools as a means of closing the achievement gap?  A review of Baltimore schools in Freddy Gray’s Sandtown neighborhood showed a charter school (Empowerment Academy) not only out-performed his public school (New Song), but out-performed two elementary (Greencastle and Strathmore) and two middle schools with high FARMS rates in Montgomery County – Benjamin Bannecker and Argyle. (see 5/18/15 study posted on MCTL web site).

4.  Will you use Department of Education standards to decide if there is reasonable evidence to deploy a program countywide.  For instance have the Choice Program and the Middle School Magnet Consortium met their performance goals?  If yes, will they be expanded? Will you reprogram funds if goals for these and other programs are are not reached? 

5.  Are performance target improvements planned for special education students in FY 2018 separate from the at risk population at large? How do the marginal costs to achieve these improvements compare to the marginal costs for at risk students in the general student population for the same measures?

6.   Given that the mandated Maintenance of Effort law may not be able to cover both the program needs of our school children and the salaries and benefits of staff which account for 90 percent of the MCPS budget, will you rein in labor contracts so that teacher’s salaries and benefits match more reasonably with their counterparts in Howard and Fairfax counties?

7.  How does your FY 2018 budget manage non-instruction overhead ?  Have you considered benchmarking this against other school systems?  For example, the overhead rate at large school districts in California average 32%.  For MCPS it was 45%  in FY 2017.  Lowering this overhead could result in the hiring of thousands more teachers to lower class size and narrow the achievement gap.  Will you use the expertise of the business community to advise on administrative costs?  Will you consider consolidating administrative functions with those of the Montgomery County government.

8.   Language immersion programs are very popular and wildly over-subscribed.  To open the program to a larger school audience, have you considered innovative solutions such as partnering with universities that provide video classroom learning in a wide range of languages.   

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.

“How to End the Monopoly and Recover the Money”

From Seventh State an article by Adam Pagnucco.about ending Montgomery County’s monopoly on liquor:

The County’s Department of Liquor Control “monopoly earns money for the county and the [County] Executive does not want to lose it…Through a combination of a few more stores, incremental revenue sharing with the state and restructuring of the liquor bonds, the county could free itself from its liquor monopoly with no significant financial consequences.  No new taxes or fees are necessary.  And the county would see the creation of new jobs, more income, more economic activity and greater competitiveness with its neighbors as a result.”

As always we invite your comments.

 

 

“A County’s Self-Inflicted Compensation Crisis”

From Governing.com:

“One reason why even a large tax increase can’t cover the county’s expenses is that over the last six years deals negotiated by County Executive Isiah Leggett raised the wages of police, firefighters and other county employees by between 25.4 and 31.5 percent. Leggett says one reason for the hefty raises was his desire to avoid arbitration; the county has lost 16 of 20 arbitration decisions since 1988.”

Your comments are welcomed.

“Unions kill a smart arbitration proposal in Montgomery County”

From the Washington Post of July 29, 2016:

“OVER THE past six years, wages for Montgomery County’s about 9,000 public employees — police, firefighters, budget analysts, clerks, librarians, bus drivers, jail guards and others — have grown between 25 and 31 percent. That increase, nearly three times the inflation rate over the same period, is much greater than that enjoyed by most public- and private-sector workers, including federal workers. Montgomery taxpayers are on the hook for those raises, mainly through their property taxes, which will spike 9 percent this year.”

The proposal had its genesis in the Organizational Reform Commission report submitted to the County Council in 2011.  MCTL President Fidler was a member of the Commission.

As always we invite your comments.

 

 

 

 

Testimony by Pres. Fidler on Transparency in Labor Negotiations

Testimony Before the County Council on Expedited Bill 24-16, Collective Bargaining – Impasse Procedures – Amendments

by  Joan Fidler, President of the Montgomery County Taxpayers League, July 12, 2016:

President Floreen and members of the Council, I am Joan Fidler, president of the Montgomery County Taxpayers League and I am here to testify in support of Expedited Bill 24-16 on Collective Bargaining – Impasse Procedures.

First, we would like to thank President Floreen for proposing the bill as it reflects a degree of courage that we admire. It begins to restore the balance for the taxpayers of the county.

Bill 24-15 is a new beginning. Let us count the ways:

The bill provides transparency – it requires public disclosure at the outset of bargaining and at evidentiary hearings.

The bill introduces objectivity – it separates the roles of mediator and arbitrator

The bill recognizes the need for a level playing field – it replaces the single arbitrator with a 3-member panel.

There will be opposition to this bill from the labor unions. We believe that labor unions are important and so are employee rights. But taxpayers are important too and they too have rights.

So to the argument that requiring public disclosure would impede efficiency and effectiveness, we would respond that opening proposals are not exactly state secrets to be hidden from the taxpaying public and that evidentiary hearings in all trials are open to the public. Why not here?

To the argument that the transparency provisions of this bill are harmful, we would argue that the only two transparency provisions in this bill are opening positions and evidentiary hearings. Should the taxpayer be barred from those? The bill does not require any open bargaining sessions.

To the argument that using the same individual as mediator and arbitrator streamlines the process, we would argue that separating the two roles is a standard method of mediation used in our court system and in other local collective bargaining laws. Why not here?

To the argument that labor relations professionals will be replaced by retired judges, we would argue that retired judges have vast experience in assessing facts fairly. Why would we reject an experienced judge?

Most important, the current system of interest arbitration has a direct and tremendous impact on the cost of County wages and benefits. In the last 3 years most county employees have had pay raises of 21% with another 4.5% this year. The bulk of property tax increases fund the salaries and benefits of our county employees. It is said that he who pays the piper calls the tune. Could taxpayers see the arbitration sheet music before the score is settled?

We invite you to post your comments.