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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Questions for meeting of February 20, 2019

Questions for meeting of February 20, 2019

Presentation:   “County Executive’s Transition Plan”

Speaker:  Andrew Kleine, Chief Administrative Officer, Montgomery County Government

7 Questions sent to Mr. Kleine in advance of the meeting:

1. Thriving Youths –   Will the Executive recommend an MCPS FY 2020 budget based on a review of MCPS strategies to close the achievement gap?  How?  By how much will the $400 million provided by the County to MCPS (in addition to its appropriated budget of $2.6 billion) succeed in closing the achievement gap? Will the infusion of funding for Pre-K programs be accompanied by rigorous student academic performance measures to ensure that strategies are producing results that do not disappear by 3rd grade? 

2.  Growing Economy and Tax Equity – How will transition strategies address the 2018 slump in residential and commercial development and foster balanced growth in the residential and commercial property assessment tax base?  Residential assessment base growth remains low, in part because the State Department of Assessments and Taxation (SDAT) reassessments have not kept pace with improvements to existing single family homes (“McMansions”),and also because policy treats these improvements as subject to Charter Limits.  Consequently, homeowners without improvements are subsidizing the property taxes of those homeowners with improvements who see delayed and in some cases no market-based reassessments by SDAT.  How would the Executive change this and encourage better coordination between the Department of Permitting Services, SDAT, and the Department of Finance?

3. Non-Governmental Grants – If arts organizations are an integral part of the quality of life in Montgomery County, what are some of the results from such organizations that would qualify for funding under “outcome budgeting”?

4. Affordable County – Demand for rental housing has increased significantly in recent years, from 25% to 32% since 2008, but supply has remained limited, driving up rents.  The average cost to build an MPDU (Moderately Priced Dwelling Unit) is now $190,000, placing further pressure on supply.  A consultant studied the county’s affordable housing policies in 2017 for the Council and recommended that funding for the small but promising locally funded voucher program be increased. The Council declined.  How would the transition plan expand access? 

5. Effective, Sustainable Government – One performance measure calls for awarding more work to minority-, female- and disabled-owned and local businesses presumably to improve the cost-effectiveness of County services?  Shouldn’t a performance measure include periodically evaluating every non-core activity to determine if out-sourcing would make the service more cost-effective?  Could the County’s bond rating be improved by subjecting capital spending to rigorous return on investment analysis and ranking?  

6. WSSC-  A billion dollar operation, WSSC has water rates double those of Fairfax Water and spends on projects that have either no rate of return or one that’s lower than the cost of capital. We, as rate payers, subsidize the resulting debt service.  Consequently, we have endured a never ending spiral of above market rate increases (132% since 2003).  But WSSC continues to argue in its proposed budget (1/15/19) that it cannot calculate ROI or rank projects based on their returns.  In a 2/7 hearing about the CIP plan that involved no substantive discussion of major projects, the T&E chair remarked that he would stay in his “swim lane”, and would look to the state delegation’s Metro committee for oversight.  Does the Executive plan to also defer to the state?  Would the Executive support shifting rate-making away from local politicians to the state’s Public Service Commission?

7. Safe Neighborhoods – The Police Dept has 1/3 more officers in its Investigation Division than does Fairfax County, but does not have comparable closure rates.  Unlike Fairfax county, our 911 call system is not run by an independent agency with strong cost controls and has been slow to innovate and add features to locate cell phone callers.  How does the transition plan address performance in these areas?

OPEN TO THE PUBLIC

Notes from the meeting of Jan. 31, 2019 – Good Governance

Meeting of January 31, 2019

Topic: “Approaches to Good Governance in Montgomery County

Speakers: Evan Glass, Council Member At-Large, Member Health & Human Services Comm., Transportation & Environment Comm.

Andrew Friedson, Council Member – Dist. 1, Member Govt. Operations & Fiscal Policy Comm. ; Planning, Housing & Economic Development Committee

Because of the limited time of Council Members Glass and Friedson, they were able to respond to just 4 questions ( see highlighted areas) that had been sent to them in advance of the meeting.

1. There was a lot of discussion about the fraud at the County’s Department of Economic Development (DED). Although the fraud by Peter Bang, DED’s Chief Operating Officer, had been discovered in April 2017, the public never heard about it until November 2018, a year and a half later. A casino operator became suspicious because Bang was using large sums of money for gambling, and the casino then alerted the IRS. When asked why it took so long for the County to hear about this case, the response from the County was that it took the IRS a long time to trace the money trail, which led to South Korea. Both Messrs Glass and Friedson found this curious. There could be more fraud in that area but no one knows yet. (The 161-page report of the County’s Inspector General is available online at  www.montgomerycountymd.gov/OIG/Resources/Files/PDF/IGActivity/FY2019/mcded_mismanagement_final_report_19_nov_2018.pdf)

The County Executive is searching for a new head of Human Resources who may pursue the issue as to the status of county employees during criminal investigations. It should be noted that Mr. Bang was transferred to the payroll of the County’s Department of Finance where he remained until he was terminated in 2018.

We were told by Council Member Friedson that he formerly worked on Comptroller Franchot’s staff and thus also staffed Board of Public Finance issues. He has extensive experience in looking at contracts in general and in no-bid contracts in particular. He was involved in questioning contracts awarded to support the state’s implementation of the Affordable Care Act. Some contracts were let without competition and lacked transparency.

Council Member Glass, as a former CNN journalist who covered issues on Capitol Hill, has extensive investigative experience. As a supporter of transparency, accountability and better governance, he supports an Inspector General for Montgomery County Public Schools, supported both by the Taxpayers League as well as by the Montgomery County Civic Federation.

The Office of Procurement, formerly within the Department of General Services, is now an independent office. It works with the Department of Finance’s accounts payable function to validate payment requests and to match them to existing contracts. The Department of Finance manages grants and tax credits of the Department of Economic Development. The Taxpayers League questioned the oversight exercised by the Department of Finance noting that while they operate critical internal controls, those controls are not independently tested by external auditors and thus these auditors do not render an opinion on internal controls.

2. Council Member Friedson stated that the lack of affordable housing affects the educational achievement gap. Council Member Glass said that more funding should be provided to narrow the achievement gap with the provision of more wrap-around services to the public schools. There is a $28 million carryover in the MCPS budget, which is not subject to the requirements of the Maintenance of Effort (MOE), There has been more collaboration between MCPS and the Montgomery County Education Association (teachers’ union) with the advent of the new union president. The new focus is on a more holistic approach. Everyone including educators, parents and social service providers needs to be involved. 33% of MCPS students are in the FARMS program (Free and Reduced Meals).

Council Member Friedson talked about impact fees on developers . The Taxpayers League noted that impact fee collections have dropped over the last year not only due to tax credits to developers but also due to declining development which appears to be a trend in the county. This has an adverse effect on schools as impact fees fuel tax revenue on which the public schools are dependent.

3. Council Member Friedson opined that the recent decision by Amazon not to choose Montgomery County as its second headquarters was not due to our taxes, as Long Island City in New York is a high tax district too. Businesses are hesitant to relocate to the county because the very high cost of housing makes it too expensive for the average employee. He said that the county’s economic development strategy should focus on our high quality of life to distinguish it from our competitors.

4. All agreed that affordable housing is critical and the need for it is growing. Council Member Glass noted that the percent of those residents who are renters has increased since 2008 from 24% to 32%. Council Member Friedson stated that the Bethesda Master Plan will add another 1,300 housing units and that the county has added over 37,000 affordable housing units in the last 5 years but more is needed. This number is at variance with Taxpayer League data that shows a net balance of 16,000 MPDUs in inventory. The difference may be attributable to the units that have been retired either by sale or conversion.

Fortune 500 companies choose VA, not MD

We recently did a little research into the number of Fortune 500 companies headquartered in Maryland and Virginia.  Of the total of 24 in the two states, three are headquartered in Maryland – all three in Bethesda (Lockheed Martin, Marriott International, and Host Hotels and Resorts). The other 21 are in Virginia – of which 10 are across the river from Montgomery County.

Who says Maryland is business friendly?

 

 

 

Popular Annual Fiscal Report – FY18

Montgomery County recently released its Popular Annual Fiscal Report (PAFR) for FY18.  Its 16 pages are full of facts about the county’s fiscal resources and expenditures. Miscellaneous data include–

—  Population: 1.057 million

—  Median Household income:   $103,178

—  Top employer:  U.S. Department of Health and Human Services  (Of the top ten employers, 4 are Federal agencies, 2 are local government, 2 are not-for-profit health services providers and two are publicly listed private businesses)

—  Average Housing Value: $460,100

—  Home ownership: 65.6%

—  Bachelor’s Degree or Higher: 58.3%, (U.S. rate: 32%)

 

 

 

“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