Thursday, April 10, 2008

Is the Growth Debate Over?

A recent Washington Post article points out that the economic downturn has slowed growth to a point where it has affected local government revenue sources. While some folks had argued that we must slow growth in order to catch up on infrastructure, we now are in a position of scaling back our capital projects because decreased transfer, impact, recordation and income taxes have left us with a big budget shortfall, an estimated revenue loss of $78 million in FY08, in fact.

According to the County’s Department of Finance, there are three economic indicators of particular note. First, the County continues to have one of the lowest unemployment rates in the state, but job growth in payroll employment remains anemic with businesses adding fewer jobs in the past twelve months. Second, while home prices are still increasing at a low rate, home sales have declined nearly 34% during the fiscal year to date. Finally, because of the decline in home sales and the increase in the inventory to sales ratio for existing homes, the outlook for any improvement in residential construction is not encouraging.

I also find it interesting to note that the County's Department of Economic Development reports: from the second quarter of 06 to the second quarter of 07 (the most recent data available) private payroll jobs in Montgomery County dropped by 4,653 bringing the total number of private sector jobs to the lowest level in two years.

In a December column in the Gazette about our recently adopted growth policy, I worried that bringing growth to its knees would have an adverse effect on the county’s fiscal bottom line. As we now face school and transportation impact taxes about 1/3 lower than anticipated, we’re looking at delaying high school modernizations, deferring construction funding on five fire stations, delaying land acquisition for the Montrose Parkway East and cutting the Ride On bus fleet expansion. We’re falling behind, not catching up, on infrastructure and necessary programs and services.

In my April 4 post, I encouraged more discussion on the base budget issues. Here I solicit your views on the bigger picture. Do you agree with the Post that the “growth” debate is over? Do you have any thoughts on whether we should think about revisiting any current policies?

To read the Post article, my Gazette piece, the Department of Finance’s economic indicators, or the Department of Economic Development's Montgomery's Pulse, click on the links to the right.


The Athens Project said...

It would seem to me that all the Post was arguing was that growth has stopped of its own accord.

To be sure, the growth debate is a moot point NOW. Growth will be slow no matter what the council does outside of ruinous taxes to subsidize corporate relocation or other absurd measures.

Once the economy recovers and the demand returns for more residential property close in to job centers like Washington, Montgomery, and N.VA, what will Montgomery's response be?

The question may be whether we wish to raise the revenue necessary to fund those infrastructure improvements you mentioned during this "down time" or whether we wait for better times. When that happens, however, the growth in residential demand may produce ever greater gaps in needs versus capacity.

When the demand returns, we could always opt to refuse to build more housing until we build the infrastructure currently needed by existing homes and businesses. Given the repeated failures to do this in past flush times, it seems unlikely we would restrain devlopment when money isn't as tight.

Do we as a county choose to deliberately continue a course of constant catch-up or do we face down one of the two boogey-men at cross purposes: tax hawks and real estate developers.

The answer to the question lies in a decision by leadership to take a path of more resistance. A Herculean task in any political situation, I admit.

Anonymous said...

It seems that we rely too much on transfer, impact, and recordation fees to fund our government. Further, they are clearly too low since they do not pay for the infrastructure required to support development. Finally, we know that development cannot at a high rate continue forever - we are running out of land.

Ideally, we would fund all routine government programs on taxes that are reliable and predictable, and would use these highly variable ones for unusual costs.

Ok, I have no expertise in budgeting or running government, and so I may well be wrong. It goes against common sense, however, to rely on highly variable and unsustainable income sources.

Keep up the good work! You are among the best.

Scott said...

Dear Nancy:

How did we get to the point in this County that we spent all of the extra revenue from transfer and recordation taxes from the housing boom? Why is the only option to raise taxes? Why don't we suspend capital improvement projects for two years or until until the housing market recovers? Why don't we look at the budget increases for the last 5 years and see where all the money went, and cut it back? Where is the fiscal responsibility?

You would be the most popular person on the Council if you just said no to any tax increase this year. The County spending is so seriously out of control.

Anonymous said...

I think it's great that you're engaging in this discussion, if it is really you blogging here and not a staff member. Thanks for talking and, hopefully, listening.

Sara D

Councilmember Nancy Floreen said...

It�s really me! But I�m a bit distracted by the budget right now�.