Thoughts on the Mortgage Crisis and Property Tax

On May 21 I had a rare opportunity go down to Capitol Hill to testify before the Domestic Policy Subcommittee of the Oversight and Government Reform Committee of the U.S. House of Representatives on the Neighborhood Stabilization Act of 2008 (HR 5818) dealing with the sub-prime mortgage crisis. It was great to speak to former local government officials (Chair, Rep. Dennis Kucinich was former Mayor of Cleveland) and talk about the critical issue of protecting neighborhoods from the risk of homes being abandoned due to foreclosure.

Speaking on behalf of the National Association of Counties, the United States Conference of Mayors, the National Association of Local Housing Finance Agencies and the National Community Development Association, I had the opportunity to point out that even in a relatively affluent community like Montgomery County, the foreclosure rate had increased 800% over last year. While our numbers are nothing like those in places like Flint, Michigan, they certainly are worrying.

I also mentioned my long term concern about how the potential for deteriorating property values can affect our ability to provide necessary services due to our heavy reliance on the property tax for revenue. (This basic issue is indeed shared across the country.)

That leads me to my next question for my constituents.

Now that we have concluded our struggle with the budget, what are your suggestions for decreasing our reliance on the residential property tax to fund government services? In this last round of budget review and tax raising, I cannot, for the life of me, see how we can go any further. Certainly many Montgomery County residents have e-mailed me to say we have gone too far already. Others have said thanks for funding a service that is important to them. But finding the right balance between desired services, and our ability to pay, is the inevitable and constant struggle in the budget.

Do you have any good ideas on what policies we should pursue in the coming year to keep us from demanding any more from the residential property tax base? I personally cannot see how reducing employee compensation in order to add more services is fair or even doable, but I am all ears as to your suggestions.

What the Heck Happened on the Budget?

It’s been quite a week. And a good example of how eight people with differing points of view can ultimately come to agreement after a certain amount of pushing and shoving.

Throughout this process, I worried about the burden the proposed property tax increases would have on the average resident and kept advocating for spending less generally while some of my colleagues directed their attention to reducing employee compensation one way or the other. It was certainly true that everyone here was genuinely concerned about protecting our residents from unnecessary costs, although we may have expressed that point in different ways.

After the dust cleared, we ended up this way:

1. We eliminated Ike’s proposed 7.5 cent property tax rate increase and still were able to give every homeowner a $579 credit on their tax bill. Although the rate has not gone up, residents will still see an increase in the bottom line.

2. We adopted my carbon tax surcharge which takes some of the burden off property tax payers by generating about $11 million from ALL users of power, including those who do not pay property tax such as the federal government.

3. Our tax supported budget spends about $6 million less than Ike proposed. (At least a start towards my objective!) No employee compensation is affected by this.

4. We allocated about $18 million more to schools than Ike proposed; restored nighttime fire and rescue staffing to Glen Echo; restored community outreach officers and a recruit class to the police; added $7.5 million for Montgomery College; and added nearly $5 million to the park and planning budgets, among a myriad of other things.

It’s a good but not perfect budget; it represents a fair compromise among eight different points of view.

I’ve included the material we had to work with in the links to the right. Take a look. I’ve had my turn. How would you have balanced the budget based on the information in the links?

My Call for a 2% Cut in Spending Across the Board

Today I challenged all departments and agencies to provide us with budgets that reduce spending to 2% below the County Executive’s proposed budget by noon on Friday. A 2% reduction would save about $76 million and would reduce the County Executive’s proposed property tax increase by a little more than half.

As far as I am concerned, the proposed tax burden is untenable, particularly for the average homeowner facing increased fuel, food and health care costs. I am afraid that this budget is way out of line. In today’s economy, it is unaffordable.

The County Executive’s proposed tax-supported budget is about $3.77 billion, a 4.2% increase over last year’s approved budget. It is funded in part by an average 14.7% increase in property taxes that can be as high as 20% for commercial properties and 40% for some rental properties, according to Council staff analysis.

Mr. Leggett’s budget is currently about $138 million over the Charter Limit, which is defined as last year’s budget increased by the inflation rate of 3.6%. My proposal also would exceed the limit but by the lesser amount of $62 million, which could be partially resolved by taking the reserve down to 5.5% to save another $20 million; stretching the Other Post Employment Benefit Payments to 10 years for $11 million; and passing the carbon surtax for $11 million.

I appreciate the hard work all of the committees did in analyzing the agency budgets before them. I know my colleagues have put their hearts into trying to limit spending. But I don’t believe we have gone far enough. Our neighbors in Fairfax County, the District of Columbia, and Prince George’s County are looking at budget increases of no more than 1.3%. We in Montgomery County need to join the rest of the region in looking toward a more sustainable budget.

New Bethesda Parking Garage

Today the Transportation and Environment Committee, which I chair, approved the County Executive’s proposal to construct a new parking garage south of Bethesda Avenue at Woodmont Avenue. This approximately 1,158-space garage would replace Lots #31 and #31A (279 spaces). Although this underground garage, which will be partially funded by the developer of an adjoining mixed-use project, will net 879 new public parking spaces, parking will continue to be constrained in the area, and we will continue to encourage alternative means of access such as transit and biking. Construction is scheduled to occur in fiscal years 2011-12, although you may notice some preliminary work earlier than that. Will you use this parking garage to visit existing and upcoming retail in the area, or are you more likely to walk, bike or take Metro? To learn more about this project, click on the link to the right.