Six-Year Balanced Fiscal Plan and Reserve Policy

We signed off on a six-year balanced fiscal plan which I recommended in April. We also enacted a new reserve policy that will take us to a 10 percent reserve in nine years.

Although the County Charter does reference it, this is the first time the Council has instituted a six-year projection designed to reduce annual budget gaps and lessen the impact of severe economic downturns. The plan will not constrain future Councils in their year-to-year decision making, but it will provide valuable information and guidance for sustainability over the long term. The plan not only will guide Councilmembers but also will give communities and the County's four agencies--Montgomery County Public Schools, Montgomery College, the Maryland-National Capital Park and Planning Commission, and County Government--a realistic view of what they can expect in the upcoming years. The plan will be updated annually as conditions change. I see it as a great tool for everyone.

Under the new reserve policy, we will gradually increase our reserve to 10 percent of adjusted governmental revenue over a nine-year period. The current reserve target is 6 percent of total resources. We will have to be very thoughtful about spending to meet our goals, but this plan will put us on more solid footing for future economic downturns. It is important to note that a 10 percent reserve is fairly modest according to our financial advisers who recommend a reserve equivalent to 60 days of operating expenses.

In April the bond rating agency Moody's placed the County on "watchlist negative." Moody's listed both our recent history of structural deficits and our low reserve fund policy as factors in the warning. We covet our AAA bond rating, which reflects the County's excellent financial management over time. Maintaining the top-notch rating allows us to borrow at a low interest rate, which means we can invest in infrastructure at a lower cost.

This is a new era in Montgomery County, and it means we're going to have to be more disciplined. This comprehensive fiscal management package is a big step in the right direction.