Report Part II: Options for Long-Term Fiscal Balance

Reducing future salary increases; raising the employee share of health benefits; restructuring retirement benefits; reducing the size of the workforce; reducing debt service; and increasing revenues are among the options we might consider, according to Part II of the Office of Legislative Oversight’s report on the County’s structural deficit.

I asked the OLO to undertake this study during our operating budget deliberations earlier this year as it became increasingly apparent that quick fixes aren’t going to resolve our long-term, built-in problems. In June, we adopted a six-year fiscal plan that outlines the spending limits needed to achieve balanced annual budgets. That plan gave us clear warning that there are structural problems we are going to have to address or it will never work. The options presented in this report will allow us to start a really meaningful conversation about where we go from here.

In regard to employee salaries, the report presents options such as salary rollbacks, calculated at 1, 3 or 5 percent. A 1 percent rollback implemented in FY12 across the four agencies (Montgomery County Government, Montgomery County Public Schools, Montgomery College and the Maryland-National Capital Park and Planning Commission) would save about $23 million. Other options address ways to reduce the rate of salary growth by modifying the current structure of general wage adjustments and step increases. For this and other options, it is important to note that MCPS represents two-thirds of the total workforce.

Options to lower the projected increases in locally paid retirement benefits include approaches to replace defined benefit retirement plans with lower cost defined contribution or hybrid plans for newly hired employees; increase the share of retirement costs paid by employees; and reduce benefit levels.

Options that could lower health care costs for the County include setting a uniform employer cost share at 70 percent for all plans; charging employees who enroll dependents a higher cost share; and setting a uniform employer cost share of 60 percent for part-time employees. The report says implementing these options (as of January 2012) could produce savings for the four year agencies that range from $7 million to $46 million in FY13, and from $19 million to $123 million by FY16. The report shows how phasing in changes over several years also provides cost savings, but at a slower rate.

The report recognizes that eliminating positions is one way to reduce personnel costs. The report calculates that, based on current average employee pay and benefits, approximately 110 workyears (110 full-time employees) would need to be eliminated for every $10 million in annual savings. Illustrative examples of what $10 million in personnel costs currently buys include: 100 percent of the staff in 11 libraries; 153 newly hired MCPS teachers; 26 percent of all Montgomery College staff at the Rockville campus; or 83 percent of all Planning Department staff. I note that Part I of the report states: “Between FY02 and FY11, the primary driver behind higher personnel costs was not an increase in the size of the workforce but rather the increase in average costs per employee.”

The executive summary of Part II of the report recognized that difficult decisions are ahead. “For the many governments currently struggling to align revenues and desired expenditures, it certainly would be desirable if some options existed that magically provided win-win solutions. However, as with so many other jurisdictions, the reality of the County’s fiscal picture, at least for the foreseeable future, requires decisions that involve asking some to pay more and/or others to make do with less. In other words, the reality is that none of the options promise an outcome where everyone wins.”

It is clear we have our work cut out for us with the upcoming FY12 budget as well as further into the future. As we work through the complex issues, we will have to balance our need to control spending, provide services and treat our employees fairly. This will be a long and ongoing conversation, so please let me know what you think.