County Retains AAA Bond Rating

All three bond rating agencies--Standard & Poor's, Fitch and Moody's--reconfirmed the County's AAA bond rating. This is good news because it allows Montgomery County to issue bonds for our capital borrowing at the most favorable rates, saving taxpayers millions of dollars over the life of the bonds. The County's pending issuance will refinance $295 million of bond anticipation notes and $27.7 million of long-term debt. Montgomery County is only one of 38 counties (out of 3,140) in the nation to receive a AAA rating from all three rating agencies.

During the Great Recession, the Council took extraordinary steps to strengthen the County's fiscal health. Starting in 2010, we approved a balanced six-year fiscal plan that ensures the County develops a long-term strategic approach to budgeting. We also made structural changes that have enabled the County to bounce back faster than most jurisdictions nationwide.

Budget: Next Year Will Be Bigger Challenge

Last year's fiscal plan projected a very small 0.1 percent increase in funds available for agencies in FY12. The actual number turned out to be very close at 1.4 percent (the inflation rate for 2010 was 1.7 percent). That was valuable information for us to have last June, and we planned accordingly. This year’s projection for FY13 shows a decrease of 2.7 percent, and that means we need all hands on deck. It means that next year looks even more challenging than this year.

We approved our second annual fiscal plan last week. We started requiring a six-year balanced fiscal plan at my urging last year when I was Council President as a way of addressing our structural deficit. While the plan does not constrain future Councils in their year-to-year decision making, it provides valuable information and guidance for sustainability over the long term. The plan gives 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.

This year's plan makes clear what we already know intuitively--that absent a far more robust economic recovery than has occurred to date, we are facing limited resources for FY13 and beyond. Current projections for FY13 showing a decrease of 2.7 percent in funds (nearly $100 million) available for agency expenditures mean we again are going to have to work together to make difficult decisions. Future years show very modest increases of 2.2 percent, 3.4 percent, 4.8 percent and 3.6 percent.

FY12 began on July 1, 2011, and budget deliberations for FY13 will begin on March 15, 2012, when the County Executive transmits his proposed budget to the Council.

Joint Statement with County Executive on Fiscal Steps

Joint statement by Nancy Floreen and Ike Leggett:

The Great Recession has wreaked havoc on state and local governments nationwide, and Montgomery County is no exception. Plummeting revenues have forced many painful choices including pay freezes, furloughs, service reductions, and increased taxes.

This may be a "wake-up call" for some local jurisdictions -- but not to Montgomery. The work of putting Montgomery’s fiscal house in order – cutting unsustainable spending trends and responding to the economic downturn -- began several years ago.
But times remain tough, and in just the past two months we have taken five more decisive steps to meet our fiscal challenges.

Step 1. We passed a County budget unlike any other in County history. For the fiscal year that started July 1, the Executive Branch and the County Council closed a budget gap of nearly $1 billion, or about one-fourth of our total budget. We reduced overall spending by 4.5 percent, the first year-over-year decline in four decades. While this required a pay freeze and furloughs for our employees, as well as service reductions for our residents, we preserved our highest priority services in education, public safety, and the needs of our most vulnerable. We kept property taxes at the Charter limit, providing a $692 credit to all owner-occupied homes. The higher taxes we did approve, on energy and wireless phones, were just 17 percent of our total gap-closing plan. They were a last resort in order to avoid even more crippling cuts in critical services.

Step 2. We strengthened County reserve funds, which fell sharply as the recession deepened. Our new policy will gradually raise reserves to 10 percent of adjusted governmental revenue, greatly improving our ability to handle future downturns and confirming the historical excellence of our financial management.

Step 3. We pulled together all our agencies -- Montgomery County Public Schools, Montgomery College, the Park and Planning Commission, County Government, Housing Opportunities Commission, and WSSC -- to aggressively seek savings from joint interagency efforts in technology, utilities, benefits, procurement, facilities management, and other areas. We've also asked an expert group of County residents to propose more efficient and innovative ways to deliver County services.

Step 4. We are reexamining the County's structural budget challenges by analyzing the "cost drivers" that create spending pressures and the policy options to address them.

Step 5. We approved a six-year fiscal plan that outlines the spending limits needed to achieve balanced annual budgets. This will help us prevent future budget gaps and lessen the impact of severe downturns. It marks a new era in the County’s fiscal stewardship.

All these steps will help make us leaner, more productive, and better able to meet the needs of our one million residents. We have also taken important steps to expand the County’s tax base by approving the White Flint Sector Plan, the Great Seneca Science Corridor Master Plan, the nation’s first local biotech tax credit, and a new Montgomery Business Development Corporation.

Already these moves are bearing fruit. Just two weeks ago, all three bond rating agencies affirmed Montgomery County’s "Triple-A" bond rating with a "stable" outlook, which allows the County to borrow for future schools, road, and other construction needs at the most favorable interest rates -- saving County taxpayers millions of dollars a year.
One of the three agencies had put the County on a "watch" list due to the economic downturn and falling County tax revenues. Due to the actions we've taken, the County is now off that list -- and that's great news.

Our fiscal challenges are far from over, but these steps -- added to the work we’ve already done over the past several years -- will make our great County even stronger.

County Retains Triple-A Bond Rating

We learned today that Montgomery County has retained its Triple-A bond rating from Moody’s, coming off a “watch list” from that agency in April that reflected concern over falling County revenues. Moody’s rating moved Montgomery County to a “stable outlook” category.

The Triple-A bond rating allows Montgomery County to issue bonds for its capital borrowing at the most favorable rates, saving County taxpayers millions of dollars a year. The County had already received Triple-A Stable ratings from the other two bond rating agencies, Fitch and S&P, on $325 million of General Obligation bonds it is issuing tomorrow, July 8th.

I was pleased to join the County Executive and Councilmember Duchy Trachtenberg at today’s announcement and celebration of a real team effort. We responded quickly to changed forecasts, adjusted projections, and made structural changes to build a better fiscal future. At my urging, the Council adopted a requirement for a six-year fiscal plan that will contribute enormously to our future success. Today's announcement is welcome news indeed.

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.