ROCKVILLE — No program is safe from cuts as the County seeks to mitigate the effects of a projected budget shortfall next fiscal year, County Executive Isiah Leggett (D) said.
Last week Leggett announced that the County officials were anticipating a large unexpected budget shortfall, and asked that each County agency consider cutting two percent of their budget.
The sudden shortfall caught County finance analysts and council members by surprise as they based their $5.4 billion budget for the fiscal year 2018 off of much greater revenue projections.
“For me, everything is on the table, and you try to work through the particular details,” Leggett said of the coming budget cuts.
While Council member Roger Berliner (D-1) said he did not want to touch the school’s budget, when asked Leggett said he would not rule out proposing cuts to Montgomery County Public Schools or Montgomery College.
“I don’t go into this saying automatically certain things are off, we’ll try to protect education as best we can and everything else,” Leggett said. “At least to the early stages of this we look at everything.”
Office of Management and Budget Director Jennifer Hughes and County Finance Director Alex Espinosa said a decrease in capital gains tax revenue is the primary cause of the budget shortfall. Montgomery County, unlike some local jurisdictions, collects income tax as a major source of revenue. Much of the County’s income tax revenue comes in the form of the capital gain tax, revenue that is collected after the sales of stocks.
In the past few months, the stock market has steadily increased. County finance analysts said capital gains tax revenue is less than they projected because many high-income earners are not selling their stocks. Espinosa said this was because people are deciding to wait to sell their stocks in the hopes that Congressional Republicans will successfully be able to pass a bill to significantly lower taxes.
While Congress has not yet passed the Republican tax bill, which is currently being revised by a House-Senate conference committee in order to work out differences between the House and Senate versions of the bill, President Trump, House Speaker Paul Ryan (R-Wisc.) and Senate Majority Leader Mitch McConnell (R-Ky.) have repeatedly promised to lower taxes before the New Year.
“If you’re one of the top 50 people in Montgomery County who is paying capital gains, if the market is up why would you sell your stocks now?” said Council member Sidney Katz (D-3). “You have a possibility the market keeps going up; you have a possibility that when you do sell them (stocks), you’re going to have less of a tax burden. Why would anybody sell it now?”
The expected cuts are meant to make up for $95 million in projected income tax receipts the County will not collect this fiscal year, combined with last year’s budget shortfall of $20 million; the total comes to roughly $120 million missing from the County’s budget. Montgomery County is not alone, however, as Howard and Baltimore Counties also have predicted significant budget shortfalls.
During their Tuesday meeting, the County Council sat and listened as they heard the grim news about the County’s fiscal projections which now predicts the County’s projections for the next six fiscal years is $417 million less than it was only five months ago.
Council member Roger Berliner (D-1) emphasized that he believed there was no way the County could have anticipated the $120 million shortfall, and said that the Council should not be to blame for basing its latest budget on what they thought were reliable revenue forecasts.
“People are going, ‘gosh was our County government fiscally irresponsible?'” Berliner said. “And I think this was an unknowable event. That is, first of all, the election of this particular president and all the consequences that flow from that. But I do think that it is a question on people’s minds that somehow were we irresponsible in passing certain budgets, given what is now known with respect to this.”
While members of the Council defended their latest budgets, Leggett used the opportunity the shortfall presents to make a point about the latest budget debate. With the budget shortfall totaling $120 million, Leggett said the budget he proposed last year – which cost $20 million less than the Council’s – would have put the County in a better fiscal position even with the new tax revenue projections.
“We spent more than we should have,” Leggett said. “I mean, they can defend what they’ve suggested, I don’t blame them for defending that, but the gap is a combination of things – less revenue and more spending.”
For the moment, the Council will wait for Leggett’s proposal for cuts, which he will release next week. While Leggett asked each agency to cut two percent from their budget, Council members say they won’t start crafting cuts until the Council reconvenes in January.
“That’s sort of our normal budget process, the executive makes the recommendation, we review and make that decision,” said Council President Hans Riemer (D-at large).