PUTTING OUR FISCAL HOUSE
Within two days after taking office in December 2018, I was told of a $44 million shortfall in ourbudget--the result of a drop in revenue and overspending. I was forced to make immediate,difficult cuts in our expenditures to keep our budget balanced. The MD Board of Revenue Estimates forecasted even lower tax revenue in the coming years that required me to revise the FY 20 budget that we were preparing. This made me take a close look at the way we synchronize budgets with revenue forecasting. I am proud that 2 1/2 years later, our county is in
strong financial shape. We have only maintained our longstanding AAA bond rating through the budget crisis and pandemic but for the first time in almost 30 years, the growth in our tax base yielded increased revenues that allowed us to meet the county’s needs. We are on a better financial foundation going forward because we’ve made steps to increase the cost-effectiveness
of our government and because you, the County voters, passed budget Charter Amendment A that I championed last November, that allows us to keep our tax rates on homeowners stable while realizing greater overall revenues from increased real estate values.
Since the Great Recession, county revenues have been relatively static. The taxable wage base has not recovered along with jobs because many new jobs pay lower wages than the jobs we lost. And bond rating agencies have expected us to meet higher reserve requirements than existed before the recession, meaning that tens of millions of dollars that would have ordinarily gone to restoring services is now sitting in reserve funds and unavailable for operating expenditures. Together, these factors have made it harder to maintain services, let alone address the county’s rising needs.
There is no reason to believe the county, or the regional economy, will grow fast enough to address those needs. And in some areas - transportation and schools come to mind - we haven’t been able to meet our growth-driven infrastructure needs even in good years. That’s why so many people are upset about school overcrowding and congestion. If those issues aren’t reason enough for the county to undertake a thorough self-examination of how we use our resources, I don’t know what is.
I plan to address this problem as the next County Executive. I am not willing to accept the status quo. I intend to change the way the county government operates so we can ensure that we can invest sufficiently in priorities like schools, transportation, and environmental sustainability in the coming years. I would pivot the people and resources we have to put us on a more sustainable path.
My First 90 Days Financial To-Do List, outlined below, will help begin that process.
First 90 Days Financial To-Do List
- Initiate a Ten-Year Financial Plan with the goals of funding our priorities, responsibly balancing budgets, and strengthening the county’s balance sheet. This plan should help us prepare for and manage any fiscal or economic shocks that might arise. Part of the plan will be to move from one-year budgets to two-year budgets to give county agencies, nonprofits, and businesses more time for the analysis and planning that can improve results for residents.
A long-term financial plan is an opportunity to educate residents about the county’s resource realities and get their input on the choices we face. To see an example of how this kind of long-term planning could assist us, we don’t have to look far. Baltimore’s nationally recognized ten-year financial plan helped the city make progress toward structurally balanced budgets, reduce the property tax rate, and boost infrastructure investment, all during difficult economic times. The result was a bond rating upgrade. Thinking ahead in this way will allow Montgomery County to lay down a roadmap to take the tough steps and great leaps that put us at the top of the list as one of the best places to live in America.
- Begin a structural review of all departments in partnership with the county’s unions, who have invaluable information about government operations and a strong stake in the sustainability of county government. For example, when someone leaves a county position and we have a vacancy, we currently just plug the hole their departure created. Rather than viewing vacancies as missing pieces of a predetermined puzzle, I will view them as an opportunity to work with affected staff to modernize our processes and structures and really rethink how the government works.
I believe that gainsharing, a labor-management partnership in which both parties agree on targets for improving performance and reducing cost and everyone receives a share of the savings generated, can help. Let’s take fleet maintenance as an example. If our technicians can find ways to fix more vehicles on each shift and turn jobs around faster with fewer errors, they should get a share of the savings. This type of partnership will promote innovation, boost productivity, and reduce absenteeism, overtime, and grievances.
- Launch a business process improvement system called Lean, which other cities and counties are using to make their services more efficient. The idea is to get rid of the waste that slows down paperwork, gums up the supply chain, causes mistakes, and drives customers (and employees) crazy.
Front-line employees – the ones who interact directly with customers every day – know best how to deliver better service, but they are rarely asked for their opinion. I will train every county employee to look at the work they do in a new way and empower them to make changes. Cities and counties across the country are seeing impressive results from Lean and I think we can get those results in Montgomery County.
- Implement a plan to increase the net profit contribution from the Department of Liquor Control by 50%. The DLC has become a flashpoint for debate about the role of county government, mainly because it was allowed to perform so poorly for so many years. It gained a reputation for inefficiency, unreliable service, and an inability to deliver the products needed to meet the changing demands of the county’s bar and restaurant owners. Many people, including state and local elected officials, have called for the county to privatize the DLC’s functions.
The current County Executive has already started turning the DLC around by hiring industry professionals to manage the operation. Instead of giving up the $30 million of annual net income from the DLC that pays for debt service on county capital investments, I would build on his efforts, make the DLC more efficient, and have it generate even more revenue for the county budget. If we use cutting-edge business processes, technology, and incentive programs, I am confident the DLC can boost customer satisfaction and its bottom line.
- Complete a risk-based reserve study and adjust the General Fund reserve target based on the results to ensure that we can sustain basic services during emergencies and recessions. County policy calls for a reserve fund of 10% of General Fund revenue, which can be used to mitigate the impacts of unexpected budget shocks, including natural disasters and recessions. Ten percent is an arbitrary number. The emerging best practice is to base our reserve target on the county’s unique risks. I will review the likelihood and costs of various potential events to come up with a more informed reserve policy, understanding that the result may be an increase or reduction from the current level.
- Start to forge research partnerships with universities in Maryland and elsewhere to study the impacts of programs and initiatives designed to reduce crime, improve public health, boost employment, and achieve other desirable outcomes. Data is being used effectively to target smoke alarm distribution in New Orleans, predict health violations and structure fires in Chicago, strategically deploy rat control measures in New York City, and prevent domestic violence in Boston - especially since Montgomery County is already a leader in open data, we should be able to use it, in conjunction with data we get from research partnerships, to improve service delivery for residents
- Establish an Innovation Fund to provide seed money for initiatives that improve customer service and either reduce cost or generate new revenue for the county. Baltimore has such a fund and its projects include turning a tree waste site into a revenue generator, installing cameras in fire trucks to reduce accidents and injuries, automating the development plans review process, and revitalizing surface parking lots.
After an initial investment, the fund will become self-sustaining, recycling savings and revenue into new projects. I will form a panel, including representatives from the county’s business community, labor, and academia, to review loan applications and monitor projects. I will encourage risk-taking to find transformative ideas. I am interested in looking, for example, at pilot programs that leverage private and philanthropic dollars instead of county resources up front and only require repayment to investors if the pilot turns out to be successful. While more expensive than direct investment in the long run, this approach, which is often called “Pay For Success,” may be used to show that direct investment in a larger-scale program is needed. It would be essential for any pilot in Montgomery County to be more carefully designed than such programs (also known as “Social Impact Bonds”) have been in the past, and I will only initiate such a pilot if I can guarantee that the financing model makes sense for the county and the evaluation criteria are immune from gaming.
- Introduce or strengthen mechanisms that hold county leaders accountable to both other employees and to the public. The Chief Administrative Officer (CAO) and each agency head should have performance agreements that spell out the agency head’s role in the Ten-Year Financial Plan in addition to the agency head’s financial management responsibilities, integrity standards, and specific performance goals. Senior executives should do rounds every week to get updates from agency staff and talk through knotty issues (meeting agencies on their turf reverses the old model of hauling agency staff up in front of a panel to be interrogated). And CountyStat should continue to maintain a dashboard of performance metrics that are visible to agency heads, the CAO, the County Executive, and the public.
I would work collaboratively with the County Council to develop budgets that prioritize spending and ensure that we meet financial commitments in a sustainable way. We won't make promises we can't keep or use accounting gimmicks to make budgets look like they're balanced when they’re actually not. My fiscal management advisor is Andrew Kleine, a Montgomery County resident who served as Baltimore’s budget director for the last ten years and is nationally recognized as a leader in budgeting, long-term financial planning, and government efficiency - he will help ensure that we always follow sound financial management policies.
I believe my knack for numbers and dedication to efficient government help me recognize potential savings where others might not, and I already have experience saving the county money. During my first term on the County Council, my observation that a total replacement of the Circuit Courthouse was expensive and unnecessary led to tens of millions of dollars in savings on a much more sensible renovation. Since then, I have also identified duplicative and costly inspections and overly expensive solutions to public safety needs.
My goal as County Executive would be to give our residents, employees, businesses, and nonprofit partners confidence that the county is on a sustainable track and able to serve our whole community. I want people and businesses considering Montgomery County as a place they might want to call home to see a county government that takes both service delivery and government accountability seriously, and that has a commitment to working smarter with the resources that it has.