Last week we have embarked on a project to share with you the answers to the questionnaire we gave to the at-large council seat candidates. Today we end this series with a final question on debt. We hope this series has provided voters with the information they need to make an informed choice. The June 26th primary is a critical one for Montgomery County, and there are four at-large County Council seats up for grabs. There are more than three dozen candidates vying for your vote.
Today we share the responses to our question, “What do you think we ought to do about the increasing levels of debt the county holds? How do you balance debt against the needs of the county? How does our AAA bond rating factor in your thinking?” (Please note that we’ll change the random order of the responses for each question.)
Debt service on the County’s existing debt is becoming an uncomfortably large portion of the County budget. The fact that the County was recently forced to cut back on planned issuance of general obligation bonds in order to maintain its AAA bond rating is a leading indicator of the fact that our revenues are not keeping up with our needs. Governments frequently fail to make long term investments both in infrastructure and people (through education). Strictly speaking it would not necessarily be an irrational act to issue debt for purposes of well thought out investment even at the cost of losing our bond rating. However, such action would raise our costs of debt service. I am fiscally conservative and would not favor losing our bond rating. In the absence of Amazon locating HQ2 in the County, it will simply take some time for us to grow ourselves out of the economic hole we’ve gotten into.
Ensuring fiscal prudence is extremely important to me. As the executive director of a nonprofit that provides services to children in Montgomery County, the debt and deficit I inherited at my organization were turned surpluses with a healthy reserve during my three-year tenure. I am very proud of the county’s current AAA rating and intend to maintain that during my tenure on the Council. That said, if we have a current AAA rating with a reserve of 8.9%, I do understand the hesitation to further increase the reserves to 10%, especially when neighboring jurisdictions have healthy reserves of 7.2%. Some of the funds currently earmarked for the reserve may be best used for school construction and other program areas. Before I make any decision, I would like to speak with representatives from the credit agencies and Wall Street. All the decisions I make will be based on educated discussion and data.
During my two terms on the Takoma Park City Council (2011-5), my colleagues and I held property tax increases to a cumulative 1.2% over four years, well below the inflation rate, while retiring city debt and, at my instigation, allocating an extra $100,000 per year toward the city’s unfunded police pension liability. My record substantiates my belief in fiscal prudence. Montgomery County should be cautious about adding to its debt load, while at the same time ensuring that we spend adequately on school construction in particular. If necessary, I would consider borrowing that would affect the county’s AAA bond rating.
I am not in favor of continually increasing our debt. Based on the County Executive’s proposed 2019 budget, debt services is over $408 million dollars, which is almost 8% of the total budget. The County is having a tough time balancing the operating budget as it is, increased debt service will only make it more difficult. Our AAA bond rating is crucial to keeping our debt service as low as possible and I strongly support maintaining our rating. I understand that we have significant need for CIP funding, however increased debt is placing a large financial burden on future generations. I think we need to do more to increased funding from the State. Montgomery County needs to tell the complete story to the rest of the State about our growing needs. If we are expected to continue to provide significant revenue to the State, we have to make sure we are meeting the needs of our own community first.
I think that we ought to limit the levels of debt that Montgomery County holds. Currently, the County has a 14% vacancy rate for commercial buildings. As a County Council member, I will initiate a comprehensive study to determine how we can re-purpose vacant commercial building space for leasing to MCPS to relieve school over-crowding in a cost-effective manner. This would enable the County to reduce the total debt level for school construction, while at the same time, helping to spur the local economy by decreasing the vacancy rate in commercial buildings.
It is critical that Montgomery County maintain its AAA credit rating; this immensely saves on the cost of borrowing and the ability to borrow. I don’t believe comparing our credit rating to other states or counties regarding the level of operating reserves because operating reserves should be maintained depending on specific local and regional conditions.
Debt is something we absolutely want to avoid. Our current County Executive has certainly made this a non-negotiable issue…and for good reason. He has made a point of increasing our reserves so we can weather any financial storms that may come our way. Montgomery County has maintained a AAA bond rating longer than any other county in the United States. This highest rating gives us access to the most favorable rates for bonds. We need to focus on smarter spending on certain projects, school construction in particular. Along with my fellow At-Large candidate Melissa McKenna, we have been successfully working with MCPS to switch from a sloth-like process of schools waiting on a never ending list for construction projects, to aligning these projects in a manner similar to what our Montgomery County Public Libraries have been doing whenever possible: Refresh Projects. We can no longer afford to tear down some perfectly good buildings. We need to Refresh them. This would save the county a significant amount of money annually. We also need to continue advocating in Annapolis to be sure we are receiving our fair share of construction funding. Right now in Montgomery County, we have more than $2B of school construction projects waiting to be started. Melissa and I have testified many times in Annapolis to this point and others and will continue to do so. Building the tax base by welcoming in more businesses is important. However, Annapolis needs to come through too. And, as your next Councilmember, I will see to it that we have a loud, clear, and successful voice in bringing home greater funding from our state capital to ease the burden on our residents.
I’m concerned not only about the fact that debt service is consuming a higher and higher proportion of county revenue but also the fact that as Baby Boomers age out of the workforce we will have a smaller proportion of our adult population in their top earning years. This means we need to strengthen our economic competitiveness and attract more high-wage jobs to maintain a tax base that can support and build on the services and infrastructure we have come to expect. I do not believe that keeping reserves at current levels poses any immediate threat to our bond ratings, and I think it is often wise to borrow money to pay for long-term investments in infrastructure such as transit, schools and roads (especially when interest rates are low). I would be cautious, however, about any further reduction in reserve levels.
School capacity and capital projects are our greatest challenges. With ~$2B in projects at last count, we MUST have the state chip in more than their usual 16% to these projects. As I mentioned in #2, Paul Geller and I continue to pursue state funding from casino gambling revenue for these projects. The County’s AAA bond rating determines our ability to borrow as cheaply as possible. As a county, we must ask ourselves what out priorities are and how to balance schools, roads, and capital projects overall.
Budgets are moral documents. They reflect our social values. Public policy should also include sound fiscal management and as such proper and responsible custody of taxpayer money should be a priority — and that means protecting our AAA bond rating, critical investments like child care and education must be made to ensure long term prosperity, growth and equity. These should never be on the chopping block. Further, I believe the “proper and responsible” rubric should be applied to our revenue formula. The gap between the wealthiest and everyone else is greater than ever before, shifting the burden on to middle and working class families. Corporations are also paying the smallest share of public taxes than ever before, meaning individuals are paying the greater share out of payroll, income and sales tax. That must be addressed. We must rebalance how we collect our tax revenue to proper and responsible formulas and collect a fair share and proportion from those individuals and corporations which have benefited the most from our publicly-funded schools, roadways, transit centers, research dollars, and other cultural, economic and educational infrastructure.
My family’s experience has taught me that investments by federal, state, and local governments make a huge difference not only in individuals but whole communities. We should not pursue any plan that jeopardizes essential services and programs upon which our residents depend. By maintaining our AAA bond rating, our county can keep borrowing costs low, thus allowing us the ability to borrow money to finance the investments needed for our residents. While some have proposed cutting the budgets of executive branch departments, laying off county employees, and/or raising taxes, I do not believe these are our only options. Although we should not take raising or lowering taxes off the table as valid strategies, we should also explore opportunities to retain and expand our tax base. In addition, we can also look into slightly lowering our county’s operating reserves to alleviate some of our economic burden, while minimizing the burden placed on our residents, businesses, and hardworking and dedicated county employees.
I believe the County Executive and Council made a responsible decision to reduce the County’s bonding capacity and ensure that payment on our debt service is sustainable going into the future. While this meant some painful cuts for school construction, parks and County projects, including roads, rec centers and other facilities that our residents benefit from, it will ensure that we do not overextend our ability to pay for our CIP projects. It is vital that our County retain its AAA Bond Rating because it means that we can build our projects more cheaply with lower interest rates. If we would lose our AAA rating, all of our projects would cost more and therefore, fewer projects could be built in any given year.
Debt is out of control. If our debt was a department, it would be the third-largest department in the County government! We must reduce debt, while recognizing an ever-increasing need for more school construction. This is why I support Gov. Hogan’s Express Lanes plan and a new Potomac River toll bridge (extending ICC to Virginia) – projects that will move the most people while costing taxpayers virtually nothing in expenses and debt.
If I’m elected to the council, I would work to ensure our fine AAA rating. We are lucky to live in a prosperous county that has hefty operating budget of $5.6 billion, enabling us to do many great things. We shouldn’t be seeing $120 million revenue shortfalls.