January 2019 Briefing to County Council

1. Fiscal Plan and
Expenditure Overview
PRESENTATION TO COUNTY COUNCIL
JANUARY 22, 2019

2. Purpose of Presentation
• Review key information and components from updates provided to the Council
at various times:
 Fiscal Plan updates
 Spending Affordability Guidelines (SAG)
 Cost of government and compensation cost trend presentations
• Discuss service needs and expectations, demographic indicators, and economic
indicators along with fiscal and budget information to provide the contextual
framework for Council decision-making.

3. Montgomery County Expectations
• Montgomery County is viewed as great place to live and work for many reasons – quality of
public schools and the College, world-class park system, diversity of the County, etc.
• County residents expect County agencies to continue to provide high quality services while also
meeting emerging needs
• Exemplified by the 2017 National Citizen Survey for Montgomery County:
 4 out of 5 residents give Montgomery County an “excellent” or “good” rating as a place to live and
overall quality of life
 Over 50% or survey respondents indicated they would like to County to place a “high effort” on
making changes and improvements to traffic, crime, public schools, affordable housing, and social
services to those in need

4. County Demographic Indicators
Indicator FY04 FY18 % Change
Population 931,000 1,057,000 14%
Percent of Population Age 60+ 15.9% 21.0% 32%
Households 342,000 381,200 11%
MCPS K-12 Enrollment 139,000 163,600 18%

5. County Economic Indicators
Indicator FY04 FY18 % Change
Per Capita Personal Income $51,500 $86,000 67%
Average Household Income $110,300 $141,700 28%
Assessable Tax Base $94 billion $189 billion 101%
% Residents Below Poverty
Level
4.8% 7.0%* 46%
% MCPS Students Receiving
Free and Reduced Meals
23.7% 35.1% 48%
* FY17 estimate

6. Council Actions in Response to Fiscal
Conditions: Recession and Post-Recession
Recession Timeframe
• Reductions in Personnel Costs
 Furloughs and pay freezes
 Changes to group insurance cost share
 Changes to retirement contributions
• Reductions in Services
 Libraries and Recreation received the largest reductions
Post-Recession Timeframe
• Restoration of most services that were cut
• Increased property tax and recordation tax in FY17 to address service needs

7. Summary of Additional Funding to MCPS
from FY17 Property Tax Increase
FY16 FY17 FY18 FY19
Kindergarten (focus schools including Title 1) 18 18 18 18
Kindergarten (non-focus schools) 26 25 25 25
Grades 1 and 2 (focus schools including Title 1) 18 18 18 18
Grades 1 and 2 (non-focus schools) 28 27 27 27
Grade 3 (focus schools including Title 1)
28
26 26 26
Grade 3 (non-focus schools) 27 27 27
Grades 4-5 (focus schools including Title 1)
30
28 28 28
Grades 4-5 (non-focus schools) 29 29 29
Middle and High School (math, science, social
studies, reading, foreign language)
33 32 32 32
Middle and High School (required English) 29 29 29 29
MCPS Class Size Guidelines, FY16-FY19
Data sources: MCPS budget staffing guidelines (FY09-FY19); Council budget packets
• New teacher positions to
reduce class size: 313 FTE’s,
$21.3 million
• New positions and funding
for programs to address the
opportunity and achievement
gap: 168 FTE’s, $16.6 million

8. Summary of Additional Funding from
FY17 Recordation Tax Increase
6 yr. Total FY17 FY18 FY19 FY20 FY21 FY22
FY17 CE Rec. 209,958 31,187 32,281 33,947 34,821 37,559 40,163
FY17 CC App. 373,700 51,911 58,106 61,104 62,678 67,608 72,293
Difference +163,742 +20,724 +25,825 +27,157 +27,857 +30,049 +32,130
• On average, the Council has
provided MCPS with an
additional $27 million for
school construction projects
from the recordation tax
increase
Recordation Tax Revenue – MCPS CIP ($’s in 000’s)
• Dedicated revenue for rent subsidy programs from the recordation tax premium has
increased by approximately $6 million per year

9. Montgomery County Revenue (FY19)
Approved FY19 Tax Supported
Revenue = $4.928 billion

10. Montgomery County Revenue (FY19)
Property Tax: 37%

11. Montgomery County Revenue (FY19)
Property Tax: 37%
Property Tax: $1.8 billion in FY19
• Stable revenue source
• Constrained by inflation (Charter Limit)
• Requires unanimity of the Council to exceed inflation rate
• Factors impacting actual amount (vs. estimate):
 Assessed values (performed by SDAT)
 Tax credits awarded
 Delinquent accounts

12. Montgomery County Revenue (FY19)
Property Tax: 37% Income Tax: 32%

13. Montgomery County Revenue (FY19)
Property Tax: 37% Income Tax: 32%
Income Tax: $1.6 billion in FY19
• State collects income tax for counties
• Volatile revenue source – mostly due to unknown/difficult to predict capital
gains
• Constrained by State limit (3.2%)
• Factors impacting actual amount (vs. estimate)
 Economic conditions
 Decisions by high-income households

14. Annual Percent Change in Income Tax Revenues from
Withholdings, Estimated Payments,
October 15 Filings, and Revenue Adjustments
19.5%
12.8%
-8.3%
24.0%
-11.9%
10.0%
-0.4%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

15. Montgomery County Revenue (FY19)
Property Tax: 37% Income Tax: 32%
Fed/State Aid:
18%

16. Montgomery County Revenue (FY19)
Property Tax: 37% Income Tax: 32%
Fed/State Aid:
18%
EnergyTax:4%

17. Montgomery County Revenue (FY19)
Property Tax: 37% Income Tax: 32%
Fed/State Aid:
18%
EnergyTax:4%
Energy Tax: $194.0 million in FY19
• Broad-based: revenue from institutions and facilities that do not pay property
or income taxes
• Volatile revenue source
• Factors impacting actual amounts (vs. estimate)
 Economic conditions
 Weather
 Policies on energy consumption

18. Montgomery County Revenue (FY19)
Property Tax: 37% Income Tax: 32%
Fed/State Aid:
18%
EnergyTax:4%
Recordation/TransferTax:3%

19. Montgomery County Revenue (FY19)
Property Tax: 37% Income Tax: 32%
Fed/State Aid:
18%
EnergyTax:4%
Recordation/TransferTax:3%
Recordation and Transfer Tax: $162.9 million in FY19
• Volatile revenue source – primarily due to large commercial transactions
• Factors impacting actual amounts (vs. estimate)
 Economic conditions
 Sales prices
 Household decisions

20. Montgomery County Revenue (FY19)
Property Tax: 37% Income Tax: 32%
Fed/State Aid:
18%
EnergyTax:4%
Other:6%
Recordation/TransferTax:3%

21. Montgomery County Revenue (FY19)
Property Tax: 37% Income Tax: 32%
Fed/State Aid:
18%
EnergyTax:4%
Other:6%
Recordation/TransferTax:3%
All Other: $297.3 million in FY19
• Other Taxes (Telephone Tax, Hotel/Motel Tax, Admissions Tax, E-cigarette Tax)
account for $79.7 million or 1.6%
 Varying degrees of volatility
 Limited ability to increase revenue
• Charges for Services: $85.8 million or 1.7% (primarily College tuition)
• Fines and Miscellaneous: $131.8 million or 2.7%

22. Montgomery County Use of Resources (FY19)
Total Resources: $5,451 million
Available Resources: $5,451 million
Total Tax Supported Resources
• New Revenue = $4,928 m
• Carry Over Reserves = $488 m
• Net Transfers = $35 m
• Total Resources = $5,451 m
New Revenue

23. Montgomery County Use of Resources (FY19)
Fiscal/Policy Commitments
• Maintain carry over reserves ($488 m)
• Additions to reserves ($51 m)
• PAYGO/CIP Current Revenue ($69 m)
• OPEB/Retirement ($230 m)
Total Resources: $5,451 million
Available Resources: $4,613 million

24. Montgomery County Use of Resources (FY19)
Total Resources: $5,451 million
Available Resources: $4,193 million
Debt Service
• $420 m in FY19, more than doubled since
FY04
• Debt service is the County's 3rd largest
“agency”
• Includes short- and long-term leases
• Projected to grow to $474 m in FY24, but
rate of growth slowed by Council decision
to reduce GO Bond borrowing levels

25. Montgomery County Use of Resources (FY19)
Total Resources: $5,451 million
Available Resources: $3,312 million
Earmarked Federal and State Aid
• $881 m in FY19
• Primarily State aid to MCPS ($708 m)
Earmarked
Fed/State Aid

26. Montgomery County Use of Resources (FY19)
Total Resources: $5,451 million
Available Resources: $1,593 million
MCPS MOE + State Pension Requirement
• Minimum required local contribution to MCPS
under the MOE law was $1,665 m in FY19
• State pension shift cost was $54 m in FY19
Earmarked
Fed/State Aid
MCPS MOE +
State Pension

27. Montgomery County Use of Resources (FY19)
Total Resources: $5,451 million
Available Resources: $1,376 million
Montgomery College MOE + Tuition
• Minimum required local contribution to
Montgomery College under the MOE law
was $139 m in FY19
• Tuition and fees ($78 m in FY19) is counted
as a tax-supported revenue
Earmarked
Fed/State Aid
MCPS MOE +
State Pension

28. Montgomery County Use of Resources (FY19)
Total Resources: $5,451 million
Available Resources: $1,376 million
All Other Agency Uses
• Revenue available for all other agency uses in
FY19 represents 25% of total tax supported
resources
• Available funding for continuing existing
programs in the non-education agencies, pay
increases, workforce size increases, program
enhancements, and any education funding
over MOE
Earmarked
Fed/State Aid
MCPS MOE +
State Pension
All Other
Agency Uses

29. Personnel Costs
• Personnel costs (wages and benefits) account for nearly 80% of all tax supported agency
spending in FY19.
• From FY14 through FY19, revenue growth was sufficient to cover compensation cost growth
for Montgomery Country Government because of tax rate increases and unprecedented
reductions in retirement costs.
• Approved Fiscal Plan projects average annual revenue growth of 2.7% through FY24. This
growth will be insufficient to cover compensation cost growth rates absent continued
reductions in retirement costs.

30. FY19 Savings Plan
Gap: $46.5 million less in
beginning year resources
ReservesReserves
New Revenue
Expenditure Reduction
Resources
Use of
Resources
CarryOver
Reserves
CarryOver+
NewReserves
New Revenue
Agency Expenditures

31. Key Takeaways
• Montgomery County residents expect high quality services from County agencies.
The mix and intensity of services change as the County’s demographics change (e.g.,
senior services).
• Over the past 15 years, national and local economic conditions have impacted the
Council’s ability to fund existing services and meet the demand for changing service
needs.
• The County has very limited “tax room” and thus limited flexibility to address
revenue pressures.
• Fiscal, policy, and/or legal commitments use up a substantial portion of “spending
room” each year (many of these fiscal policies also result in long-term cost savings).