Dear Neighbors:
I appreciate the comments and questions residents have posted on the email lists regarding the City budget and the property tax rate. Most of the comments have made the point, as I have myself, that because of the extraordinary impact of the Coronavirus pandemic, this can’t be a business-as-usual budget year for Takoma Park. As I noted in the blog I wrote last week (http://www.councilmemberkovar.com/blog/2020/4/6/april-6-2020-kickoff-of-annual-budget-process) there’s a lot of uncertainty about the pandemic’s impact, not only on our municipal finances, but on other levels of government from which we receive some of our funding.
As our budget process unfolds, we’ll need to gauge to the extent possible what the short and longer term economic and social effects of the pandemic will be. But it’s safe to say we won’t have anything close to definitive information on those questions at the time we’re finalizing the budget. There are a lot of ideas about how to proceed on the budget and taxes, but at the moment there isn’t a knowable “right” answer. So putting more flexibility into the budget this year seems essential to me.
This year it’s more important than ever for me to hear from constituents about these issues. So I encourage residents to send me ideas and recommendations, and to speak out or submit written remarks in the upcoming Council public comment periods. I’m also going to be hosting a Ward One virtual budget discussion this Thursday at 7:00 PM (details will be provided later).
This statement reflects my current thinking about the budget, property tax rate, and related matters. My hope is that it will cover a good range of the issues residents have raised in recent days. I’ll also try to respond directly to those who have asked me about more specific topics.
This week’s City Council meetings. We have our second Monday session on the budget tonight starting at 7:30 PM. There aren’t public comment periods in these Monday sessions, but there’s a public hearing on the budget as part of this Wednesday’s regular Council meeting. You can see the agenda for that meeting, along with the proposed budget document and also information on how to sign up for public comments or to submit written statements through this link: https://takomaparkmd.gov/meeting_agendas/city-council-meeting-agenda-wednesday-april-15-2020/. You can of course offer public comments on these topics at other Council meetings as well. I’ll send out a separate message about the agenda items for this Wednesday relating to the Recreation Department van purchase and the suspension of quasi-judicial actions by City boards and commissions. The Library project is discussed below.
Future Council Schedule on the Budget and Property Tax. In the City Council we began our formal budget process this past Monday when City Manager Suzanne Ludlow made an initial presentation of her proposed budget. From that date we have a roughly six week period during which we’ll be focusing on the budget and property tax rate. There will be special Council work sessions on the budget every Monday evening in April. At our regular Council meeting on Wednesday, April 29 there will be a second public hearing on the budget as well as a public hearing on the property tax rate. The expectation is that we would begin offering amendments and voting on the budget and tax rate in May, with a target date of May 20 for completing action. This link includes all the details on the schedule: https://takomaparkmd.gov/meeting_agendas/city-managers-budget-presentation-monday-april-6-2020/.
Thoughts on the Budget. While I’m continuing to review the details of the budget document, it’s clear the process will be especially challenging this year because we’ll be making our decisions when the impact of the pandemic and the duration of its most severe effects remain unclear. I mentioned in last week’s blog that, since it takes a number of months for City staff to prepare the budget documents, much of the work that went into the proposed budget was done before the extent of the pandemic was fully known. In addition, because staff have been working intensely on assisting those in the community who have been affected health-wise, financially or in other ways by the virus, some of the options for modification of the budget haven’t yet been fully developed. In a blog posted on Friday, the City Manager described plans to scale back, postpone or eliminate some previously proposed or approved capital projects and other budget expenditures: https://takomaparkmd.gov/news/budgeting-in-challenging-times/
Tonight and in future budget sessions we’ll need to understand the details of those changes, and then begin to consider additional modifications that may make sense.
My overall view on the budget is that, given the challenges created by the Coronavirus, it’s vital to continue providing key services to City residents. But at the same time we have to be mindful of the financial difficulties many residents are already facing, and I don’t think this is a year to take on major new initiatives that aren’t already underway. Regardless of which projects or expenditures are cancelled or postponed, here are some of the key questions I see us needing to consider as we work on the budget:
· What are the likely impacts on the City’s various revenue sources and when can we anticipate experiencing those impacts?
· Should we consider making spending cuts below current levels in some programs in anticipation of potential reductions in Federal, State and County funds we receive in typical years?
· What impact would doing that have on residents who currently rely on those programs?
· Would doing so make it harder for us to resume more typical operations once the worst of the pandemic has passed?
· Should we set aside some funds to assist lower income residents and small businesses who may be facing financial or other challenges connected to Covid-1 that can’t be addressed through the various Federal, State and County programs?
· Should we plan on tapping into some of our existing reserves, either to provide direct assistance to residents and businesses or to help maintain existing services and programs?
· Should we expand our current programs that provide partial tax credits for lower income residents who may experience difficulties in paying their property taxes?
· Should we work with the County and State to seek other forms of tax relief, including for example eliminating or reducing penalties for late filings or delaying due dates for tax payments?
· How should we handle open staff positions?
Again, there are no simple answers to these questions, in part because they are inter-connected, and action in one area may affect another.
One problem that’s emerged relating to Federal funding is that most of the money that’s been approved so far won't flow directly to municipalities of our size. We've been lobbying our Congressional delegation on the issue of more direct aid to localities, and I’m pleased with the response we’ve seen from them. Senator Van Hollen led a delegation letter this past week to Treasury Secretary Mnuchin calling for more direct financial aid to smaller cities through the newly approved funds. And he, Senator Cardin, and Congressman Raskin, along with the other House members from Maryland and many of their colleagues from other states are continuing to push for including more direct aid in future legislation.
Maryland and Montgomery County are just beginning to grapple with the revenue losses they will be facing, and we’re working to understand how that will affect Takoma Park. In an ideal world we'd want to know what the State and County will be doing with their budgets before we act. But the reality is we'll have to figure out our next steps at the same time as those other levels of government, and without having a clear sense for what kind of progress there will be on curbing the virus. Given those uncertainties, as I've said previously I'd like to try to build more flexibility into the budget so we have more ability to make shifts in spending over the course of the fiscal year.
At this point, I don't know exactly how that type of increased flexibility would be structured, but it could help ensure that we can continue providing key services for residents even as the pandemic evolves in ways we can't fully anticipate. I do think that setting aside additional funds for that purpose is preferable to adopting deep property tax rate cuts, because it would help enable us to target assistance to those most in need, including renters. But if that’s the route we follow, I think it’s essential to also explore options for broad flexibility with property tax penalties, due dates and the like, since there will likely be residents in all income brackets facing job loss or declines in income.
It’s my view we should use funds in the housing reserve to provide help to less well-off renters, homeowners and perhaps landlords of smaller buildings who face Covid-related financial challenges connected to their rent, mortgages and other relevant payments. We created the fund to, among other purposes, promote affordable housing. A crucial aspect of that -- which is a point of emphasis in our housing strategic plan -- is helping people stay in their homes. We may not have imagined doing that in the context of the pandemic when we established the housing reserve, but it’s where we are now. Similarly, if there are other City reserves that can be used on an emergency basis, now is the time to consider what type of flexibility we have for using those monies.
In terms of staffing, it could make sense to keep some open staff positions unfilled, but at this point I wouldn’t be prepared to say we should put a hold on all hiring. If there are jobs that provide vital services to residents in ways that respond to the virus’s impact, I don’t want to close off hiring. If on the other hand we don’t to go forward with, for example, our summer camp programs, then it would make sense not to hire staff for that (particularly since not holding the summer camps would mean a drop in funding due to the loss of fees residents would otherwise pay for their kids’ participation). So I see the staffing issue as being something we need to consider on a case-by-case basis.
We have several weeks before we have to make decisions connected to the budget. So, again, please do let me know what you’re thinking about these and other key points.
Property Tax Rate. Even if we hadn’t been contending with the pandemic, I wouldn’t have supported the property tax increase included with the initial budget proposal. It’s my personal view that there’s no chance the Council will go along with that increase. I’d like to avoid any property tax increase -- my starting point is to keep the tax rate where it currently is and see what that would mean for our services and programs. As part of that effort, it will be necessary to take into account the points I made above about potentially setting aside some funds that we could use over the course of the coming year to help struggling residents and businesses.
Most of the comments I’ve heard and seen on the list serves and elsewhere have called at a minimum for no increase in the property tax. There are several ways to think about holding the line on taxes. For example, the State calculates for Takoma Park and other local governments what’s known as the Constant Yield rate. For fiscal year 2021 that rate is 52.91 cents per $100 of assessed property value. This rate is estimated to bring in the same overall amount of property tax revenue for the City next year as we received this year. Deciding to go with Constant Yield would mean a slight lowering from the current rate of 53.97 cents. If we went with the Constant Yield rate, most residents would see a small drop in the amount they owe for the Takoma Park property tax this fall compared with last year.
A second option would be to keep next year’s tax rate the same as this year’s rate of 53.97 per $100, which would mean most residents owe the same amount as last year. A third option is a rate composed of Constant Yield plus the Employment Cost Index (ECI) a regionally based measure of inflation connected to government workers’ salaries (that tax rate would be 54.44). I would note that ECI is updated periodically, so it’s possible the Constant Yield + ECI calculation could change as we work on the budget, if the government employee compensation is showing signs of declining (though it may take longer for an effect of that sort to emerge).
Preliminary calculations show that the difference between the amount of money raised by the property tax increase (a rate of 55.50) included in the proposed budget and what’s raised from Constant Yield is approximately $650,000; the spread between 55.50 and the current rate is about $385,000; and the gap between 55.50 and Constant Yield + ECI is around $267,000. This means that, to the extent the Council is able to make reductions in the proposed budget’s expenditures in those amounts, we’d be able to move the property tax rate toward those rates.
In years with normal inflation, the small rate reduction represented by Constant Yield would technically mean a slight reduction in the amount of services or programs the City could provide. Keeping the rate the same would also have that effect, though less so. And Constant Yield + ECI would be roughly equivalent to the “current services” budget concept used in Federal budgeting, which is an estimate of what it would take to achieve the same level of programs and services as in the previous year.
Of course, we don’t know at this point what impact the pandemic may have on the rate of inflation, on the real estate market, or on the funds we receive from other levels of government in the form of our share of the State income tax raised at the County level plus grants and other direct payments. As outlined above, my current thinking on this is that it’s preferable not to make deep rate cuts that may make it harder for us to target assistance to those who are most in need.
I’m pleased that in my first three years on the Council we were able to cut the tax rate. I didn’t agree with last year’s slight increase. But the overall trend in recent years has been toward keeping the rate stable or reducing it, with the understanding that even when the rate is cut some residents may see an increase in their tax bills depending on their assessments. With all the uncertainty surrounding the pandemic, it’s hard to project where we’ll end up on the property tax rate, but I hope the above discussion gives a good sense for the points I’ll be considering.
The Library Project. This Wednesday, the Council will be voting on whether to provide $500,000 for continued design work on the Library project. It’s a big project which would spur plenty of questions even in a normal year. With the economic impact of the virus at the forefront of people’s minds, it’s understandable that more questions are being asked. I still think the project makes sense, but I think it’s important for us to continue proceeding deliberately.
When I first joined the Council, the project was slated to be less expensive. But in my mind that design fell short of what we needed in the community, since we would have ended up with fewer books and no more open public space than we currently have, at a $3 - 4 million price tag. I was one of the Councilmembers who pushed for something more ambitious, and we ended up at $7 million for a larger design. That’s what we borrowed through the State bonding process, and the design money we’ll be voting on this Wednesday comes from that pool of funds.
Now it’s certainly possible to criticize that larger design or borrowing that amount of money. And I understand there are some residents who would prefer not to have the Library anymore, meaning that people would have to go to Silver Spring or other locations. But my view is that the Library is one of the vital resources that makes our community the great place it is. It serves a wide range of residents, including many lower income students at the nearby schools, and other residents who don’t have Internet access at home. Its programs benefit people of all ages and backgrounds, and you can see large numbers of people using the facility throughout the day. The current building is nearing the end of its useful life, and it’s unlikely to be able to continue in operation much longer.
So I think upgrading it and expanding it is a good idea, provided we can do so in a fiscally responsible way. For me, spreading the costs out over 30 years, so that residents and future users contribute to the rebuilding costs is a responsible approach. And at the moment it appears doable for us to complete the project without increasing the budget further or borrowing additional funds. This is possible because the two other sources of funds slated for the project are grants we’ve received from the State specifically for the project and unused technology infrastructure funds from our cable TV contract, neither of which is part of our regular budget or tied to our property tax rate. It’s true that the estimated cost of the project has increased during the three to four years since we gave initial approval to the $7 million concept. But if we can avoid having to borrow more or use more City taxpayer funds, despite the increase in construction costs we’ve seen in recent years, I think that would be a positive result.
As I’ve noted previously, the City is legally responsible for paying off the bond, which we’ve been doing for several years. The bond money could in theory be used for some other capital project. But given the way the State bond program works, it would have to be project with a useful life in excess of the 30-year bond term. That means the funds can’t be used for short-term Coronavirus-related spending or filling gaps in this year’s or next year’s budget. In approximately 5 years, under the terms of the bond the City has some ability to refinance or pay it off. However, we’d have to continue paying every year until then even if we don’t go forward with the Library. The annual amount we pay, including principal and interest, is about $380,000. If we approve the design funding at Wednesday’s meeting, we will still only pay $380,000 this year. If we do go forward with the project, once we start up construction (which would require a separate vote), we would spend several million dollars pretty quickly, but we’d still only pay $380,000 for that year.
So the Library spending is to a significant degree separate from the 2021 budget. Just because these funds can’t be used for other purposes and they aren’t connected to the property tax in a meaningful way doesn’t mean we should automatically go forward with the current concept for the Library project or that it shouldn’t be scaled back in some ways. While I’m optimistic, we don’t know for sure at this point if the three sources of funding will be sufficient to complete the project.
I think we can best evaluate that question once the architect completes the next phase of the design work. The key will be to structure that next phase so as to ensure the architect gives us several options aimed at keeping the costs within existing funding sources. With that approach, I think it does makes sense to go forward with the contract for the design work on April 15. Once that design work is complete, we’ll be able to make the crucial decisions on how to proceed with the project, most likely at a time later this year when the situation with the pandemic will be clearer.
With apologies yet again for a longer than usual write-up, I would appreciate any feedback on all of the above points and other aspects of the budget process.
Peter Kovar, Takoma Park City Council, Ward One
240-319-6281; www.councilmemberkovar.com
(He, Him, His)
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