Budget Pain Coming in Montgomery: Raises, Reserves Being Examined
Montgomery County is facing a $364 million budget shortfall next year.
That big number got some additional head-shaking context Tuesday: Even after a series of theoretical cuts (which would still need to be negotiated with public employees unions) the county could still find itself more than $150 million in the red, officials said.
Whether that happens -- and where officials might make up the rest -- is all on the table.
Among the possible cuts: raises for public employees. Officials told the County Council that cutting cost-of-living increases, for instance, would save $123 million of that $364 million total.
Another idea: lopping off an additional $40 million from the county's reserves.
Officials are seeking to tread lightly there, especially given the recent word from ratings agencies on that issue in neighboring Prince George's County.
Montgomery's finance officials say protecting sufficient reserves is a key priority.
For the wonkier reader, here's a rundown of the status of those reserves, including Montgomery's rainy-day fund:
Montgomery's policy is to set aside 6 percent of its revenue as reserves. Half of that is the so-called revenue stabilization fund, often dubbed the rainy-day fund. The county also budgets an "operating margin" of about 3 percent; emergency or supplemental spending mid-year are examples of how it's used, officials said.
The county violated its reserves policy for the current fiscal year, dropping the total to 5 percent of revenue. (Doing that again would slice the fiscal year 2011 shortfall by the $40 million cited above.)
The rainy-day fund totals $120 million. (The full reserve is $200 million. That includes the rainy-day fund of 3 percent of revenue, and the operating margin of 2 percent.)
Montgomery officials said being nimble enough to cut spending mid-year is basic financial management, and it's also key to maintaining the county's money-saving AAA bond rating.
"If things start to get tough, do you raid your saving account?" asked Timothy L. Firestine, Montgomery's chief administrative officer. "The right thing to do is to try to curb your expenditures."
"It's not like it sits there as a pot of money you can just go get," Firestine added. "You can't spend the rainy-day fund on next year's budget. ... You have to get to a point where you basically can't fund what you committed to do this year."
That would include things such as meeting payroll.
"What could happen is you get into May, and suddenly you see one of your revenue items is far below what you expected. ... You're at that point there's nothing you can adjust," Firestine said, and that's when you might tap the funds.
And if they use them, they have to replenish them.
The county has never used its rainy-day fund, though it came right up to the edge last year, officials said.
County law says you can use the fund only under certain circumstances. A couple of conditions must be met. Among them: Revenue should be more then 2 percent below projections; employment should have declined for six months; and economic indicators should be down for three months. The rainy-day fund also can't be used to make up more than half the shortfall in revenue.
But the County Council can waive almost all of the legal requirements with a supermajority of six votes.
But one requirement can't be waived away, according to Firestine: The county can only use the rainy-day money to fund appropriations that have become unfunded. That's budget-speak for things you already put in your budget, but now don't have the money to pay for.
"It's tough, it's complicated, it's hard to get the money out," Firestine said. "It's only there for a true shortfall in revenue."
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