AGENDA ITEMS 13
&
14
June 29,2010
Action
MEMORANDUM
TO:
FROM:
County Council
Robert H. Drummer, Senior Legislative Attorney
Charles H. Sherer, Legislative Analyst
c:..
14 2
r~
fl
(\
SUBJECT:
Resolution to Approve Reserve and Selected Fiscal Policies
Bill 36-10, Finance - Revenue Stabilization Fund Amendments
I
The Management and Fiscal Policy Committee recommendation (3-0):
adopt the Resolution
: and enact Bill 36-10 with amendments. The Committee plans to reconvene at 2:00 p.m. on
28 for a final review of these recommendations.
A Resolution to Approve Reserve and Selected Fiscal Policies and Bill 36-10, Finance ­
Revenue Stabilization Fund - Amendments, both sponsored by the Council President at the request of
the County Executive, were introduced on May 27,2010. Management and Fiscal Policy Committee
(MFP) worksessions for both the Resolution and Bill were held on June 14 and June 24. A public
hearing was held on June 22. The MFP Committee plans to meet again on June 28.
Summary
The Resolution would establish a goal of a structurally balanced budget where only recurring
revenue is used to fund recurring expenses. The Resolution would also gradually increase the target
total reserve over the next 9 years and thereby reduce the revenue available for agency spending. Bill
36-10 would amend the law governing the Revenue Stabilization Fund consistent with the proposed
new fiscal policies governing the reserve. The Bill would modify the method of determining the
mandatory annual contribution to the Fund and remove the current cap on the Fund.
The major policy issues are:
1.
2.
3.
. 4.
Should the Council adopt a policy goal of a structurally balanced budget?
Should the Council modify the method of calculating the total reserve?
Should the Council modify the amount of the target reserve?
Should the total reserve have a maximum size? If
what should it be?
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Background
During FYlO, three events occurred that caused the Executive to propose increasing the
County's reserve: I) the April 22 estimate of General Fund revenues in FYIO was $238 million less
than the estimate the Council made in May 2009 when the Council approved the FYIO budget; 2)
three huge snow storms cost $57 million more than was in the budget; and 3) Moody's Investors
Service indicated that the County's AAA bond rating might be downgraded, based largely on their
concern that the County's reserve was too low. The County's financial advisor, Public Financial
Management, Inc. (PFM), prepared an overview of the County's financial risks and recommended
several policy changes. See the PFM presentation at ©25-35.
1
In a memorandum dated May 21,
20
I
0 regarding Reserve and Selected Fiscal Policies, the Executive recommended that the Council
approve:
a)
a resolution to establish policies regarding reserves, including the Revenue
Stabilization Fund (RSF), and other fiscal matters; and
a
Bill
to change the RSF law.
b)
The main purpose of the Resolution and
Bill
is to increase the reserve, which could require
the Council to decrease expenditures and/or to increase revenues. Since revenues are at or close to
their maximum, unless the Council exceeds the Charter limit on property taxes, expenditures are
more likely to be reduced than revenues are to be increased. The Resolution and
Bill
would make a
number of changes to existing policy and law to achieve the increase in reserve.
The calculation of the target reserve for FYll using the "old"/current policy compared to
using the proposed new policy is on ©21. The new reserve policy would both increase the percent of
total resources for the target reserve and modify the base used to calculate the target reserve.
The target reserve under the old policy is
6%
oftotal resources minus the RSF. The base is:
1. Revenue
in
the
4
tax supported agencies;
2. Plus net transfers in from non tax supported funds (such as from the Department of Liquor
Control and the Cable Fund);
3. Plus total reserve at the beginning of the year; and
4. Minus the RSF at the beginning of the year.
The target reserve under the proposed new policy would be
10%
of Adjusted Governmental
Revenue (AGR), defined as:
(1)
(2)
(3)
Tax-supported County governmental funds revenues, plus revenues of the:
County Grants Fund;
County Capital Projects Fund;
I
The Final Report from PFM is expected to be available for distribution to Councilmembers on June 28, 2010.
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(4)·
(5)
(6)
tax supported funds of the Montgomery County Public Schools, not including the
County's local contribution;
tax supported funds of Montgomery College, not including the County's local
contribution; and
tax supported funds of the Montgomery County portion of the Maryland-National
Capital Park and Planning Commission.
Components 1 and 4 through 6 are the same as is currently used to calculate the amount of
target reserve at 6%. Components 1 and 4 through 6 are listed separately in the definition of AGR to
coincide with the accounting definitions used in the County's financial statements, but they represent
the tax supported revenues in the 4 tax supported agencies. The second and third components are not
currently used, but Finance Department staff recommend including them in the proposed new 10%
goal because the County has to advance County cash and wait for collection or reimbursement for
most of the revenue. The amount of the existing reserve at the beginning ofthe year is currently used
to calculate the 6% target reserve, but would not be used to calculate the 10% target reserve under the
proposed policy. A simpler way of describing AGR under the proposed new policy would be:
1. Revenue in the 4 tax supported agencies;
2. Plus the County Grants Fund; and
3. Plus the County Capital Projects Fund.
The Grants Fund includes activity relating to operating grants funded primarily by Federal and State
grants. The Capital Projects Fund includes activity relating to the capital improvements program
(Crp) projects.
Although the 6% and the 10% targets are multiplied by different bases, the 2 different bases
are similar in size. Therefore, the proposed 10% policy would always result in a higher reserve. For
FYI1, the 10% goal would have resulted in a reserve at the end of FYI 1 that is $163.1 million higher
than the 6% goal, so the Council would have had to reduce spending or increase revenue by that
amount.
To mitigate the impact of increasing the amount of the reserve from 6% of tax supported
resources to 10% of AGR, the Executive proposed phasing in the increase over the 9 year period
FY12-20. As shown on ©22, Finance and OMB project that phasing in the 10% goal would result in
lower spending and a higher reserve each year.
This would be the impact of the proposed new
goal.
June 14 MFP Worksession
The Committee discussed the proposed Resolution and Bill with Executive staff and the
County's financial advisor, Nancy Winkler of PFM. The Committee did not vote on the Bill or the
Resolution. Committee Chair Trachtenberg and Committee member Ervin preliminarily agreed with
the Executive's proposal to remove the cap on total reserve, subject to further discussion. Committee
member Navarro asked staffto develop options for a cap.
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Public Hearing
Jennifer Barrett testified in support of the Resolution and the Bill on behalf of the Executive
at the public hearing on June 22. See ©38.
June 24 MFP Committee
The Committee continued its discussion of the resolution and Bill with Executive staff,
Jennifer Barrett, Joe Beach, Karen Hawkins, and Alex Espinosa. Chuck Sherer, Bob Drummer, and
Steve Farber represented the Council staff. The Committee recommended approval of the Resolution
and the Bill with amendments. The Committee made the following key decisions:
1.
2.
3.
4.
5.
6.
7.
8.
Approved the elimination of the maximum size of the RSF;
Approved priority consideration to unfunded liabilities for OPEB and the Retirement
funds with non-recurring revenues.
Clarified that the fiscal policies in the Resolution are goals;
Rejected a proposal to place at least 50% of total reserve in the RSF;
Approved the definition of AGR in the Bill;
Approved adding a definition of excess revenue to the Bill;
Amended the Bill's required mandatory contribution to the RSF to speed up
attainment of the 10% AGR goal if there are excess revenues; and
Amended the Bill to simplify the conditions necessary to use the RSF.
Issues Relating to the Resolution
1. Should the Council establish a policy goal of a structurally balanced budget?
Action Clause 1 in the Resolution states:
"1.
Structurally Balanced Budget
Montgomery County will have a structurally balanced budget, that is, budgeted expenditures should
not exceed projected recurring revenues for that fiscal year. Recurring revenues should fund
recurring expenses. No deficit may be planned or incurred"
If non-recurring revenues are used to fund recurring expenses in one year, and if the non­
recurring revenue does not recur the following year, then there will be a shortfall in revenues because
the expense will recur. Note that neither transfers in nor reserve at the beginning of the year can be
used to fund the budget under the proposed policy. The amount of reserve at the beginning of the
year can and does vary from year to year, so not using it to fund recurring expenses makes sense.
However, at least some (if not most) of the transfers in, such as the transfer from the Department of
Liquor Control (DLC), is recurring, and Council staff recommends that the recurring portion of
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transfers in be used to fund recurring expenses. In other words, the ceiling on the operating budget
would be recurring revenues plus recurring transfers in.
Note that the reserve should not be used to fund the budget under the proposed new
policy, so budgeted reserve would never decrease and would continue to increase each year due
to the proposed mandatory contribution to the Revenue Stabilization Fund (RSF) in
Bill 36-10,
until the total reserve (RSF plus General Fund) reached the ceiling, if any.
(Actual reserve
would of course decrease if revenue were less than budgeted and/or spending was more than
budgeted.)
Budgeted expenditures under the proposed policy cannot exceed recurring revenues (plus
recurring transfers in) less the mandatory contribution to the required reserve.
Committee recommendation (3-0):
modify Action Clause 1 as follows:
1. Structurally Balanced Budget
Montgomery County
[[will]]
must have a goal of a structurally balanced
budget~
[[,
that is,
budgeted]] Budgeted expenditures should not exceed projected recurring revenues
plu~
recllITing net transfers in minus the mandat01:y contribution to the required reserve for that
fiscal year. Recurring revenues should fund recurring expenses. No deficit may be planned
or incurred.
2. Should the total reserve have a maximum size?
Action Clause 2 in the Resolution states:
"2. Reserves
Montgomery County
will
have a goal of building up and maintaining the sum of Unrestricted
General Fund Balance and Revenue Stabilization Fund Balance to an amount equal to approximately
10% ofAcijusted Governmental Fund revenues, representing tax-supported governmental and agency
revenues, including operating grant and CIP revenues. This goal will be reflected in the Revenue
Stabilization Fund law. "
Bill 36-10 would remove the ceiling on the size of the RSF, and the mandatory contribution in
County Code §20-68(a) would permit the size of the RSF to increase without limit, as explained
below in the discussion of the Bill.
Council staff believes that the Council should specify a maximum size of the total reserve (GF
plus RSF) and recommends that this maximum size be 25% of AGR. Council staff believes that
there should be a limit on how much taxpayer money is set aside for contingencies. Finance staff
believes that the proposal to eliminate the existing cap described below in the discussion of the Bill is
prudent since the 10% target can only be exceeded by a mandatory contribution based upon 50% of
excess revenue. Finance staff also noted that the 10% target reserve is only 36 days, which is much
less than the 60 days or 2 months of operating expenses recommended as a target reserve by the
Government Finance Officers Association (GFOA). The GFOA recommendation for the appropriate
level of unrestricted fund balance is at least 2 months of expenses. See ©23-24.
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A 2 month reserve would be 17% of AGR. A 3 month reserve would be 25% of AGR. Based
upon the GFOA recommended minimum of 17% of AGR, a maximum total reserve of 25% AGR
would balance the County's need for a sufficient reserve while still limiting how much taxpayer
money is set aside for contingencies.
With regard to the General Fund (GF) reserve, §310 of the Charter limits the reserve in the
GF to 5% of the GF revenue in the
preceding
fiscal year. The Executive's May 21, 2010
memorandum recommended setting aside this 5% maximum every year. Council staff agrees and
would include this in Action Clause 2.
Committee recommendation (3-0):
do not impose a maximum on the total reserve; amend
Action Clause 2 as follows:
2. Reserves
Montgomery County [[will]] must have a goal of achieving the Charter §310 maximum for
the reserve in the General Fund of 5% of General Fund revenues in the precedil1g fiscal year,
and of building up and maintaining the sum of Unrestricted General Fund Balance and
Revenue Stabilization Fund [[Balance to an amount equal to approximately]]
10%
of Adjusted Governmental Fund revenues, ((representing tax-supported governmental and
agency revenues, including operating grant and CIP revenues]] as defined in the Revenue
Stabilization Fund law. This goal [(will]] must be reflected in the Revenue Stabilization Fund
law.
3. Should the Council establish a priority for the use of one-time revenues?
Action Clause 3 states:
"3. Use of One-Time Revenues
One-time revenues and revenues in excess ofprojections will be applied first to restoring reserves to
policy levels or as required by law. In the event that the County determines that reserves have been
fully funded, then one-time revenues should be applied to non-recurring expenditures which are one­
time in nature, PAYGO for the CIP in excess ofthe County's targeted goal, or to unfunded liabilities
such as Pension or Retiree Health Benefits Prefunding (OPEB). "
Council staff recommends that the Council add a sentence to this policy statement requiring
priority consideration to unfunded liabilities, Retiree Health Benefits Prefunding (OPEB) and
Pension Benefits Prefunding.
Committee recommendation (3-0):
amend Action Clause 3 as follows:
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3. Use of One-Time Revenues
One-time revenues and revenues in excess of projections [[will]] must be applied first to
restoring reserves to policy levels or as required by law. [[In the event that]]
If
the County
determines that reserves have been fully funded, then one-time revenues should be applied to
non-recurring expenditures which are one-time in nature, PA YGO for the CIP in excess of the
County's targeted goal, or to unfunded liabilities [[such as Pension or Retiree Health Benefits
Prefunding (OPEB)]]. Priority consideration should be given to unfunded liabilities for
Retiree Health Benefits (OPEB) and Pension Benefits Prefunding.
4. Should all of the policy statements be restated as goals rather than requirements?
Action Clauses 4 and 5 are stated as mandatory requirements. The Council cannot adopt
binding fiscal policies through a resolution of this nature. Binding fiscal policies should be
established in County law. Therefore these action clauses should be reframed as goals rather than
requirements, consistent with the remainder of the Resolution.
Committee recommendation (3-0):
amend Action Clauses 4
&
5 as follows:
4. PAYGO
The County llwillll should allocate to the CIP each fiscal year as PAYGO at least ten percent
ofthe amount ofgeneral obligation bonds plannedfor issue that year.
5. Fiscal Plan
The County llwill]] should adopt a fiscal plan that is structurally balanced, and that displays
expenditures and other uses ofresources within annually available revenues. The fiscal plan
should also separately display reserves at policy levels, including additions to reserves to
reach policy level goals.
Council staff notes that the adoption of a fiscal plan will follow logically after the Council
acts on the Resolution and the BilL
5. Would a policy of always funding the General Fund reserve at the 5% Charter maximum
reduce the Council's authority to control use of the total reserve?
The total reserve is made up of the General Fund reserve and the RSF. The General Fund
reserve can be used:
a.
To fund additional unbudgeted expenses, such as a major snow storm. The Executive
cannot spend the General Fund reserve unless the Council approves a supplemental or
special appropriation; or
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b.
To offset a shortfall in revenue, such as occurred in FYI0 with the income tax. In this
case, no action by the Council is necessary to "use" this reserve.
The RSF can only be used to fund appropriated expenditures that have become unfunded due
to a shortfall in revenue. The Council must approve any withdrawal of funds from the RSF.
Therefore, once the budget is approved, the Council only has control over the portion of the total
reserve in the RSF. The General Fund reserve can be used by the Executive to fund appropriated
expenditures without Council approval. If most of the total reserve is in the General Fund reserve,
the Council has less control over its use. One solution would be to establish a policy that the
approved budget place at least 50% of the total reserve in the RSF.
If the County reaches the new 10% AGR target goal, more than 50% of the total reserve
would be in the RSF since the 5% General Fund reserve is approximately 3.5% of the total reserve.
However, while the County is ramping up to the 10% goal, a policy of placing 50% of the total
reserve in the RSF would continue to provide the Council with significant control over the use of the
total reserve.
As shown in ©40, requiring 50% of the total reserve to be in the RSF would decrease the
reserve in the General Fund and increase the reserve in the RSF by the same amount only in FY 12
and FY13. Starting in FYI4, the reserve in the General Fund would be at its maximum and the
reserve in the RSF would account for more than half of the total reserve. As a result, the allocation of
reserve would be the same starting in FY14 with or without a requirement to place 50% of the total
reserve in the RSF.
Committee recommendation (3-0): do not require at least 50% of the total reserve in the RSF.
Issues Related to the
Bill
1.
Should the definition
in
the
Bill
of Adjusted Governmental Revenue (AGR) be used?
The Bill would add, in §20-65, Definitions, a definition for Adjusted Governmental Revenue
(AGR) to be used to calculate the mandatory contribution to the RSF. AGR would also be used as the
base for calculating the target reserve under the Resolution. See lines 9-18 of the Bill at ©2. AGR
would be the sum of:
(1)
(2)
(3)
(4)
Tax-supported County governmental funds revenues, plus revenues of the:
County Grants Fund;
County Capital Projects Fund;
Tax supported funds of the Montgomery County Public Schools, not including the
County's local contribution;
(5)
(6)
Tax supported funds of Montgomery College, not including the County's local
contribution; and
Tax supported funds of the Montgomery County portion of the Maryland-National
Capital Park and Planning Commission.
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As stated above, Components 1 and 4 through 6 are the same as is currently used to calculate
the amount of target reserve at 6%. Components 1 and 4 through 6 are listed separately in the
definition of AGR to coincide with the accounting definitions used in the County's financial
statements, but they represent the revenues in the 4 tax supported agencies. The second and third
components are not currently used, but Finance staff recommend including them in the proposed new
10% goal because the County has to advance County cash and wait for collection or reimbursement
for most of the revenue. Since the County has to advance County cash, the County needs some
additional reserve to ensure that the cash is in the bank. The amount of the existing reserve at the
beginning of the year is currently used to calculate the 6% target reserve, but would not be used to
calculate the 10% target reserve under the proposed policy. Committee recommendation (3-0):
approve the definition of AGR as introduced in the Bill on lines 9-18 at ©2.
2. Should the Bill include a definition for excess revenue?
The Bill at lines 79-83 at ©4-5, uses the concept of excess revenue for determining the
mandatory contribution to the RSF. Although the Bill clearly describes the use of the concept, a
separate definition in the Bill would make it easier to use the concept in the Bill and corresponding
fiscal policies. Committee recommendation (3-0): add a definition for excess revenue on lines 26­
29 at ©2-3 and use the term on line 79 at ©4.
3. Should the RSF have a maximum size?
The Bill would repeal the maximum size for the RSF contained in §20-67. As discussed
earlier, the 10% of AGR goal in the Resolution would have resulted in $163.1 million less spending
or increased taxes in FYII. With the mandatory contributions to the RSF contained in the Bill and
no cap, the RSF can grow larger with no control. As discussed earlier, Finance staff pointed out that
the mandatory contribution to the RSF can only result in a target reserve greater than 10% of AGR by
50% of excess revenues under the Bill. If the Council decides to amend the Bill to keep a cap on
total reserve, Finance staff would recommend that the maximum size be greater than the 10% target
goal. Finance staff and the County's financial advisor stated that a 10% reserve is roughly equal to
only 36 days of cash on hand to pay the County's operating expense, which is not enough. The
GFOA notes that AAA rated counties should have at least 2 months, which would require a 17%
reserve. A 3 month reserve would require a 25% reserve.
The County has some significant mandatory funding obligations. For example, almost 57%
of the total combined FYll agency expenditures are dedicated to the Montgomery County Public
Schools (MCPS). Under the State Education Law, increases in State education funding are
contingent on the County meeting its maintenance of effort (MOE) level or receiving a waiver from
the State Board of Education. An oversized RSF could reduce the County's ability to meet the MOE
level and also reduce the County's opportunity to receive a waiver from the State?
Committee recommendation (3-0): do not amend the Bill to add a maximum size for the total
reserve; add a definition for
total reserve.
See lines 49-50 at ©3.
The State's recent enactment of a new law mandating arbitration to resolve an impasse over the terms of a new
collective bargaining agreement with school employee unions is likely to insert additional pressure on the County School
Board to provide increased salary and benefits for school employees. See Senate Bill 590.
2
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4.
Should the mandatory contribution to the RSF be increased if the County has excess
revenues until the
10%
AGR target is met?
The Executive recommended a mandatory contribution of 50% of excess revenue or .5% of
AGR until the 10% AGR target is met, whichever is greater. Once the 10% AGR target is met, the
mandatory contribution would be 50% of excess revenues. At the June 24 worksession, the Finance
Director suggested an amendment that would require a mandatory contribution of both 50% of excess
revenue and .5% AGR until the 10% AGR target is met. This would permit the County to reach the
10% AGR target quicker than the scheduled 9-year period if there are excess revenues. However, the
amendment would also reduce the County's flexibility to spend these excess revenues.
The Committee made a preliminary recommendation to approve this amendment, but plans to
revisit this issue at a scheduled follow-up worksession on Monday, June 28. See lines 71-89 at
©4-5.
5. Should the permitted uses of the Fund be clarified?
Council staff believes the conditions on using the Fund are unnecessarily complicated and
restrictive. The current law requires certain economic triggers to occur before the Council can
approve using the Fund by majority vote. However, current law also permits the Council to use the
Fund without the economic triggers if approved by a supermajority of 6 Councilmembers.
Eliminating the option to approve a transfer from the Fund by a simple majority of Council members
would both simplify the process and make it more difficult for the Council to approve a transfer from
the Fund. The Committee also wanted to clarify that the Council should continue to review relevant
economic indicators before approving a transfer from the RSF. Committee recommendation
(3-0):
eliminate the Council's option to transfer funds from the RSF based upon economic indicators with a
simple majority. See lines 114-148 at ©6-7.
After the June 24 worksession, Council staff prepared an amendment to the Bill to reflect the
Committee's intent that the Council continue to review relevant economic indicators. Council staff
recommends adding the phrase "reviewing relevant economic indicators" on line 143 at ©7 as
follows:
[[(e)]]
hearing~
By an affirmative vote of 6
Councilmembers~
the
Council~
after holding a public
reviewing relevant economic indicators, and seeking the recommendation of the
may transfer [[amounts]] any amount from the Fund to the General Fund [[without
Executive~
regard to the limits and conditions in subsections (a)-(c)]] to support appropriations which
have become unfunded.
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Circle
This packet contains:
1
Bill 36-10
8
Legislative Request Report
9
Executive's Transmittal Memo
12
Reserve Policies Overview
13
Comparison of Fiscal Policies and Practices
16
Restructured Balanced Fiscal Plan - FYI1-16 (10% Reserve)
18
FYII-16 Tax Supported Fiscal Plan Summary (6% Reserve)
19
Resolution
21
FYll Target Reserve Comparison
22
Target Reserve Phase-in Comparison
23
GFOA Recommended Reserve Target
25
June 14 PFM Presentation
36
Fiscal Impact Statement
38
Testimony of Jennifer Barrett
40
Allocation of Total Reserve
F:\LAW\B1LLS\\ 036 Finance-Revenue Stabilization Fund\Action Memo.Doc
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Bill No.
36-10
Concerning: Finance
Revenue
Stabilization Fund - Amendments
Revised: June 25,2010 Draft No. _3_
Introduced:
May 27,2010
Expires:
November 27, 2011
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ _ __
Sunset Date:
-'N!....!.o~n.!!:e=__
_ _ _ _ __
Ch. _ _, Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Council President at the Request of the County Executive
AN ACT to:
(1)
(2)
(3)
repeal the limit on the size of the Revenue Stabilization Fund;
modify the requirement for mandatory County contributions to the Revenue
Stabilization Fund; and
generally amend the law governing the Revenue Stabilization Fund.
By amending
Montgomery County Code
Chapter 20, Finance
Article XII
Sections 20-65, 20-66, 20-68, 20-69, 20-70, 20-71 and 20-72
By repealing
Montgomery County Code
Chapter 20, Finance
Article XII
Section 20-67
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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BILL No. 36-10
1
Sec. 1. Sections 20-65, 20-66, 20-68, 20-69, 20-70, 20-71 and 20-72 are
amended and Section 20-67 is repealed as follows:
20-65.
Definitions.
2
3
4
5
6
In this Article the following terms have the following meanings, unless the
context clearly indicates a different meaning:
[(a)]
Actual total revenues
means the combined total of income tax, real
property transfer tax, recordation tax, and investment Income:!. as
reported in the County's annual financial report.
Adjusted Governmental Revenues
means tax-supported County
Governmental Funds revenues, plus revenues of the:
7
8
9
10
11
12
13
ill
ill
ill
ill
ill
[(b)
County Grants Fund;
County Capital Projects Fund;
tax supported funds of the Montgomery County Public Schools,
not including the County's local contribution;
tax supported funds of Montgomery College, not including the
County's local contribution; and
tax supported funds of the Montgomery County portion of the
Maryland-National Capital Park and Planning Commission.
14
15
16
17
18
19
Certified revenues
means revenues derived each fiscal year from the
income tax, real property transfer tax, recordation tax, and investment
income of the General Fund as certified by the Director on or before
June 15.]
20
21
22
23
24
[(c)
Debt Service Fund
means the fund used to accumulate funds to pay
general long-term debt principal, interest and related costs.]
25
26
[(d)]
Director
means the Director of the Department of Finance.
Excess revenue
means the amount, if positive, by which actual total
revenues from the income tax, real property transfer tax, recordation
27
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BILL
No. 36-10
28
tax, and investment income of the General Fund for the fiscal year
exceed the original projections for these amounts.
[(e)]
Fund
means the Revenue Stabilization Fund created under this
Article.
[(f)]
29
30
31
32
33
General Fund
means the general operating fund of the County which
is used to account for all revenues and expenditures, except revenues
and expenditures required to be accounted for in another fund.
34
35
36
[(g)]
Income tax
means the County income tax imposed under state law.
[(h)]
Investment income of the General Fund
means income from the
investment of revenues that is reported in the General Fund.
[(i)]
37
38
39
40
Original projection
means the projection of total General Fund
revenues for the next fiscal year approved by the County Council in
the "Schedule of Revenue Estimates and Appropriations" resolution
or any similar resolution.
41
42
[0)]
Real property transfer
tax means the tax imposed under Sections 51­
19 et. seq.
43
44
45
46
[(k)]
Recordation tax
means the tax imposed under Sections 12-101 et.
seq., Tax-Property Article, [Annotated Code of] Maryland Code.
[(1)]
Revised forecast
means any revised projection of total General Fund
revenues for the next fiscal year prepared by the Department of
Finance.
47
48
49
Total reserve
means the sum of the reserve in the Fund plus the
Unrestricted General Fund Balance.
50
51
Unrestricted General Fund Balance
means the residual portion of the
General Fund fund balance that has not been reserved, restricted, or
encumbered for later years' expenditures.
52
53
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BILL
No. 36-10
54
55
56
20-66.
(a)
Revenue Stabilization Fund.
The Director may establish a Revenue Stabilization Fund to support
appropriations which have become unfunded.
(b)
The Fund is continuing and non-lapsing.
The Fund is in addition to any surplus that is accumulated under
Section 310 of the County Charter.
57
58
if}
59
60
61
20-67.
[(a)
[Fund sources and maximum size.] Reserved.
The Fund must not exceed 10 percent of the average aggregate annual
revenue derived from the income tax, real property transfer tax,
recordation tax, and investment income of the General Fund in the 3
preceding fiscal years.
62
63
64
65
66
(b)
The Director must compute the maXImum amount of the Fund
annually and report that amount to the County Council not later than
June 15.
67
68
69
(c)
The Fund is in addition to any surplus that may be accumulated under
Section 310 of the County Charter.]
70
71
72
20-68.
[(a)
Mandatory contribution to Fund.
Subject to the limit set in Section 20-67(a), the] The mandatory annual
contribution to the Fund must equal the [[greater]] sum of:
73
W
[50 percent of the product of the certified revenues estimated for the
current fiscal year times the difference between:
(1)
the annual percentage increase in the certified revenues
projected for the next fiscal year, and
(2)
the average annual percentage increase in the certified revenues
collected in the 6 fiscal years immediately preceding the next
fiscal year.] 50 percent of [[the]] any excess revenue [[amount
74
75
76
77
78
79
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BILL
No.
36-10
80
81
by which actual total revenues from the income tax, real
property transfer tax, recordation tax, and investment income of
the General Fund for the next fiscal year exceed the original
projections for these
amounts]]~
[[or]] and
(hl
82
83
84
85
an annual amount [[that does not exceed]] equal to the lesser of 0.5
percent of the Adjusted Governmental Revenues [[for the current
year, but which does not result in the sum of the current year-end
projected Unrestricted General Fund Balance and the Fund to
exceed)] or the amount needed to obtain a total reserve of
lQ
percent
of the Adjusted Governmental Revenues.
86
87
88
89
90
91
[(b)
A growth or decline in certified revenues which results from either an
increase or decrease in County tax rates must be:
(l)
92
93
94
excluded from revenues projected for the next fiscal year, and
phased in in the average annual percentage increase calculation
in the third, fourth, fifth and sixth years.
(2)
95
(c)
If actual total revenues from the income tax, real property transfer tax,
recordation tax, and investment income of the General Fund for the
next fiscal year exceed the original projection, then 50 percent of the
excess must be transferred to the Fund if doing so will not result in the
10 percent limit in Section 20-67(a) being exceeded.]
96
97
98
99
100
101
102
20-69.
Discretionary contributions to Fund.
The County Executive may recommend and the County Council may by
resolution approve additional contributions to the Fund [if doing so will not result
in the 10 percent limit in Section 20-67(a) being exceeded].
20-70.
Transfer of contributions.
103
104
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BILL
No. 36-10
105
106
107
108
109
110
The Director must transfer the mandatory contributions required by Section
20-68 and any discretionary contributions under Section 20-69 from the General
[fund1 Fund to the Fund at the end of each fiscal year.
20-71.
Interest.
All interest earned on the Fund must be added to the Fund. [However, the
Director must transfer interest earned on the Fund when the Fund exceeds 50
percent of the maximum Fund size authorized by Section 20-67(a) to the Debt
Service Fund as an offset to the approved issuance of general obligation debt.1
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
20-72.
Use of Fund.
[[(a) After holding a public hearing and seeking the recommendation of the
Executive, and if the Council finds that reasonable reductions in
expenditures are not sufficient to offset the shortfall in revenue, the
Council may by resolution approved by the Executive transfer an
amount from the Fund to compensate for no more than half of the
difference between the original projection of total General [fund]
Fund revenues for that fiscal year and a revised forecast of the
General Fund revenues proj ected for the same fiscal year.
If the
IS
Executive disapproves a resolution within 10 days after it
transmitted and the Council readopts
it by a vote
of 6
Councilmembers, or if the Executive does not act within 10 days after
it is transmitted, the resolution takes effect.]]
[[(b) However, a transfer must not be approved unless 2 of the following
conditions are met:
(1)
The Director estimates that total General Fund revenues will
fall more than 2 percent below the original projected revenues.
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BILL
No. 36-10
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
(2)
Resident employment in the County has declined for 6
consecutive months compared to the same month in the
prevIOUS year.
(3)
The [local] most recent regional index of leading economic
indicators.,. published
.Qy
the Center for Regional Analysis,
George Mason University, or
.9:
successor index determined
.Qy
the Department of Finance, has declined for 3 consecutive
months.]]
[[(c) The cumulative transfers from the Fund in any single fiscal year must
not exceed half of the balance in the Fund at the start of that fiscal
year.]]
[[(d) The funds transferred may only be used to support appropriations
which have become unfunded.]]
[[(e)]]By an affirmative vote of 6 Councilmembers.,. the Council.,. after
holding a public hearing and seeking the recommendation of the
Executive.,. may transfer [[amounts]] any amount from the Fund to the
General Fund [[without regard to the limits and conditions in
subsections (a)-(c)]] to support appropriations which have become
unfunded.
Approved:
150
151
152
153
Nancy M. Floreen, President, County Council
Approved:
Date
154
155
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LEGISLATIVE REQUEST REPORT
Bill 36-10
Revenue Stabilization Fund
-
Amendments
DESCRIPTION:
The requested legislation removes the cap from the Revenue
Stabilization Fund (RSF), retains interest earned in the RSF, and
requires mandatory contributions to the RSF to achieve total reserves
of 10%.
The legislation would help ensure adequate reserve levels by
increasing them to 10% over the next ten, or fewer, years.
This legislation, along with the accompanying "Reserve and Selected
Fiscal Policies" Resolution is designed to strengthen the County's
fiscal health, by improving budgetary flexibility and building reserve
levels.
Department of Finance; Office of Management and Budget
To be requested.
To be requested.
To be requested.
To be researched.
Jennifer Barrett, Director, Department of Finance
Joseph Beach, Director, Office of Management and Budget
Kathleen Boucher, Assistant Chief Administrative Officer
N/A
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNICIPALITIES:
PENALTIES:
N/A
f:\law\bills\1036 finance-revenue stabilization fund\lrr.doc
(f)
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OFFICE OF THE COUNTY EXECUTIVE
ROCKVILLE. MARYLAND 20850
Isiah Leggett
County Executive
MEMORANDUM
May 21,2010
TO:
FROM:
Nancy F10reen, President, County Council
Isiah Leggett, County Executive
SUBJECT: Reserve and Selected Fiscal Policies
In my April 22
nd
memorandum to the Council on Additional Budget Actions, I
notified the Council of the need for revisions to the County's reserve policies. I made this
recommendation in light of recent severe reductions in revenues, unanticipated expenditure
pressures, and Moody's rating action putting the County on a negative watch list. All three rating
agencies included strong statements of concern regarding the County's reserves and budgetary
structural balance in their most recent ratings.
As I indicated to you in April, I have asked for and received a careful review of
the County's reserve policies by the County's Financial Advisor, PFM. As a result of that
review, I am recommending a set of actions and policies which will set the County on a stronger
fiscal path for FY11 and beyond. Attached to this memorandum you will tind a resolution
specifying these policies for Council's consideration and action, legislation to change the
County's Revenue Stabilization Fund Jaw, and a restructured balanced Fiscal Plan showing
budgetary levels afforded within projected revenues and my plan for restoration of the County's
key reserves to the recommended policy levels.
Specifically, the recommended reserve levels incorporate current and future risks,
including:
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Nancy Floreen, Council President
May 21,2010
Page 2
• Potential for future State actions which may negatively affect the County's revenues
andlor place additional expenditure requirements on the County.
• Numerous onewtime actions taken to solve the FYI 0 and FYII budget challenges.
Recommended Actions
The attached charts (Attachments A and B) provide background on the current
status of the County's most key fiscal policies, detailing the recommendations I made to you in
April, and those that I am making today.
In
addition, I will soon be transmitting to you a report
from the County's Financial Advisor, PFM, that provides further analysis and detail on the
concerns of Moody's and the other Rating Agencies, and the fiscal circumstances that support
the need for the recommended actions.
Specifically, I am recommending the following policies and actions, which are
further detailed in the attachments:
1. For FYIl, budget reserves at the current policy level of 6%, and within lO years (by 2020),
bring total reserves to 10%
2. Bring General Fund reserves to the charter maximum of 5%
3. Require mandatory contributions to the Revenue Stabilization Fund to a combined reserve
level of 10%
4. Restore and maintain PAYGO at the policy level of 10% of general obligation bonds planned
for issue
5. Budget expenditures for a fiscal year only up to the amount of recurring revenues for that
fiscal year
6. Direct onewtime revenues exceeding projections to the Revenue Stabilization Fund, PA YGO,
Pension or Retiree's Health Benefit pre-funding, and onewtime expenditures
7. Achieve a fiscal plan for future years that is structurally balanced - that matches expenditures
to available revenues without any draw down of reserves or unanticipated revenues
8. Review budgeting practices for significant, known expenditures, and ensure adequacy of
appropriations and possible carry-over provisions for unspent amounts
The combination of these actions is estimated to achieve structural budgetary
balance and grow reserve levels to 10% by 2020 or sooner, enough to sustain the County through
a variety of the pressures noted above. The reserve amounts I am recommending will also help
ensure sufficient working capital through the County's usual fiscal cycle.
I very strongly recommend restoring General Fund reserves to the maximum
allowed Charter level, and planning for a series of mandatory contributions to the Revenue
Stabilization Fund to achieve a total reserve level of 10%. I recommend we strengthen our
policies regarding a balanced budget and use of
one~time
revenues, and commit to return to our
existing PAYGO policy. This set of actions
will
provide additional flexibility to the County in
FY12 and beyond to respond to further adverse economic and fiscal conditions.
@
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Nancy Floreen, Council President
May21,2010
Page 3
These actions are only the beginning of the work before us.
I
believe that together, we
must steer the County back to structurally balanced budgets and return
it
to its fiscally
conservative roots, restoring sufficiently strong reserve levels, to ensure that we do not return to
the budget stresses we currently face.
I
believe the set of recommendations before you will
ensure that outcome, and
I
urge your approval.
Enclosures
Attachment A - Reserve Policies - Overview
Attachment B - Compruison of Fiscal Policies and Practices
Resolution Reserve and Selected Fiscal Policies
Draft Bill - Revenue Stabilization Fund
Restructured Balanced Fiscal Plan - FYll·16
cc:
Duchy Trachtenberg, Chair, MFP Committee
Timothy Firestine, Chief Administrative Officer
Jennifer Barrett, Director of Finance
Joseph Beach, Director, OMB
Stephen Farber, Council Staff Director.
Kathleen Boucher, ACAO
@)
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AITACHMENTA
RESERVE POLICIES - OVERVIEW
1.
CURRENT POLICIES
Balanced Budget:
Reserves:
RSF:
PAYGO:
One Time Revenues:
expenditures not to exceed resources (including prior year ending fund balance) .
6% of combined all tax supported (including outside agencies) and revenue stabilization fund
(RSF)
mandatory contribution up to cap, investment earnings go to PAYGO
10% of planned GO Bond issues
whenever possible give highest priority to capital assets or other non-recurring expenditures
2.
APRIL
22
nd
MEMORANDUM
Balanced Budget:
Reserves:
RSF:
PAYGO:
One Time Revenues:
Fiscal Plan:
budgeted expenditures should match new revenues projected to occur in that fiscal year
6%
for FY11 and ramp up to
8%
by end of FY13
General Fund (GF) at Charter Limit -
5%
of prior year GF revenues
mandatory contributions to RSF to 3% (total of
8%),
remove cap
restore and maintain at 10% policy level
direct in priority order to RSF, PAYGO, Retiree Health pre-funding, and one-time expenditures
achieve a fiscal plan display that is structurally balanced consistent with balanced budget policy
3.
RECOMMENDED - PFM MAY 2010
Balanced Budget:
Reserves:
RSF:
PAYGO:
One Time Revenues:
expenditures not to exceed revenues
6% for FY11, then ramp up combined General Fund and RSF balances over ten years to 10%
of adjusted governmental revenues-
mandatory contributions up to 10% reserve policy, remove cap. investment earnings retained in
RSF
10% of planned GO Bond issues
applied first to restoring reserves to policy levels or as required by law. If reserves have been
fully funded, then one-time revenues should be applied to expenditures which are one-time in
nature, PAYGO in excess of the County's targeted goal, or to unfunded liabilities such as
Pension or OPEB
1
@
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ATTACHMENT B
COMPARISON OF FISCAL POLICIES AND PRACTICES - CURRENT POLICY/PRACTICE vs. RECOMMENDED
PFM and FINANCE RECOMMENDED POLICIES
CURRENT POLlCY/PRACTICE
----
Structurally
Current Fiscal Policy:
Balanced Budget
Recommended Policy:
'~~~
~----~-~----
It is the fiscal policy of Montgomery County to
balance the budget. A balanced budget has its
funding sources (revenues, un designated
carryover, and other resources) equal to its
funding uses (expenditures, reserves, and other
allocations). No deficit may be planned or
Incurred.
Current Fiscal Policy:
Montgomery County will have
a
structurally
balanced budget, that is, budgeted expenditures
should not exceed projected recurring revenues for
that fiscal year. Recurring revenues should fund
recurring expenses. No deficit may be planned or
incurred.
Recommended Policy:
Reserves
The County will maintain total reserves for tax
supported funds that include both an operating
margin reserve and the RSF. For tax supported
funds, the budgeted total reserve of the
operating margin and the RSF should be at least
6.0 percent of total resources (i.e., revenues,
transfers, prior year undesignated and
designated fund balance).
Montgomery County will have
a
goal over 10 years
(by 2020) of building up and maintaining the sum of
Unrestricted General Fund Balance and Revenue
Stabilization Fund to an amount equal to
approximately 10% ofAdjusted Governmental Fund
revenues.
Higher reserves are recommended in keeping with:
1) revenue volatility
2) expenditure volatility
3) working capital needs
4) more in line with other large AAA jurisdictions
Retain, but policy reserves above Charter limitation will
be included in target for RSF
~--
General Fund
Reserves
,-~
Section 310 of Charter:
With respect to the General Fund, any
unappropriated surplus shall not exceed five percent
of
the General Fund revenue
for
the preceding fiscal
year.
I
@
2
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ATTACHMENT B (continued)
R
evenue
S
tabilization
F
lJnd (RSF)
RSF is currently capped at 10% of average of prior 3
years specific revenue sources. Interest earned is
transferred to PAYGO, and mandatory contributions
are based on revenues exceeding estimates.
(See County Code Ch 20 Article XII)
Remove cap, retain interest earned in RSF, and require
mandatory contributions to achieve total reserves of
10% and when revenues exceed estimates:
Mandatory annual contributions
to
the Fund must
equal the greater of:
50 percent of the amount by which actual total
revenues from the income tax. real property transfer
tax. recordation tax, and investment income of the
General Fund for the next fiscal year exceed the
original projection for these amounts.
An annual amount not
to
exceed 0.5 percent of the
Adjusted Governmental Revenues for the current
year, but which does not result in the sum of the
current year-end projected Unrestricted General
Fund fund balance and the Revenue Stabilization
Fund
to
exceed 10 percent of the Adjusted
Governmental Revenues.
If actual total revenues from the income tax, real
property transfer tax, recordation tax, and investment
income of the General Fund for the next fiscal year
exceed the original projection, then 50 percent of the
, excess must be transferred to the Fund.
U
se of 0 ne-time
R
evenues
Current Fiscal Policy:
Except for
excess
revenues which must go
to
the
Revenue Stabilization Fund, the County will,
whenever possible. give highest priority for the
use of one-time revenues from any source
to
the
funding of capital assets or other nonrecurring
expenditures
so as
not to incur ongOing
obligations for which revenues may not be
adequate in future years.
Recommended Policy:
One-time revenues and revenues In excess of
projections will be applied first
to
restoring
reserves
to
policy levels or
as
required by law. In
the event that the County determines that reserves
have been fully funded, then one-time revenues
should be applied to expenditures which
are
one-
time in nature, PA YGO for the CIP in excess of the
County's targeted goal. or
to
unfunded liabilities
such
as
Pension or
OPES.
®
3
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ATTACHMENT B (continued)
PAYGO
Current CIP Fiscal Policy:
Recommended Policy: (unchanged)
-----::-------,---­
---~~~
.It is the County's policy to allocate to the CIP
The County will allocate to the CIP each fiscal year
each fiscal year
as
PA YGO
at
least ten percent
of
as
PA YGO at least ten percent of the amount of
the amount
of
general obligation bonds planned
general obligation bonds planned for issue that
for issue that year.
year.
Fiscal Plan
Shows Resources and Uses balanced in the budget
year. To the extent uses exceed resources in future
years, deficit amounts are displayed as Gaps to
be
closed in future budgets.
Recommended Policy:
The County
will
adopt
a
fiscal plan that
;s
structurally balanced, and that displays
expenditures and other uses
of
resources within
annually available revenues. The fiscal plan should
also separately display reserves at policy levels,
including additions to reserves
to
reach policy level
goals.
Budget at more realistic fevels, possibly in a separate
account where unused balance can carry over to next
year.
Adequacy of .
budget
appropriations
Minimal levels are budgeted for certain known
expenditures, n.at in line with actual
experi~nce.
@)
4
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Total Revenues
3
Transfer/Record. Tax
4
Inve~t01ent
Income
5
OIherTQXe.
6
Other RevenuQs
7 Totol Revenues
1,440.9
1,214.8
123.4
5.9
185.3
834.6
3,804.9
1.437.8
1,026.3
114.8
1.3
201.0
832.6
3,613.9
0.6%
·12.7%
13.4%
-38.2%
69.0%
·2.8%
-0.7%
1,450.1
I,G60.7
139.9
3.6
313.2
811.6
3,779.2
2.7%
6.6%
6.0%
88.3%
2.8%
.2.5%
2.9%
1,489.9
l,13G.2
148.3
6.9
322.1
791.7
3,889.1
3.0%
6.2%
·2.2%
95.1%
.32.8%
0.7%
0.5%
1,534.9
1,200.8
145.1
13.4
216.4
797.2
3,907.8
3.1%
5.3%
8.7%
28.0%
2.9%
0.7%
3.6%
1,582.6
1,264.11
157.8
17.1
222.6
803.1
4,048.0
3.4%
8.6%
7.5%
16.8%
2.8%
0.8%
4.7'*!
2.8%
1,635.9
1,373.6
169.7
20.0
228.9
809.6
4,237.6
2.4%
7.9%
5.1%
8.8%
2.7%
0.9%
4.1%
1,675.3
1,482.6
178.3
21.7
235.1
816.6
4,409.6
10
TotGI Revenues and Transfers Available
11
1
3,642.2
3,676.0 1
·0.6%
3,820.91
2.1%
3,902.41
0.5%
3,921.4 1
3.6%
4,062.0
I
4.7%
4,252.0
I
4.1%
4,424.4
12
Non-Operating Budget
Use
of Revenues
13
Debt Service
14
PAYGO
15
CIP Current Revenue
16
Montgomery College Reserves
MNCPPC Reoerve,
Con1ribution to General Fund Undesignated Reserves
Conlribution fa RevenueSJabUizcdion Reserves
20
Retiree Heolth Insuro"""
Pre-Funding
21
Sel Aside for other uses (1upplemenlal app">priation,)
22
'oiGI Other Use. of Resources
17
251.5
1.3
30.7
243.8
0.3
20.9
5.0%
.100.0%
·22.6%
264.0
.
11.9%
n/o
72.1%
23.8
18
19
(39.3)
.
(82.3!
(59.3)
372.2%
nfa
nfa
.
107.1
33.9
.
.100.4%
·28.5%
nfa
2.5
246.7
3,595.4
60.1
183.6
3,492.4
·90.2%
73.9%
-5.7%
0.3
429.1
3,391.8
8916.1%
18.2%
295.3
32.5
40.9
4.0
4.3
(0.4)
24.3
83.6
22.5
507.1
3,395.3
11.3%
0.0%
40.3%
1.9%
3.7%
1498.5%
·16.0%
22.7%
0.0%
14.0%
-1.5%
328.6
32.5
57.4
4.0
4.5
5.4
20A
102.6
22.5
578.0
3,343.4
i
8.3%
0.0%
41.0%
1.8%
'3.5%
.119.9%
16.4%
18.6%
0.0%
11.6%
2.2%
356.1
32.5
81.0
4.1
4.6
(1.1)
23.7
121.7
22.5
645.2
3,416.9
6.3%
0.0%
3.9%
1.8%
3.6%
668.3%
44.9%
14.9%
·11.3%
9.2%
3.8%
378.5
32.5
84.2
4.2
4.8
6.1
34.4
139.B
20.0
704.4
3,547.7
4.6%
0.0%
·24.7%
1.9%
2.6%
39.3%
.6.3%
5.0%
0.0%
0.6%
4.7%
396.1
32.5
63.4
4.3
4.9
8.5
32.2
146.8
20.0
708.5
3,715.9
23
24
Available
10
Allocale 10 Agendes (Total Revenues+Net Transfers-Tolal
OlherU""s)
Agency Uses
Montgomery County Public
School.
[MCPS)
Monlgomery College (MC)
MNCPPC
(wfo
Debt Service)
MeG
0.1%
25
26
27
28
29
28
29
2,020.1
217.5
106.6
1 251.2
3,595.4
3,842.2
1,989.9
214.5
103.2
1184.8
3,492.4
-5.0%
.0.8%
.13.1%
·7.0%
-5.7%
-0.6%
1.919.8
215.8
92.7
1163.6
3,391.8
0.3%
1.0%
·1.4%
·0.3%
1,926.240
217.853
91.331
I 159.810
3,395.3
-1.3%
-0.6%
-3.2%
·2.0%
·1.5%
0.5%
1.901.5
216.5
88.4
1136.9
3,343.4
3,921.4
0.000
2.4%
3.1%
0.6%
1.7%
2.2%
3.6%
Sublotal Agency Uses
0.1%
2.1%
1.947.9
223.3
88.9
1.156.8
3,416.9
4,062.0
0.000
4.1%
4.7%
2.2%
3.4%
3.8%
4.7%
2.027.1
233.8
90.9
1195.9
3,547.7
4,252.0
0.000
5.0%
5.6%
3.2%
4.3%
4.7%
4.1%
2,127.9
247.0
93.8
1247.3
3,715.9
4,424.4
0.000
30
Total Uses
3,676.0
0.000
3,820.9
0.0000000
3,902.4
0.000
31
(Gap)fAvallable
Notesl
0.000
I. FY12.16
proper1y tax revenues are allh" Charter Llmll assuming a
tax
credit. All other tax ravenues ot currenl rates except as noted below.
2.
Revenue. reflect Energy Tax and Wireless Telephone Tax Increases approved by the County Council on May
27, 2010.
Energy Tax Increa.e sunsets Gt the end of
FY12.
3. PAYGO restored to policy level of
10%
of
plunned GO Bond bOl'l'OWlngln
FYI2·16.
See R_
14
above.
4. FYll
Revenues reflect one year redirection 01 Recordallon T"" Premium
($8
M.) and .ecordation TaK for MCPS CIP and College IT
($5
M.).
5.
Retiree Health Insurance Pre-Funding assumed to resume ot scheduled contribution levels in
FY12.
See Row
20
above.
6. Prolected
FY12·16
rate
of
growth of Agency Uses const....ined to balance the fiscal plan In
FY12-16.
7. FYl1
Reserves reflect restoration of reserves to current
6%
(of tax supported resources) policy level.
FYl0
and
FYII
reserves (sea Rows
34·42
balow) Include Gil County and Outside Agency tax supported reserves.
8. FY12-16
Unrestricled General Fund Reserves are reduced in certaIn
y......
to reflect compliance with Section
310
of the County Charier On maldmum size of lIle general fund balance (shall not exceed
5%
of prior
year gene:ral fund revenues). Outside Agency reserves are excluded from lIlese amounls and are displayed separately (see Rows
29
and 30 Gbove).
9. FY12-16
Reserves rellect proposed new reserve policy Including Increase in reserve levels and Inclusion of capital projects and IIrant revenues as pari of Adlusted GovernmentGI Revenues.
®
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32
33
34
Beginning Reserves
35
Unrestricted General fund
36
37
38
115.5
112.0
-74.3%
29.7
360.4%
136.8
..0.3%
136.4
3.9%
141.8
·0.&%
140.7
4.3%
146.8
39!AddItions
to
Reserves
40
Unr...trlchod General
41
42
43
44
-39.3
0.0
-39.3
11:0
9
10
9
"eseryes
45
46
47
49
Unrestricted Ge.
76.2
119.6
195.&
lIS CO
%
of Total Tax Supported Revenues PI"s
CIP
&
Operating
Revenues
49
50
51
52
53
54
55
56
r--------------------------------------------t----------------t---------------+-------------~r_------------t-------------t-------------r------------;
Refiree Health Insurante Pre-Funding
Monlgomery
County Public Schools (MCPS)
Monlaomerv College
(MC)
53.2
1.0
64.8
1.2
76A
1.3
5.6
38A
121.7
87.7
92.1
1.5
6.4
46.8
146.8
1.4
6.1
44.6
139.8
4.4
2S.0
S.l
31.5
102.6
Subt"",1 Retiree Health Insurante Pre-Funding
83.6
G)
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Total Resources
Revenues
Beginning Reserves Undesignnted
Beginning Reserves D...ign,"""
0.5%
8.2%
0.0%
2.4%
3,907.8
148.0
13.7
3.6%
1.2%
0.0%
2.6%
to Agencies
Agency
U....
I
Montgomery County Public Schools (MCPS)
Monlnomery College (MC)
(w/o
Debl Service)
3,595.4
3,492.41
-5.7%
3,391;81
0.7%
3,416.2
53.2
1.0
4.4
25.0
83.6
362.2
295.61
26.7%
458.81
17.6%
539.3
9.6%
-1.2%
3,375.9
64.8
1.2
5.1
31.5
102.6
591.0
10.1%
1.9%
3,439.7
76.4
1.3
5.6
38.4
121.7
650.5
5.4%
4.20/0
3,585.2
87.7
1.4
6.1
44.6
139.8
685.4
1.1%
4.7%
3,754.7
92.1
1.5
6.4
46.8
146.8
693.3
Rellree Health Insurance Pre-Funding
IMonloomery County Public Schools IMCPS)
Montgomery College (Me)
(w/o
Debt Service)
Sublotal Retiree Health Insurance Pre-Funding
(Gap)/Available
Notes:
1. m 2·16 property tax revenues are at the Charter limit assuming a lax ..edit. All alher tax revenues at current rale. except as noted below.
2. Revenue. refl.... Energy Tax and Wireless Telephone TaJ< Increases approved by the County Council on
May
27, 2010. Energy TaJ< increa.e .un.et. at the end of FY12.
3. PAYGO restored to policy level
of
10% of planned GO Bond borrowing In FY12.16.
4. m 1 Revenue. reOeet one year redlr....lon of Recordation Tax Premium ($8 M.l and Recordation Tax for MCPS CIP and College IT ($5 M.).
5. Retiree Health InsUfance Pre.Fundlng assumed
10
resume at scheduled contribution level. in m2.
6. Pro1ected m2-16 rate of growth of Agency
US""
constrained to balance Ihe fbeal plan In FY12·16.
7. Reserves are reflected at the current policy level of 6% of total re.ources In FY11·16.
~
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Resolution No:
Introduced:
May 27,2010
Adopted:
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Council President at the Request ofthe County Executive
SUBJECT:
Reserve and Selected Fiscal Policies
Background
L
Fiscal policy corresponds to the combined practices of government with respect to revenues,
expenditures, debt management, and reserves.
Fiscal policies provide guidance for good public practice in the planning of expenditures,
revenues, and funding arrangements for public services. They provide a framework within
which budget, tax, and fee decisions should be made. Fiscal policies provide guidance
toward a balance between program expenditure requirements and available sources of
revenue to fund them.
As a best practice, governments must maintain adequate levels of fund balance to mitigate
current and future risks (e.g., revenue shortfalls and unanticipated expenditures) and to
ensure stable tax rates. Fund balance levels are a crucial consideration, too, in long-term
financial planning. Credit rating agencies monitor levels of fund balance and unrestricted
fund balance in a government's general fund to evaluate a government's continued
creditworthiness.
2.
3.
4. In FYIO, the County experienced an unprecedented $265 million decline in income tax
revenues, and weathered extraordinary expenditure requirements associated with the HI N I
flu virus and successive and historic winter blizzards. The costs of these events totaled in
excess of $60 million, only a portion of which was budgeted and planned for.
5. In a memorandum dated April 22, 2010, the County Executive recommended that the
County Council restore reserves first to the current 6% policy level for FYI1 and also to
revise and strengthen policy levels in order to more appropriately position the County to
weather economic cycles in the future, and to achieve structural balance in future budgets.
6. The County's financial advisor has recommended that the County strengthen its policy on
reserves and other fiscal policies to ensure budget flexibility and structural stability, and has
provided specific recommendations, which are reflected below.
Action
The County Council for Montgomery County, Maryland, approves the following policies
regarding reserves and other fiscal matters:
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1.
Structurally Balanced Budget
Montgomery County must have a goal of a structurally balanced b.J.J.dget. [f, that is,
budgetedlJ Budgeted expenditures should not exceed projected recurring revenues Dlus
recurring net transfers in minus the mandatory contribution to the required reserve for
that fiscal year. Recurring revenues should fund recurring expenses. No deficit may be
planned or incurred.
2.
Reserves
Montgomery County must have a goal of achieving the Charter 9310 maximum for the
reserve in the General Fund of
5%
of General Fund revenues in the_ preceding fiscal
year. and ofbuilding up and maintaining the sum of Unrestricted General Fund Balance
and Revenue Stabilization Fund Balance to [fan amount equal to approximatelylJl 0% of
Adjusted Governmental Fund revenues, [frepresenting tax-supported governmental and
agency revenues, including operating grant and CIP revenueslJ as defined in the Revenue
Stabilization Fund law. This goal must be reflected in the Revenue Stabilization Fund
law.
3.
Use of One-Time Revenues
One-time revenues and revenues in excess of projections must be applied first to
restoring reserves to policy levels or as required by law. [fIn the event thatlJ
If
the
County determines that reserves have been fully funded, then one-time revenues should
be applied to non-recurring expenditures which are one-time in nature, PA YGO for the
CIP in excess of the County's targeted goal, or to unfunded liabilities Ilsuch as Pension
or Retiree Health Benefits Pre-funding (OPEB)J]. Priority consideration should be given
to unfUnded liabilities for
Retire~ealthBenefits
(OPEBLmLd Pension Benefits
Prefimding.
4.
PAYGO
The County IlmustJJ should allocate to the CIP each fiscal year as PAYGO at least ten
percent ofthe amount ofgeneral obligation bonds planned for issue that year.
5.
Fiscal Plan
The County IlmustlJ should adopt a fiscal plan that is structurally balanced, and that
limits expenditures and other uses of resources to annually available revenues. The
fiscal plan should also separately display reserves at policy levels, including additions to
reserves to reach policy level goals.
This is a correct copy ofCouncil action.
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A
1
IRB:SERVg,
PROP9~~D
NEW POLlCY, May 2010
~!}_Ow
B
c
o
is the
___
_______
!
reserve calculated in the o}d 6% p()lic), and
~nthe
new 10%p_()licl'?
Old 6%
------~--.---------
Revenue in the 4 tax SUEIDOJ:1ed
Net transfers in
B~ginningtotal
reserve
______
8
fund
NA
-----+---­
9
County capital projects fund
using
--------------­
total minus other #s
10
Total resources (old)/Adjusted governmental revenues (new)
!
3,911.0
3,940.9 !Rating agency presentation, p8
11~SS R~F~ith;begi~~ing
of the
ye~~_(60.4llNA-[=-
--------------­
I
12
INet resources
NA
!
6.0%
~
Target % reserve
_--+-_6~Q%_1
10.Qo"to
141
Target
$
reserve
236.5
231.0
i
394.1
Increase reserve in FYl1 for new policy IF in effect in FYIl.
This is the amount spending would have had to be reduced in
15
IFY 11 if new policy were in effect.
.._______
---­
---­
I
16
m
®
7
~pending
18
Reduction
in
19
To~itigate
the impact of increasing the % reserve from 6% to
10%,
the CE proposes to phase in the increase over
-----[
the 9 year period FY12-20. ----­
I
F:\LAw\BILLS\1 036 Finance-Revenue Stabilization Fund\Revised Reserve Policy May 20 IO.xls, FYIl,
6/9/20
10, 7: 13 PM
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ABC
0
E
F
G
H
J
K
1
2
3
4
5
6
7
NEW
POLICY~I\1ay
2010
What is the difference.in spend!l1g
perrr.t~tted by!he~l~~% policy~d
the new 10%
Phase in the increase from 6% to 10% over the
~y~a£period
FYI2-21.
AgeIlcys~ending
excludes
~~bt setyi<:.~,
current
revenu~
funding oqhe CIP, prefunding of retiree health inslltance.
Agency spending in old p<:>.licyftom FY12-16 is from OMB, reflecting
C,?uncil~ppro,,~d ~udg~~
for FYI}.
Agency spending in new policy from FY12-16 is from OMB, reflecting Council approved budget for FY11.
RESERYF:,~PROPO~ED
$millio';'-I . .
U~_
"r-.'
1
1---.--
~
~
~.-+----
..
~
··-·--f··--T--T---r- -,---
.------
J._-..
.
--+-
-+-----u--L-
.--..-.
.~
-t-
r - " . _..
Oid-·--J=-·JNe;- -----
I
-----..
-~--.-
'~-'-.-'
I
I
Decrease spending
T- -.
G-
1--­
New reserve
as % of old
base
10 I
11
FY
I
%
reserve I spending
I
reserve
6.0%t£,391.8 1
Agency Budgeted
231.1
I
. Agency 'Budgeted
%
reserve
I
spending
I
reserve
Amount
I
Increase
%
reserve
12
13
--12-6.0~.O-.
3.41§Xr=242.3
13
11
_i:Q}1o
6.0%
6.0%
..
3,375.9
3,585.2
3,754.7
I
141~_
15
15
16
6.Q%3,4~9.7..
16
244.1
2 5.
~.7
..
264.6
275.7
6.3~-3,395.3..
255.0 .-.120.92 _
-O.~~
6.9Yo
3,343.4
~280.7
(32.5)
_-1.0Yo
7.2%_
7.8%
8.4%
3,416.9~03.4
6.0%
3,391M:8
231.1
0.0
0.0%
0.0 \
6.0
l2.7_
6.3_
6.9_
7.2_
7.8
8.4
3,547.7
3,715.9
I
343.9
384.5
36?i=.
(22.8)L_ -0.7% ___ 50.7
(37.5)L -1.0%---7931
(38.8)1
-1.0%
108.8i
®
F:\sherer\excel\Reserve Policy May 2010 #2.xls, FYll-16, 611712010, 13:39
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BEST PRACTICE
Appropriate Level of Unrestricted Fund Balance in the General Fund (2002 and 2009) (BUDGET
and CAAFR)
Background.
Accountants employ the
tennfund balance
to describe the net assets of governmental funds
calculated in accordance with generally accepted accounting principles (GAAP). Budget professionals commonly
use this same tenn to describe the net assets of governmental funds calculated on a government's budgetary
basis.! In both cases, fund balance is intended to serve as a measure of the financial resources available
in a governmental fund.
Accountants distinguish up to five separate categories of fund balance, based on the extent to which the
government is bound to honor constraints on the specific purposes for which amounts can be spent:
nonspendable
fund balance, restrictedfund balance, committedfund balance, assignedfund balance,
and
unassignedfund
balance.
2
The total of the last three categories, which include only resources without a constraint on spending or
for which the constraint on spending is imposed by the government itself, is termed
unrestrictedfund balance.
It
is essential that governments maintain adequate levels of fund balance to mitigate current and future risks (e.g.,
revenue shortfalls and unanticipated expenditures) and to ensure stable tax rates. Fund balance levels are a crucial
consideration, too, in long-tenn financial planning.
In
most cases, discussions of fund balance will properly focus on a government's general fund. Nonetheless,
financial resources available in other funds should also be considered in assessing the adequacy of unrestricted
fund balance (i.e., the total of the amounts reported as committed, assigned, and unassigned fund balance)
in
the
general fund.
Credit rating agencies monitor levels offund balance and unrestricted fund balance in a government's general
fund to evaluate a government's continued creditworthiness. Likewise, laws and regulations often govern
appropriate levels of fund balance and unrestricted fund balance for state and local governments.
Those interested primarily in a government's creditworthiness or economic condition (e.g., rating agencies) are
likely to favor increased levels offund balance. Opposing pressures often come from unions, taxpayers and
citizens' groups, which may view high levels of fund balance as "excessive."
Recommendation.
The Government Finance Officers Association (GFOA) recommends that governments
establish a fonnal policy on the level of unrestricted fund balance that should be maintained in the general fund.
Such a guideline should be set by the appropriate policy body and should provide both a temporal framework and
3
! For the sake of clarity, this recommended practice uses the terms GAAP fund balance and budgetary fund balance to
distinguish these two different uses of the same term.
2
These categories are set forth in Governmental Accounting Standards Board (GASB) Statement No. 54,
Fund Balance
Reporting and Governmental Fund Type Definitions,
which must be implemented for financial statements for periods ended
June
30, 2011
and later.
J
Sometimes restricted fund balance includes resources available to finance items that typically would require the use of
unrestricted fund balance (e.g., a contingency reserve). In that case, such amounts should be included as part of unrestricted
fund balance for purposes of analysis.
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specific plans for increasing or decreasing the level of unrestricted fund balance, if it is inconsistent with that
policy.
4
The adequacy of unrestricted fund balance in the general fund should be assessed based upon a government's own
specific circumstances. Nevertheless, GFOA recommends, at a minimum, that general-purpose governments,
regardless of size, maintain unrestricted fund balance in their general fund of no less than two months of regular
general fund operating revenues or regular general fund operating expenditures.
5
The choice of revenues or
expenditures as a basis of comparison may be dictated by what is more predictable in a government's particular
circumstances.
6
Furthermore, a government's particular situation often may require a level of unrestricted fund
balance in the general fund significantly in excess of this recommended minimum level. In any case, such
measures should be applied within the context of long-term forecasting, thereby avoiding the risk of placing too
much emphasis upon the level of unrestricted fund balance in the general fund at anyone time.
In establishing a policy governing the level of unrestricted fund balance in the general fund, a government should
consider a variety of factors, including:
• The predictability of its revenues and the volatility of its expenditures (Le., higher levels of unrestricted
fund balance may be needed if significant revenue sources are subject to unpredictable fluctuations or if
operating expenditures are highly volatile);
• Its perceived exposure to significant one-time outlays (e.g., disasters, immediate capital needs, state
budget cuts);
• The potential drain upon general fund resources from other funds as well as the availability of resources
in other funds (i.e., deficits in other funds may require that a higher level of unrestricted fund balance be
maintained in the general fund, just as, the availability of resources in other funds may reduce the amount
of unrestricted fund balance needed in the general fund);
7
• Liquidity (i.e., a disparity between when financial resources actually become available to make payments
and the average maturity of related liabilities may require that a higher level of resources be maintained);
and
• Commitments and assignments (i.e., governments may wish to maintain higher levels of unrestricted fund
balance to compensate for any portion of unrestricted fund balance already committed or assigned by the
government for a specific purpose).
Furthermore, governments may deem
it
appropriate to exclude from consideration resources that have been
committed or assigned to some other purpose and focus on unassigned fund balance rather than on unrestricted
fund balance.
Naturally, any policy addressing desirable levels of unrestricted fund balance in the general fund should be in
conformity with all applicable legal and regulatory constraints. In this case in particular, it is essential that
differences between GAAP fund balance and budgetary fund balance be fully appreciated by all interested parties.
Approved by the GFOA's Executive Board, October, 2009.
4
See Recommended Practice 4.1 of the National Advisory Council on State and Local Budgeting govemments on the need to
"maintain a prudent level of financial resources to protect against reducing service levels or raising taxes and fees because of
temporary revenue shortfalls or unpredicted one-time expenditures" (Recommended Practice 4.1).
5
In practice, a level of unrestricted fund balance significantly lower than the recommended minimum may be appropriate for
states and America's largest governments (e.g., cities, counties, and school districts) because they often are in a better
position to predict contingencies (for the same reason that an insurance company can more readily predict the number of
accidents for a pool of
500,000
drivers than for a pool offifty), and because their revenues and expenditures often are more
diversified and thus potentially less subject to volatility.
61n either case, unusual items that would distort trends (e.g., one-time revenues and expenditures) should be excluded,
whereas recurring transfers should be included. Once the decision has been made to compare unrestricted fund balance to
either revenues or expenditures, that decision should be followed consistently from period to period.
7
However, except as discussed in footnote 4, not to a level below the recommended minimum.
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Montgomery County, Maryland
County Council Work Session
Proposed Fund Balance Polil)l Resolutions
&
Bill
36-10:
Revenue Stabilization Fund -Amendments
June
14, 2010
p'I!Sented
by
Nancy
Winkler,
MatUJging
Director
Financial Adv;sor to the County
Publi< Financial Management, Inc.
,
Two logan Square
18
'h
&
Arch Streets, Suite 1600
(215) 567-6100
Fax (215) 567-4180
www.pfm.com
Presentation Overview
I.
Overview of Financial Risks and Recommended Policy Changes
Rating Agency Commentary
Summary of PFM Recommendations and County Response
GFOA Best Practices
II.
III.
IV.
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Overview of Financial Risks and
Recommended Policy Changes
3
Summary of Rating Action Taken by Moody's
Investors Service
• On
April 2, 2010, Moody's Investors Service notified the County that
it
has been placed on "Watchlist Negative" meaning that Moody's was
intending to take action on the County's rating within ninety days
• This rating action was based on a number of factors including (but not
limited to):
~
A multi-year decline in County unreserved, undesignated General Fund
and Rate Stabilization Fund balances to levels that are inconsistent with a
Aaa rating
Notwithstanding recent accomplishments in slowing budgetary growth,
the County has a recent history of structurally imbalanced budgets
Economically sensitive revenue sources within the County's revenue base
produced far less than projected for three consecutive years
~
~
• There are two outcomes to being placed on "Watchlist Negative":
1.
Downgrade, most likely to the Aallevel in the County's case
2. Removal from "Watchlist Negative" and affirmation of Aaa rating
f,;;'14
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PFM Made a Series of Recommendations in
Response to Moody's Action
• In response to Moody's action, the County asked PFM evaluate the
County's financial situation, focusing especially on the County's:
;;. Reserve policies, and
;;. Budgetary practices
;.. FY2011 budget
• PFM made a series of recommendations to the County, which are
. reflected in a report delivered to the county and in the County
Executive's proposals to Council
Fund Balance Provides Liquidity to Protect
Against Current and Future Risks
A well designed fund balance policy will consider:
• The cash flow timing· liqUidity needs of a government;
• The need to have contingencies for unexpected expenditures, such as
extraordinary snow removal or emergencies;
• Predictability of revenues and the volatility of expenditures - higher fund
balance may be needed if revenue sources and or expenditures are
unpredictable;
• The potential need to fund unexpected capital situations;
• The ability to respond to any revenues shortfall with expenditure adjustments
within a fiscal year
• How a government will replenish any draws on fund balance;
• A policy on structural balance so the budget does not use nonrecurring
revenues (which is fund balance, sale of assets, etc) for recurring expenditures.
• How many years (or months) of exposure the government wants to protect for
(3 months is often the standard).
• How cyclical the government's revenues are, and what other exposures are (for
example, is the government dependent on a large employer that can cut back
with no notice)
16
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The County's Income Tax Revenue Has Been Hit
Especially Hard
by
the Economic Downturn
Montgomery County, Maryland
Budgeted vs. Actual Income Tax Revenues Only, FY 2005-201 0
-Actual
SI.4()O
)7:0%
Montgomery County's Cash Flow Position
• Certain revenues are seasonal:
}>
}>
Property tax
Income tax
• Expenditures are generally not seasonal:
}>
Salaries and benefits
Y
Contractual payments
y
Actions to eliminate expenditures may take some time
• Fund Balance needs to provide for any mismatch in the timing of
receipts and expenditures
@
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Proposed Target Reserve Levels through 2020
• The following reserve levels are reflective of PFM's recommendations
with the goal of setting aside reserves equal to 10% of Adjusted
Governmental Fund Revenues
by
2020
3,891.67
2012
21)13
2014
2015
2016
2017
2018
!
2019
'.080.32
',082.32
4,206.94
',400.00
4,549.05
140,]0
136,90
141J''I0
140.50
146.80
155,10
161.30
167~7e
5.0%
5.0%
3.1'11
3,4%;
tr.l.BO
118,90
138,70
5,0%
5,0%
5.0%
'.<l'!!.
5.0%
5.0'11
5,0'11
3.5'11
3.3%
3,3'11
3.4%
3.4'16
3.4~
3.4'!!0
4.2lf,
4.'"
152.40
19MO
228,70
5.5'11
6.3'11
7.1'11
2.4'6
2.ll'II
3.4%
3.""
4,510
5.0%
254,911
i
286,12
330.23
11m
8,2!j,
5.4"
5,8%
174.47
3.4%
9.1"
!A'll>
233.50
255.80
280,30
302.90
343,20
383.80
416.29
453,88
504.70
M'II
90'11
10.0CM!
10_~
M'II
6,3'11
6,9'1(,
7.2lf,
7,8%
1t1%
11.""
12.4'16
13.0%
13.9'11>
8.4'11
8.8'Ii
9.2'1(0
9,8'1<
~lJftJM4%Gr:JorlIrPwAM<.J1IU-;"'IIIJ>IfrlF\i'»\I
.....
~»Z!lll.ll.lllof>
':;,~19
Rating Agency Commentary
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The County's Credit is Currently Being
Reviewed by All Three Rating Agencies
• All three Rating agencies have expressed concerns with the County's
reserve balances and budgetary flexibility
• In reports related to the County's recent bond issuance in April of 2010,
all three rating agencies expressed concerns that may lead to an.
eventual downgrade:
);>
"Placement on Watchlist for possible downgrade reflects deterioration of Ihe
County's financial position dri1'en primarily by income tax revenue shortfalls,
which is expected
10
result in the use of a significant portion of the County's
General Fund and Revenue Stabilization Fund as offiscal 2010 (year ends June
30th). Future rating re'llieeos
will
factor (a) management's ability to mitigale the
projected current year operating deficit, given identification of a number of
potential gap closing measures that are largely non-recurring in nalure; (b) steps
taken in the 2011 budget
/0
restore structurally balanced operations and (c)
development of a plan
10
res/ore the financial flexibility to leelels in keeping with
the current rating category."
(Moody's Investors Service, April 2010)
•.
~'
.11
The County's Credit is Currently Being
Reviewed by All Three Rating Agencies
);>
"Failure to restore reserl1es to leele/s consistent with the 'AAA' rating and the
county's long-standing policies could place downward pressure on the rating."
(Fitch Ratings, March 25, 2010)
);>
"The county has stated that by fiscal 2012
it
will eliminate the currently projected
$212 mil/ion structural deficit and
will
restore resenles to its
6%
policy. Filch's
current rating and Stable Out/ook assume the counly
will
be successful, but failure
to achieve the fiscal 2011 and 2012 financial goals could result in a credit profile
Ihat
is
inconsistent with the current rating category."
(Fitch Ratings, March 31,2010)
);>
"The stable outlook reflects the inherent strength of the county's economy and
Standard
&
Poor's expectation that the county
will
continue to take the steps
necessary
10
restore ils financial footing by addressing ongoing revenue declines. If
the county fails to take actions
10
stabilize its finances, we may Tellise the outlook to
negalive."
(Standard
&
Poor's, March 31,2010)
112
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One
of the
Key County Weaknesses is
Volatility in its Tax Revenue Streams
• The County can accurately predict and budget for property tax
revenues mainly due to the Homestead Tax Credit
• The County has experienced much greater discrepancies between
budgeted and actual income tax, transfer tax and recordation tax
revenues
• The County has historically projected that total tax revenues will be
equal to or higher than prior year actual revenues in its budgetary
process; this approach worked during FYOS-07, this same approach
became problematic in the face of the current recession
• "The county's revenue base includes a number ofeconomically-sensitive
revenue sources (income, recordation and transfer taxes) that generated
significant budgetary surpluses during the real estate market boom period of
fiscal 2004 to fiscal 2007 but are driving the current financial deterioration."
(Moody's Investor Service, AprilS, 2010)
Summary of PFM
Recommendations
and County Response
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Recommendation #1: Act swiftly and decisively as part of the FY
2011 budget process to significantly restore target fund balance levels,
• The combined fund balances of its unreserved, undesignated General
Fund Balance and Revenue Stabilization Fund ("RSF") in FY 2011
should be restored to its current policy goal of 6% of tax supported
resources
• Simultaneously, the County should institute a multi-year plan to phase
in a new policy which establishes higher unreserved undesignated
General Fund Balance and Revenue Stabilization Fund to levels which
reflect the County's specific liquidity needs given its cash flow and
economically sensitive revenue streams
Recommendation #2: Amend local law with
respect to the
RSF
• Remove the provision which establishes a maximum amount
permitted in the RSF
• Provide for a mandatory contribution to the RSF equal to 0.5% of
Adjusted Governmental Fund Revenues. This provision would require
a budgeted annual contribution until the combined ending balances of
the General Fund and the RSF equals 10% of Adjusted Governmental
Fund Revenues
~'116
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Recommendation #3: Establish and meet targets for the
combined ending General Fund and RSF balance by FY 2020
• FY 2011 unreserved General Fund balance must be restored to 5% of
prior year General Fund revenues
• FY 2011 RSF must be restored to at least 1.0% of General Fund
Revenues
• Further, PFM recommends that the County needs to target and
maintain a reserve balance (made up of unreserved, undesignated
General Fund reserves and the Revenue Stabilization Fund) equal to
10% of Adjusted Governmental Fund Revenues
• The County should plan to reach the reserve balance target no later
than 2020
• This reserve target provides 36 days of working capital reserves, and
should be sufficient to withstand shocks created by another recession
of the same severity as the 2008-2010 recession
Recommendation #4: Strengthen its budget policy requiring
the County to adopt a structurally balanced budget
• PFM supported the County's revision to its FY2011 income tax revenue
projections to remove any level of optimism in the income tax
projection, which led to the need to make further difficult cuts
• PFM suggested the County add the following language to its Balanced
Budget Policy
?
Montgomery County will have a structurally balanced budget. Recurring
revenues should fund recurring expenses. No deficit may be planned or
incurred. In the event that the County determines that reserves have been
fully funded, then to the extent that there are surplus reserves, these funds
should be budgeted to fund any of the following non-recurring
expenditures which are one-time in nature, fund pay-go for capital in
excess of the County's targeted goal for pay-go or to advance fund
unfunded liabilities such as OPEB. (The County may want to add in other
non- recurring items)
118
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County Executive has Recently Proposed Resolutions
Reflective of PFM's Recommendations
• On May 21, 2010, County Executive recommended new fund balance
policies and changes to the Revenue Stabilization Fund law
• On May 27, 2010, County Council introduced a new resolution with
new fund balance policies
• County Council also introduced Bill 36-10 - Revenue Stabilization
Fund ("RSF") - Amendments
• County Council passed revised FY2011 budget with changes to
increase revenues (energy tax, telephone tax) and lower expenditures
reaching the current 6% fund balance policy level
• Maryland Board of Education has recently approved the County's
Maintenance of Effort ("MOE") waiver request, also assisting with the
budgetary process
GFOA Best Practices
20
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GFOA Best Practices Recommendations
• The Government Finance Officers Association (GFOA) recommends
that governments establish a formal policy on the level of unrestricted
fund balance that should be maintained in the general fund
• Such a guideline should be set by the appropriate policy body and
should provide both a temporal framework and specific plans for
increasing or decreasing the level of unrestricted fund balance, if it is
inconsistent with that policy
• GFOA recommends, at a minimum, that general-purpose
governments, regardless of size, maintain unrestricted fund balance in
their general fund of no less than two months of regular general fund
operating revenues or regular general fund operating expenditures
• Furthermore, a government's particular situation often may require a
level of unrestricted fund balance in the general fund significantly in
excess of this recommended minimum level
GFOA Guidelines Concerning Establishing a
Reserve Fund Policy
• In establishing a policy governing the level of unrestricted fund
balance in the general fund, a government should consider a variety of
factors, including:
j.
The predictability of its revenues and the volatility of its expenditures
capital needs, state budget cuts, etc.)
»
Its perceived exposure to significant one-time outlays (disasters, immediate
»
The potential drain upon general fund resources from other funds as well
as the availability of resources in other funds
»
Liquidity (if there is a disparity between when financial resources actually
become available to make payments and the average maturity of related
liabilities)
»
Commitments and assignments (i.e., governments may wish to maintain
higher levels of unrestricted fund balance to compensate for any portion of
unrestricted fund balance already committed or assigned by the
government for a specific purpose)
122
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OFFICE OF
MANAGEMENT
AND
BUDGET
Isiah
Leggett
County Executive
Joseph
F.
Beach
Director
MEMORANDUM
June 21,2010
TO:
FROM:
SUBJECT:
Nancy Floreen, Council President
Joseph
F,
Beach,
F
Bill 36-10, Finance
_.>
Revenue Stabili7..<1.tion Fund - Amendments
The
purpose of this memorandum is to transmit
a
fi::>cal impact statement
to
the Council
on
the
subject legislation.
Ll~GISLATION
SUMMARY
The proposed bill was included ill a package of recommendations the County Executive
transmitted to the County Council
011
May
21, 2010
which also included revisions to the County's reserve
policy and changes to the County's fiscal practices to address structural imbalances
in the
budget. Taken
together, the actions are intended
to
increase reserve levels to 10% by 2020 or sooner and to achieve
::>(ructuraJ budgetary balance. The proposed legislation will amend the Revenue Stabilization Fund law to
remove the cap on the Fund, retain interest earned
in
the Fund, and require mandatory contributions to
the
Fund to achieve total reserves of 10%.
FISCAL AND ECONOMIC SUMMARY
Compared to existing law and current reserve policies, the proposed amendments removing
the cap on the maximum size of the fund and requiring mandatory contributions to achieve a total reserve
level of 10% will have a positive I1scal impact by ensuring that the County has adequate reserves to fund
its operations through its annual \'evenue and expenditure cycle, and also is intended to assure that the
County will continue to receive the highest possible ratings on its general obligation bonds and the lowest
costs of borrowing. The mandatory direction of resources to reserves will limit the amount of resources
avai lable to spend on agency operating budgets or other uses, including capital investment.
This latter impact can be seen by comparing the two fiscal plan displays attached to this
memorandum, versions of which were included in the Council's discussion packet on this bill
011
June 14,
20 J
O.
The first display assumes currcnt policy and existing law, while the second incorporates the
recommcnded changes to reserve and fiscal policies and the Revenue Stabilization Fund law.
Whilc the proposed changes will most directly impact the amount of resources
aV(lilable
for
agency spending, they will more importantly set the County on a stronger fiscal path for FYl1 and
beyond. The changes will strengthen the County's capacity to withstand severe revenue declines or
Office of the Director .
101 Monroe Street, 14th Floor· Rockville, Maryland 20850 • 240-777-2800
www.montgomerycountymd.gov
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NallCY
Floreen, President, County Council
June
21, 2010
Page 2
unexpected expenditure needs such as those experienced in the last year. They will also help ensure there
is sufficient working capital throughout the County's uneven revenue collection cycle. And, as
highlighted by the County's financial advisor, the proposed changes to the Revenue Stabilization Fund
will allow total reserves to increase to a level more in line with other AAA-rated counties across the
country. Overall; this set of actions will provide additional flexibility to the County to respond to further
adverse
economic
and
fiscal conditions.
The proposed legislation
is
not expected to have
a
material economic impact. The
following contributed to and concurred with this analysis: Karen Hawkins, Department of Finance.
JFB:ae
Attachments
c: Kathleen BOllcher, Assistant Chief Administrative Officer
Rebecca Domarllk, Offices of the County Executive
Jennifer Barrett, Director, Department of Finance
Karen Hawkins, Department
of
Finance
Alex Espinosa, Office of Management and Budget
John Cliff, Office of Management and Budget
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Testimony: Bill 36-1 0, Finance - Revenue Stabilization Fund - Amendments
Good afternoon, I am Jennifer Barrett, Director of the Department of Finance,
and I am here to testifY on behalf of County Executive Isiah Leggett on Bill 36-10
Finance - Revenue Stabilization Fund - Amendments. The County Executive urges
the Council to support Bi1l36-1 0 which, along with the accompanying "Reserve and
Selected Fiscal Policies" Resolution, is designed to strengthen the County's fiscal
health, by building reserve levels to sufficient amounts to support County operations,
and to provide a sufficient contingency based on the County's unique revenue and
expenditure needs.
Bill 36-10 provides for a series of fixed-level mandatory contributions to the
Revenue Stabilization Fund (RSF) that are in addition to the existing revenue-based
mandatory contributions, and the bill removes the cap on the size of the RSF. The
requirements are designed to build up the County's reserves to the new, ten percent
policy level (10% of Adjusted Governmental Revenues) recommended by the
County's Financial Advisor, Public Financial Management (PFM). The 10% goal is
viewed as only modest, given the County's heavy reliance on volatile, economically
sensitive revenue sources, such as the income tax and transfer and recordation taxes,
and based on the County's cash flow needs in relation to the timing of the collection
of its primary revenue sources. Therefore, the recommended legislation removes the
cap on the Revenue Stabilization Fund, so that, after the targeted policy level is met
with fixed-level mandatory contributions, the existing provisions for revenue-based
mandatory contributions will continue, if triggered, and allow the fund to grow
further. This further growth will occur only if revenues come in higher than
projected, and then only fifty percent (50%) of the overage will be deposited into the
Revenue Stabilization Fund.
The legislation and accompanying policy resolution before you will set the
County on a stronger fiscal path in FYll and beyond. The needs for these actions are
many, and include our recent experiences with severe reductions in revenues and
unanticipated expenditure pressures; the remaining potential for future State actions
which may negatively affect the County's revenues and/or place additional
expenditure requirements on the County; numerous one-time actions taken to solve
the FYIO and FYll budget challenges; and strong statements of concern regarding the
County's use of reserves, reserve levels, and budgetary structural balance contained in
all three Rating Agencies' most recent ratings reports.
The combination of these actions is estimated to achieve structural budgetary
balance and grow reserve levels to 10% by 2020 or sooner: enough to sustain the
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County through a variety of the pressures noted above. The reserve amounts will also
help ensure sufficient working capital through the County's usual fiscal cycle.
I urge the Council to approve Bill 36-10, as well as the Resolution to Approve
Reserve and Selected Fiscal Policies. Guided by this set of actions, we will restore
General Fund reserves to the maximum allowed Charter level, and plan for a series of
mandatory contributions to the Revenue Stabilization Fund to achieve a total reserve
level of 10%. We will have strengthened our policies regarding a balanced budget
and use of one-time revenues, and commit to return to our existing PAYGO policy.
Although the Council's actions to adopt this legislation and policy resolution is
important, it is equally important for the County to adhere to these policies, and set
the County on a stronger fiscal path for FY12 and beyond, ready to respond to further
adverse economic and fiscal conditions that will inevitably occur at some point in our
future.
Thank you for your time.
June 22, 2010
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Allocation of Total Reserve
($ in millions)
Est.
App.
Projected
App.
FY10
1
2
3
4
5
6
7
8
9
10
11
Unrestricted General Fund
Revenue Stabilization Fund
Total Ending Reserves
76.2
119.6
195.8
29.7
60.4
90.1
136.8
94.3
231.2
Executive's Ending Reserves
Unrestricted General Fund
Revenue Stabilization Fund
Total Ending Reserves
Reserves as a % of Adjusted
Governmental Revenues
76.2
119.6
195.8
29.7
60.4
90.1
136.8
94.3
231.2
6.0%
136.4
118.6
255.0
6.5%
FY10
FY11
FY12
Projected
FY13
141.8
139.0
280.7
7.1%
Projected
FY14
140.7
162.7
303.4
7.4%
Projected
FY15
146.8
197.1
343.9
8.0%
Projected
FY16
155.3
229.2
384.5
8.6%
II~llll,j~I{~ft~
I,r~t~",,;,:,,',~'/~.,,:~~,
.-
\f~~\1i~:~~~1~.>',-,-,.
140.7
162.7
303.4
146.8
197.1
343.9
155.3
229.2
384.5
,···l17if!J:1·'SH1'~:1"lil'iw.t111d·'1'~'~'!'"
'~'" i,trj;>~
255.0
280.7
®
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AGENDA ITEMS 13
&
14
June 29, 2010
ADDENDUM #2
MEMORANDUM
TO:
FROM:
County Council
Robert H. Drummer, Senior Legislative Attorney () ( \
Charles H. Sherer, Legislative Analyst
cFJ.,t
r~tJ-
SUBJECT:
Resolution to Approve Reserve and Selected Fiscal Policies
Bill 36-10, Finance - Revenue Stabilization Fund - Amendments
The
Management and Fiscal Policy Committee recommendation (3-0): adopt the Resolution
and enact
Bill 36-10
with amendments. The Committee reconvened on June 28 and revised two
i
of these
recommendations as described below.
.. .
~
A Resolution to Approve Reserve and Selected Fiscal Policies and Bill 36-10, Finance ­
Revenue Stabilization Fund Amendments, both sponsored by the Council President at the request of
the County Executive, were introduced on May 27, 2010. A public hearing was held on June 22.
Management and Fiscal Policy Committee (MFP) worksessions for both the Resolution and Bill were
held on June 14, June 24, and June 28.
June 28 MFP Committee
The Committee completed its discussion of the Resolution and Bill with Executive staff,
Jennifer Barrett, Joe Beach, Karen Hawkins, and Alex Espinosa. Chuck Sherer, Bob Drummer, and
Steve Farber represented the Council staff. The Committee recommended approval of the Resolution
and the Bill with amendments. All of the Committee's recommended changes to the Resolution to
Approve Reserve and Selected Fiscal Policies are shown on ©19-20 of the Action packet.
The Committee approved the following amendments to Bill 36-10:
1.
Amended the Bill to require a mandatory contribution to the RSF as originally
recommended by the Executive (the mandatory contribution will be the greater of two
amounts, not the sum of two amounts); and
Amended the Bill to require the Council to review relevant economic indicators before
approving the transfer of funds from the RSF.
2.
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Addendum to Issues Relating to the Resolution
1.
What is the difference between the use of the General Fund reserve and the RSF?
The total reserve is made up of the General Fund (GF) reserve and the RSF. The RSF, under
both existing law and Bill 36-10, the Council must approve use of the RSF, and only to support
appropriations that have become unfunded. In other words, the Executive cannot use the RSF unless
the Council approves the use.
The GF reserve has two purposes, and there are two conditions in which it can be used. The
Council is not giving up authority to the Executive under either condition. The GF reserve can be
used to:
a.
fund additional unbudgeted expenses, such as a major snow storm. In this case, the
Council must approve a supplemental or special appropriation before it can be spent.
In other words, the Executive cannot spend the General Fund reserve unless the
Council approves it. This is the same under the proposed new policy and the old
policy; or
To offset a shortfall in revenue, such as occurred in FYI0 with the income tax. In this
case, no action by either the Councilor the Executive is necessary to "use" the reserve.
This is also the same under the proposed new policy and the old policy.
b.
Additional Issues Related to the
Bill
Should the mandatory contribution to the RSF be increased if the County has excess
revenues until the 10% AGR target is met?
1.
The Executive recommended a mandatory contribution of 50% of excess revenue or .5% of
AGR until the 10% AGR target is met, whichever is greater. Once the 10% AGR target is met, the
mandatory contribution would be 50% of excess revenues. At the June 24 worksession, the Finance
Director suggested an amendment that would require a mandatory contribution of both 50% of excess
revenue and .5% AGR until the 10% AGR target is met. This would permit the County to reach the
10% AGR target quicker than the scheduled 9-year period if there are excess revenues. However, the
amendment would also reduce the County's flexibility to spend these excess revenues.
The Committee made a preliminary recommendation to approve this amendment, but revisited
this issue at the June 28 worksession. The Committee recommended (3-0) to approve a
mandatory contribution that is the greater of 50% of excess revenue or .5% of AGR until the
10% target is met. This was and is the Executive's recommendation. See lines 71-89 at
©4-S.
2
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2. Should the permitted
uses
of the Fund be clarified?
Council staff believes the conditions on using the Fund are unnecessarily complicated and
restrictive. The current law requires certain economic triggers to occur before the Council can
approve using the Fund by majority vote. However, current law also permits the Council to use the
Fund without the economic triggers if approved by a supermajority of 6 Councilmembers.
Eliminating the option to approve a transfer from the Fund by a simple majority of Councilmembers
would both simplifY the process and make
it
more difficult for the Council to approve a transfer from
the Fund. The Committee also wanted to clarify that the Council should continue to review relevant
economic indicators before approving a transfer from the RSF.
Committee recommendation (3-0):
eliminate the Council's option to transfer funds from the RSF based upon economic indicators with a
simple majority. See lines 114-148 at ©6-7.
After the June 28 worksession, the Committee recommended an amendment to the Bill to
reflect the its intent that the Council continue to review relevant economic indicators. See line 144 at
©7.
This packet contains:
Bill 36-10
Circle
1
F:\LAW\BILLS\I036 Finance-Revenue Stabilization Fund\Addendum #2 To Action Memo.Doc
3
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Bill No.
36-10
Concerning: Finance
Revenue
Stabilization Fund - Amendments
Revised: June 28,2010 Draft No. _4_
Introduced:
May 27,2010
Expires:
November 27, 2011
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ _ __
Sunset Date:
-!..!N~on~e::..__
_ _ _ _ __
Ch. _ _, Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Council President at the Request ofthe County Executive
AN ACT to:
(1)
(2)
(3)
repeal the limit on the size of the Revenue Stabilization Fund;
modifY the requirement for mandatory County contributions to the Revenue
Stabilization Fund; and
generally amend the law governing the Revenue Stabilization Fund.
By amending
Montgomery County Code
Chapter 20, Finance
Article
XII
Sections 20-65, 20-66, 20-68, 20-69, 20-70, 20-71 and 20-72
By repealing
Montgomery County Code
Chapter 20, Finance
Article XlI
Section 20-67
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unaffected by hill.
The County Council for Montgomery County, Maryland approves the following Act:
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BILL No. 36-10
1
Sec. 1. Sections 20-65, 20-66, 20-68, 20-69, 20-70, 20-71 and 20-72 are
amended and Section 20-67 is repealed as follows:
20-65.
Definitions.
2
3
4
5
In this Article the following tenns have the following meanings, unless the
context clearly indicates a different meaning:
[(a)]
Actual total revenues
means the combined total of income tax, real
property transfer tax, recordation tax, and investment
reported in the County's annual financial report.
Adjusted Governmental Revenues
means tax-supported County
Governmental Funds revenues, plus revenues of the:
mcome~
6
7
8
as
9
10
11
12
ill
ill
County Grants Fund;
County Capital Projects Fund;
tax supported funds of the Montgomery County Public Schools,
not including the County's local contribution;
13
ill
8:)
14
15
16
tax supported funds of Montgomery College, not including the
County's local contribution; and
17
ill
[(b)
tax supported funds of the Montgomery County portion of the
Maryland-National Capital Park and Planning Commission.
18
19
Certified revenues
means revenues derived each fiscal year from the
income tax, real property transfer tax, recordation tax, and investment
income of the General Fund as certified by the Director on or before
June 15.]
20
21
22
23
[(
c)
Debt Service Fund
means the fund used to accumulate funds to pay
generallong-tenn debt principal, interest and related costs.]
24
25
[(d)]
Director
means the Director of the Department of Finance.
Excess revenue
means the amount. if positive, by which actual total
revenues from the income tax. real property transfer tax. recordation
26
27
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BILL
No. 36-10
28
29
tax. and investment income of the General Fund for the fiscaL year
exceed the original projections for these amounts.
[(e)]
Fund
means the Revenue Stabilization Fund created under this
Article.
[(t)]
30
31
32
33
34
General Fund
means the general operating fund of the County which
is used to account for all revenues and expenditures, except revenues
and expenditures required to be accounted for in another fund.
35
36
[(g)]
Income tax
means the County income tax imposed under state law.
[(h)]
Investment income of the General Fund
means income from the
investment of revenues that is reported in the General Fund.
[(i)]
37
38
Original projection
means the projection of total General Fund
revenues for the next fiscal year approved by the County Council in
the "Schedule of Revenue Estimates and Appropriations" resolution
or any similar resolution.
39
40
41
42
43
44
45
46
[U)]
Real property transfer
tax means the tax imposed under Sections 51­
19 et. seq.
[(k)]
Recordation tax
means the tax imposed under Sections 12-101 et.
seq., Tax-Property Article, [Annotated Code of) Maryland Code.
[(1)]
Revised forecast
means any revised projection of total General Fund
revenues for the next fiscal year prepared by the Department of
Finance.
47
48
49
Total reserve
means the sum of the reserve in the Fund plus the
Unrestricted General Fund Balance.
50
51
52
Unrestricted General Fund Balance
means the residual portion of the
General Fund fund balance that has not been reserved, restricted, or
encumbered for later years' expenditures.
53
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BILL No. 36-10
54
55
56
20-66.
(a)
Revenue Stabilization Fund.
The Director may establish a Revenue Stabilization Fund to support
appropriations which have become unfunded.
(b)
~
57
58
59
The Fund is continuing and non-lapsing.
The Fund is in addition to any surplus that is accumulated under
Section 310 of the County Charter.
60
61
20-67.
[(a)
[Fund sources and maximum size.] Reserved.
The Fund must not exceed 10 percent of the average aggregate annual
revenue derived from the income tax, real property transfer tax,
recordation tax, and investment income of the General Fund in the 3
preceding fiscal years.
62
63
64
65
66
(b)
The Director must compute the maXImum amount of the Fund
annually and report that amount to the County Council not later than
June 15.
67
68
69
70
71
72
73
74
(c)
The Fund is in addition to any surplus that may be accumulated under
Section 310 of the County Charter.]
20-68.
[(a)
Mandatory contribution to Fund.
Subject to the limit set in Section 20-67(a), the] The mandatory annual
contribution to the Fund must equal the greater of:
ill
[50 percent of the product of the certified revenues estimated for the
current fiscal year times the difference between:
(1)
the annual percentage increase in the certified revenues
projected for the next fiscal year, and
(2)
the average annual percentage increase in the certified revenues
collected in the 6 fiscal years immediately preceding the next
fiscal year.] 50 percent of [[the]] any excess revenue [[amount
75
76
77
78
79
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BILL
No. 36-10
80
81
82
83
84
85
86
87
88
89
90
91
by which actual total revenues from the income tax, real
property transfer tax, recordation tax, and investment income of
the General Fund for the next fiscal year exceed the original
projections for these
amounts)]~
or
(Q)
an annual amount [[that does not exceed]] equal to the lesser of 0.5
percent of the Adjusted Governmental Revenues [[for the current
year, but which does not result in the sum of the current year-end
projected Unrestricted General Fund Balance and the Fund to
exceed]] or the amount needed to obtain a total reserve of 10 percent
of the Adjusted Governmental Revenues.
[(b)
A growth or decline in certified revenues which results from either an
increase or decrease in County tax rates must be:
(1)
(2)
excluded from revenues projected for the next fiscal year, and
phased in in the average annual percentage increase calculation
in the third, fourth, fifth and sixth years.
92
93
94
95
(c)
If actual total revenues from the income tax, real property transfer tax,
recordation tax, and investment income of the General Fund for the
next fiscal year exceed the original projection, then 50 percent of the
excess must be transferred to the Fund if doing so will not result in the
10 percent limit in Section 20-67(a) being exceeded.)
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20-69.
Discretionary contributions to Fund.
The County Executive may recommend and the County Council may by
resolution approve additional contributions to the Fund [if doing so will not result
in the 10 percent limit in Section 20-6i(a) being exceeded].
20-70.
Transfer of contributions.
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III
The Director must transfer the mandatory contributions required by Section
20-68 and any discretionary contributions under Section 20-69 from the General
[fund] Fund to the Fund at the end of each fiscal year.
20-71.
Interest.
All interest earned on the Fund must be added to the Fund. [However, the
Director must transfer interest earned on the Fund when the Fund exceeds 50
percent of the maximum Fund size authorized by Section 20-67(a) to the Debt
Service Fund as an offset to the approved issuance of general obligation debt.]
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20-72.
Use of Fund.
[[(a) After holding a public hearing and seeking the recommendation of the
Executive, and if the Council finds that reasonable reductions in
expenditures are not sufficient to offset the shortfall in revenue, the
Council may by resolution approved by the Executive transfer an
amount from the Fund to compensate for no more than half of the
difference between the original projection of total General [fund]
Fund revenues for that fiscal year and a revised forecast of the
General Fund revenues projected for the same fiscal year.
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If
the
IS
Executive disapproves a resolution within 10 days after it
transmitted
and the
Council readopts
it
by
a
vote
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of 6
Councilmembers, or if the Executive does not act within 10 days after
it is transmitted, the resolution takes effect.]]
[[(b) However, a transfer must not be approved unless 2 of the following
conditions are met:
(1)
The Director estimates that total General Fund revenues will
fall more than 2 percent below the original projected revenues.
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(2)
Resident employment in the County has declined for 6
consecutive months compared to the same month in the
preVIous year.
(3)
The [local] most recent regional index of leading economic
indicators.,. published
Qy
the Center for Regional Analysis,
George Mason University, or
~
successor index determined
Qy
the Department of Finance, has declined for 3 consecutive
months.]]
[[(c) The cumulative transfers from the Fund in any single fiscal year must
not exceed half of the balance in the Fund at the start of that fiscal
year.]]
[[(d) The funds transferred may only be used to support appropriations
which have become unfunded.]]
[[(e)]] By an affirmative vote of 6 Councilmembers.,. the Council.,. after
holding a public hearing", reviewing relevant economic indicators, and
seeking the recommendation of the Executive.,. may transfer
[[amounts]] any amount from the Fund to the General Fund [[without
regard to the limits and conditions in subsections (a)-(c)]] to support
flPpropriations.which have become unfunded.
Approved:
Nancy M. Floreen, President, County Council
Approved:
Date
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