AGENDA ITEM 24
May 27,2010
Introduction
MEMORANDUM
TO:
FROM:
SUBJECT:
County Council
Robert H. Drummer, Senior Legislative
Attome~
~\
Introduction:
Bill 36-10, Finance - Revenue Stabilization Fund - Amendments
Bill 36-10, Finance - Revenue Stabilization Fund - Amendments, sponsored by the
Council President at the request of the Executive, is scheduled to be introduced on May 27,
2010. A public hearing is tentatively scheduled for June 22,2010.
Bill 36-10 would remove the cap on the Revenue Stabilization Fund, modify the
mandatory contributions to the Fund; and generally amend the law concerning the Revenue
Stabilization Fund. The legislation would help ensure adequate reserve levels by increasing
them to 10% over the next ten, or fewer, years. This legislation is intended to strengthen the
County's fiscal health, by improving budgetary flexibility and building reserve levels.
This packet contains:
Bill 36-10
Legislative Request Report
Executive's Transmittal Memo
Reserve Policies Overview
Comparison of Fiscal Policies and Practices
Circle
1
8
9
12
13
F:\LA W\BILLS\! 036 Finance-Revenue Stabilization Fund\Intro MemoDoc
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Bill No. _ _ _ _ _---'''''''-..:...:::.._ __
Concerning: Finance
Revenue
Stabilization Fund - Amendments
2_
Revised: May 25,2010 Draft No. __
Introduced:
May 27, 2010
Expires: _ _
m~1Q§aU.iL!...:L_
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ _ __
Sunset Date:
~=:...-
_ _ _ _ __
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 ofthe 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 bracketsn
* * *
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.
In this Article the following terms have the following meanings, unless the
context clearly indicates a different meaning:
[(
a)]
2
3
4
5
6
7
Actual total revenues
means the combined total of income tax, real
property transfer tax, recordation tax, and investment Income.1 as
reported in the County's annual financial report.
8
9
Adjusted Governmental Revenues
means tax -supported County
Governmental Funds revenues, plus revenues of the:
10
11
12
13
14
15
ill
ill
ill
(f}
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
16
17
18
19
ill
[(b)
tax supported funds of the Montgomery County portion of the
Maryland-National Capital Park and Planning Commission.
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
general long-term debt principal, interest and related costs.]
24
25
26
27
[(d)]
Director
means the Director of the Department of Finance.
[(
e)]
Fund
means the Revenue Stabilization Fund created under this
Article.
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BILL
No. 36-10
28
29
[(t)]
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.
30
31
32
33
34
[(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)]
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.
[U)]
35
36
37
38
Real property transfer
tax means the tax imposed under Sections 51­
19 et. seq.
39
40
41
42
43
44
45
[(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.
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.
46
47
48
49
20-66.
(a)
Revenue Stabilization Fund.
The Director may establish a Revenue Stabilization Fund to support
appropriations which have become unfunded.
50
51
52
53
(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.
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BILL
No. 36-10
54
55
56
57
58
59
60
61
62
63
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.
(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.
(c)
The Fund is in addition to any surplus that may be accumulated under
Section 310 of the County Charter.]
64
65
66
67
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 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 projections for these
amounts; or
68
69
70
71
72
73
74
75
76
77
78
{Q}
an annual amount that does not exceed 0.5 percent of the Adjusted
Governmental Revenues for the current year, but which does not
79
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BILL
No. 36-10
80
result in the sum of the current year-end projected Unrestricted
General Fund Balance and the Fund to exceed
lQ.
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.
(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.]
20-69.
Discretionary contributions to Fund.
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
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.
96
97
98
99
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.
In terest.
100
101
102
103
104
105
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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BILL
No. 36-10
106
107
20-72.
(a)
Use of Fund.
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.
If the
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
Executive disapproves a resolution within 10 days after it IS
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.
(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
~
127
128
129
130
successor index determined
Qy
the Department of Finance, has declined for 3 consecutive
months.
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BILL
No.
36-10
131
132
133
134
135
136
137
138
139
140
(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 from the Fund without regard to the
limits and conditions in subsections (a)-(c).
Approved:
141
142
143
144
Nancy M. Floreen, President, County Council
Approved:
Date
145
146
147
148
Isiah Leggett, County Executive
This is a correct copy ofCouncil action.
Date
149
150
151
Linda M. Lauer, Clerk ofthe Council
Date
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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
Courtly Executive
MEMORANDUM
May 21, 2010
TO:
FROM:
Nancy .Floreen, 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 watchlist. 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 FYJ I 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
and/or place additional expenditure requirements on the County.
• Numerous one-time actions taken to solve the FYI 0 and FYll 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 10 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 one-time revenues exceeding projections to the Revenue Stabilization Fund, PAYGO,
Pension or Retiree's Health Benefit pre-funding, and one-time 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
May 21,2010
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 - Compmison of Fiscal Policies and Practices
Resolution - Reserve and Selected Fiscal Policies
Draft Bill - Revenue Stabilization Fund
Restructured Balanced Fiscal Plan - FY11-16
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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ATTACHMENT A
RESERVE POLICIES - OVERVIEW
1.
CURRENT POLICIES
Balanced Budget:
Reserves:
RSF:
PAYGO:
One Time Revenues:
expenditures not to exceed
resourc~s
(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
0d
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
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
C8
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ATTACHMENT B
COMPARISON OF FISCAl POLICIES AND PRACTICES - CURRENT POLICY/PRACTICE vs. RECOMMENDED
PFM
and FINANCE RECOMMENDED POLICIES
CURRENT POLICY/PRACTICE
Structurally
Balanced Budget
Current Fiscal Policy:
Recommended Policy:
Reserves
It is the fiscal policy
of
Montgomery County to
balance the budget. A balanced budget has its
funding sources (revenues, undesignated
carryover. and other resources) equal to its
funding uses (expenditures, reserves, and other
allocations). No deficit may be planned or
incurred.
Current Fiscal Policy:
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
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:
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%
of
Adjusted 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.
~~~~~~~
~
~
~
~
~
(§)
2
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ATTACHMENT B (continued)
Revenue
Stabilization
Fund (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.
Use of One-time
Revenues
Current Fiscal Policy:
Recommended 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.
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
PAYGO 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 is
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 levels. 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, not in line with actual
experi~nce.
@)
4