Natali Fani-González proposes progressive taxes, lower raises in alternative budget

County Council President Natali Fani-González is pushing to reform Montgomery County’s tax code, cut spending and lower raises for county employees in a budget plan she released Friday. The move marks a break with the county executive and his proposal, which the council president said “misses the mark across so many dimensions.”

Fani-González’s new plan comes more than a month after County Executive Marc Elrich unveiled his spending plan, which council members roundly rejected as an ill-advised solution to the county’s looming financial challenges.

Her alternative won’t be the only one for the council to consider. Council member Will Jawando, a candidate for county executive, presented his own spending plan Friday. During a press conference, he said Fani-González’s plan to lower negotiated raises for county employees represents “a broken promise.”

Fani-González said her approach makes income taxes progressive, eliminates Elrich’s plan for a nearly 6% property tax increase and slows growth in spending while maintaining services for vulnerable residents.

“Household budgets are stretched thin, and we cannot add to the burden by raising their taxes in this budget, as the county executive proposed,” she said in a prepared video message.

In a memo to the council, Fani-González wrote that Elrich’s proposal would have left the county with a roughly $257 million structural deficit in future years.

In a statement, Elrich said he was surprised by Fani-González’s budget proposal and characterized the changes she proposed as dramatic.

Elrich also noted that elements of Fani-González’s plan could increase costs for middle- and lower-income residents by eliminating two tax credits, the Income Tax Offset Credit and the Working Families Supplement.

“Of course, it will be up to the Council to make the final budget decisions, and I hope they will hold to the principles in my budget of supporting our schools, honoring the contracts with our County and school workers, and helping the most vulnerable among us,” Elrich wrote.

A progressive tax structure

The council president claimed her plan would lower income taxes for 96% of county residents. A family of four earning the area median income of $164,300 would pay about $750 less, she said.

All county residents are currently subject to a 3.2% local income tax rate. Fani-González wants high earners to pay taxes on a larger share of their income than middle- and low-income filers.

Her proposal would lower the rate to 2.5% for households earning up to $50,000 and to 2.8% for those earning up to $150,000.

Filers making $150,001 to $300,000 would still pay 3.2%, and those earning more than $300,000 would pay 3.3%.

To offset revenue the county will lose from lowering rates for most residents, Fani-González wants to eliminate the county’s Income Tax Offset Credit, under which homeowners can receive a $692 credit, and the Working Families Income Supplement, a tax break for those who qualify for the state Earned Income Tax Credit.

Most households earning less than $50,000 don’t benefit from the Working Families Income Supplement, and the Income Tax Offset Credit was designed to help those paying a local income tax rate above 2.6%, Fani-González wrote.

“We’re eliminating the need to provide this limited relief as a property tax credit, ensuring that the relief goes to those earning the income and not just those who own property,” she wrote.

Fani-González said her tax plan would generate $82 million in the next fiscal year. She proposed the county use $50 million of that amount to boost reserves, and the rest for one-time expenses in next year’s budget.

Spending cuts

The council president wants to cut $156 million from Elrich’s proposed budget.

Elrich’s $8 billion proposal, she said, would increase county spending by $375 million — 5.7% — over this year’s budget.

Fani-González’s plan would increase county spending by 3.3%, with spending cuts applied across local agencies.

She also called for county employees to receive smaller raises than they would under a tentative bargaining agreement reached with Elrich’s administration.

Under Elrich’s agreement, union members would receive general wage increases of 2.5% to 3% and other potential pay raises.

Under Fani-González’s plan, employees would receive a 2% “general wage adjustment,” saving the county more than $40 million, the council president wrote in her memo.

Her plan would eliminate additional scheduled raises and “retirement and longevity changes” to lower future cost obligations and save $4.5 million in next year’s budget.

Fani-González noted in her memo that federal employees are scheduled to receive 1% raises, and most state employees are getting a 1.5% wage hike.

“Nevertheless, I understand that this will be a tough pill to swallow for partners in labor who negotiated in good faith; I would never suggest this change if there was another viable way that did not lead to us cutting direct services to the most vulnerable,” she wrote.

Union leaders, though, said Friday that they won’t be giving any ground.

“I’m demanding that the County Council fund our contracts,” Lisa Blackwell-Brown, secretary-treasurer of UFCW Local 1994 MCGEO, said during Jawando’s press conference, which included representatives from several local unions.

Blackwell-Brown said her members need the pay increases and benefit improvements the unions negotiated to make ends meet as inflation and everyday costs rise.

Fani-González wrote in her memo that the council will need to find an additional $25 million in spending cuts.

She listed a dozen items the council could consider cutting, including the Montgomery County Economic Development Corp., community grants and payments to municipal governments.

She also suggested the council lower the amount Elrich approved for the county Board of Education by $59 million. The school system would still receive 3.8% more than its current budget, she noted.

“I expect MCPS to continue working towards more transparency in their budgeting decisions and excellence in our schools,” she wrote.

Competing proposals

During his news conference with union leaders, Jawando said Fani-González’s plan sends the wrong message to local employees.

“It tells every worker in this county that, when money gets tight, your agreements are the first thing we’re gonna walk back,” he said. “That’s not leadership.”

Jawando also laid out his own alternative.

Like Fani-González, Jawando said he won’t support the county executive’s plan to raise property taxes.

But, rather than restructuring local income taxes, he wants to raise them only on people making more than $500,000. These filers would pay a 3.3% rate, while all others wouldn’t see a change.

“I think that’s reasonable. It’s not radical,” Jawando said.

He claimed the change would generate $8 million, which he would use to increase funding for local nonprofits by 5% above what Elrich proposed.

Jawando also pushed back on Fani-González’s plan to trim $59 million from what Elrich allocated for the Board of Education.

He said the council should approve more money for the school system, though he didn’t specify an amount.

He said the council would need to find about $180 million to cut. He refrained from committing to specific departments or programs from which to cut, but he mentioned a need to examine agency travel budgets and new county positions, among other areas.

Jawando said money the county saves through spending cuts should go to employee raises, nonprofit organizations and the school system, rather than being used to pad the reserve fund.

He’d support boosting the county’s rainy day fund most years, he said, but not this one.

“It’s not raining,” he said. “It’s storming.”

This story has been updated to include comments from local unions and new information about council member Will Jawando’s budget plan.

Correction: The original story incorrectly stated that County Executive Marc Elrich's proposed property tax increase would be 6.3%. Elrich's proposal calls for a 5.89% increase.