Five weeks ago, Montgomery County budget makers fielded what for them was a rare warning from a bond rating agency: Major risks lie ahead if balancing the budget means reducing new contributions to the retiree health benefits fund.
For two straight fiscal years, to cover revenue shortfalls, the county diverted tens of millions of dollars from a trust fund set aside to pay for future health and life insurance benefits for retired government employees.
Moody’s Investors Service told the office of County Executive Marc Elrich (D) last month that such moves were risky and should not be relied on heavily in the future.
For a county that has not seen its triple-A credit rating downgraded in more than 40 years, it was an awkward admonishment.
When the county council learned about it, several members were not pleased.
Elrich’s aides rushed to reassure them, with acting finance director Michael Coveyou saying in a letter this week that the comment from Moody’s research division was “mostly neutral” and would not result in “an immediate negative change to the county’s credit rating.”
“We did not take money from our retiree health fund. This was a reduction in new contributions over and above the current fund,” said Andrew Kleine, Elrich’s chief administrative officer.
He said Elrich inherited huge deficits and projected revenue breakdowns, and has committed to fully funding the trust next fiscal year.
“We found ourselves with a very difficult choice,” Kleine said.
In emails obtained by The Washington Post, council members wondered why they had learned of the note from Moody’s weeks after it was delivered. Council President Nancy Navarro (D-District 4) recommended that the council start monitoring the agency’s alerts independently so that members do not have to depend on the executive’s staff for “critical information.”
Kleine said the lack of timely communication was an oversight that is being remedied: “We were delinquent in that.”
The council in May passed Elrich’s $5.7 billion budget , which included shifting nearly $90 million from the non-pension health benefits pre-funding for retired employees in the county’s government, schools and Montgomery College. While the decades-old county pension fund is nearly fully funded, the benefits fund inaugurated in 2011 is about 21 percent fulfilled as an ongoing cost for the government.
Navarro said in a statement that the council was “disappointed” with the diversion of funds, but “we were faced with constrained resources and existing service obligations to our residents and employees.”
The same thing happened a year earlier, when then-County Executive Isiah Leggett (D) called a nearly $65 million shift from the health benefits plan a “one-time diversion.”
Council member Andrew Friedson (D-District 1), who was alone in voting against the budget diversion, objected during the budget process to the diversion of money.
“This is extremely serious. There’s a lot to be proud of in the budget, but this shifting really concerns me,” Friedson said. “I reject the premise that this is a balanced approach to the budget.”
He compared diversion to someone’s choosing between paying obligatory expenses such as retirement and student loans, without addressing anything else in their household budget — such as entertainment expenses — that is not obligatory.
Council member Tom Hucker (D-District 5) said the council met with retirees to reassure them about the budget action, which he said was necessary to fully fund schools and meet all agency funding requests without raising taxes.
Meeting the 10 percent reserve fund goal in this fiscal year, he said, is likely to create more flexibility in the budget for years to come.
“I think county voters should sleep easy tonight,” Hucker said.
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