This story was corrected on Dec. 12, 2012. An explanation follows.
Should the United States fall off the federal fiscal cliff, Montgomery County could be one of the hardest hit areas by the mandatory cuts and tax hikes.
Home to federal agencies, thousands of federal workers and many of the region’s highest income residents, the cliff’s impending across-the-board expiration of Bush-era tax cuts and $1.2 trillion in automatic spending cuts only makes matters worse for Montgomery, U.S. Sen. Benjamin L. Cardin (D-Maryland) of Pikesville told the Montgomery County Council.
“We can’t let this happen, and I don’t believe it’s going to happen,” he said Monday. “I believe there will be some way of resolving the fiscal cliff.”
Cardin said Congress has until Dec. 31 to reach a deal or automatically trigger many of the cuts.
But as President Barack Obama and House Speaker John Boehner, an Ohio Republican, work toward a resolution in the next two weeks, nervousness about the future lingers.
“When I hear numbers like 8 percent outside of defense as possible cuts, it’s very startling and very, very worrisome,” Council President Nancy Navarro (D-Dist. 4) of Silver Spring said.
Montgomery made significant cuts during the recession, closing more than $2.6 billion in local budget gaps.
Those cuts cost about 1,000 county employees their jobs, and some county agencies lost as much as nearly 30 percent of their operating dollars.
In the current fiscal year, the council and County Executive Isiah Leggett (D) were able to begin restoring some of the funding lost to recession.
The fiscal cliff threatens to turn that backwards, Navarro said.
Councilwoman Nancy Floreen (D-At large) of Garrett Park noted that the federal government’s budget problems could decrease jobs and increase building vacancies in the county, therefore reducing taxpayer wealth and taxable base, directly impacting county revenue.
About 46,000 federal jobs and 19 federal agencies are based in Montgomery. Of about 970,000 residents in the county, about 72,000 work federal jobs, according to government figures.
The county’s bottom line is not the only one that would be affected if the country falls off the cliff.
Montgomery’s public schools could lose $6 million in federal aid next budget year if an agreement is not reached, said Larry Bowers, chief operating officer for Montgomery County Public Schools.
The school system receives about $60 million in federal aid annually.
Cardin said some Republicans in Washington feel the solution to the current crisis requires significant cuts to education, and that much of the fiscal debate is an education debate.
If Congress does not reach an agreement, Title I, the program that serves Montgomery’s low-income students as well as the Individuals with Disabilities Education Act (IDEA) program would be hardest hit. But other programs including Head Start — which provides subsidized early childhood services to those who qualify — would also feel the impact.
Montgomery schools received $20.37 million in Title I funds and $39,500 in IDEA funds in fiscal 2012, according to school system documents.
In the current school year, the 27 schools who have the most low-income students in the county are receiving Title I resources and support. A Title I cut could come at a time when the percentage of low-income students in the county is growing. In the 2011 budget year, 9.1 percent of Montgomery County children ages 5 to 17 and their families lived in poverty, a 2 percent increase over the prior year, according to U.S. census data.
Providing services to children who qualify for IDEA and Head Start funds is federally required, Bowers said. So if that federal funding is cut, the school system would have to find local dollars to make up for those cuts, he said. The school system would not be required to make up for the Title I cuts, he said.
Bowers said the largest effect would be on the county government, which, regardless of federal cuts, will need to fund the school system at the same level of per-pupil funding next budget year under the state’s maintenance of effort law.
Without calculating in the uncertainty of the fiscal cliff, recent analysis shows Montgomery already $135 million short for fiscal 2014, and both county government and the Maryland-National Capital Park and Planning Commission facing 5 percent operating budget shortage.
Municipalities fear the trickle down of cuts from the county or state.
“I can see them [state or county] not wanting to give required payments at the time they’re supposed to be done,” Suzanne Ludlow, acting city manager for Takoma Park, said.
Ludlow said the state made cuts to Takoma Park’s highway user revenue and tax duplication payments during the recession, which forced the city to make “significant cuts” in its budget and some layoffs.
“We’ve been trying to build stability since then,” she added.
The Town of Brookeville worked hard to keep its local tax rates constant, but to do so, it curtailed many services.
As it prepares for 2014, the town is facing a temporary increase in expenses.
Another recession or even the extension or expansion of state or county cuts from the fiscal cliff would be extremely difficult to absorb, said Michael Acierno, president of the Brookeville Town Commission.
Municipalities could again face rising costs for services if the country falls off the cliff, Rockville Mayor Phyllis Marcuccio said.
“Everybody’s going to be touched by it,” she said. “... There isn’t any way we’re going to escape.”
Small businesses would likely feel a direct impact, especially those that receive federal grants, she said.
A heavier tax burden coupled with the threat of another recession will seriously threaten an already precarious situation for homeowners and businesses alike.
Many of Brookeville’s residents are in business for themselves, and only very recently have they begun to see improvements economically, Acierno said.
“The immediate impact will be felt by our residents who, like other Montgomery County residents, are still struggling from the devastation of the Great Recession,” he said.
Even the threat of the fiscal cliff is being felt in Montgomery County real estate, Bruce Lee, president of the Silver Spring-based Lee Development Group said.
“We’re seeing small businesses that are government contractors giving back space, downsizing or closing up shop because they’ve been told by the government that contracts will not be renewed or they’re going to be reduced substantially,” he said. “Regardless of how the fiscal cliff is resolved, … we’re already in deep trouble.”
Ginanne Italiano, president of the Greater Bethesda-Chevy Chase Chamber of Commerce, said business is showing signs of improvement — fewer businesses are dropping chamber memberships — but that would all come to a standstill if Congress doesn’t strike a deal.
“We all will be affected, but this just makes it go over the top,” she said. “People are going to be out of business. People are not going to be spending money. People are going to be looking for jobs. It’s just a domino effect, honestly.”
“It will affect the entire economy,” Gaithersburg-Germantown Chamber of Commerce President Marilyn Balcombe said. “Government agencies will constrict and contractors will constrict, but restaurant businesses will constrict, too.”
The threat makes Maryland’s tough business environment even harder, said Andy Stern, owner of Andy Stern’s Office Furniture and chairman of the Greater Bethesda-Chevy Chase Chamber of Commerce.
The business that his father started in 1948 sells furniture to other businesses, with showrooms in Beltsville, Rockville, Tyson’s Corner, Va., and Washington, D.C.
He said whenever there is bad news, like the fiscal cliff, people do not make purchases. If the country were to go over the fiscal cliff, companies he depends on to make purchases, like defense contractors, would stop buying, he said.
His concern is shared across the county.
Since the City of Gaithersburg is in good financial standing, they are prepared, City Manager Tony Tomasello said, but long-term consequences of going over the fiscal cliff may eventually pose problems at the city level.
“We’re worried about the diminished consumer capacity for spending,” he said. When local residents have less money to spend, commercial areas and residential sales suffer.
Tomasello said he is also concerned about local contractors, especially those who work closely with the federal government. Lockheed Martin, a defense contractor, is located in Gaithersburg.
“The Washington region has a disproportionate number of firms that sell to the government.” If those contractors are affected, “that will have a ripple effect,” he said.
Yet some local leaders are optimistic the country will not get to such a point.
Even if Congress fails to reach an agreement, the likely effects to Laytonsville would be neither immediate nor severe, Mayor Dan Prats said.
A predominately residential community that does not rely on federal grants or programs, Laytonsville wouldn’t be affected except for residents who either directly or indirectly work for the federal government.
“These families could be facing a tough road ahead,” Prats said. “With the fiscal cliff looming, my hope is that a reasonable deal will be cut before sequestration.”
In Gaithersburg, Tomasello said the city is prepared for the consequences.
“We have money in reserves that we can use to fund city operations and capital projects, but that won’t last forever,” he said.
Ludlow said Takoma Park could face cuts if the cliff is reached, but she does not expect anything similar to those felt during recession, because she thinks something will work out in Congress.
Because Takoma Park’s base income is property taxes, there is some added stability, Ludlow said.
“We’re fortunate in one sense, because we’ve got a pretty stable housing market right now,” she said.
But the tax hikes and budget cuts would threaten the local real estate market, which is showing signs of recovery, said Jane Fairweather of Coldwell Banker.
A residential real estate agent in Montgomery County, she said her sales this year are up 40 percent over 2009. Although prices are not where they were at the top of the market, she said if this level of demand continues, it will eventually translate to higher prices.
Fairweather said nobody knows what will happen if the federal government would lay off large numbers of people because it has never happened, but the worst case scenario could cause hundreds of thousands of people to lose their jobs, which could flood the local market with homes and cause prices to drop.
“It’s a frightening thing,” she said. “Let’s just hope that Congress gets to work and this doesn’t happen.”
Staff writers Jessica Ablamsky, Jen Bondeson, Sylvia Carignan, Terri Hogan, Lindsay Powers, Kara Rose and Elizabeth Waibel contributed to this report.
Editor’s note: This version corrects a mistake in Bruce Lee’s quote.