The Sage Policy Group’s report “The Coming Storm” landed with a bang in the middle of Montgomery County’s primary season with its conclusion that Montgomery County “is already in the midst of a downward fiscal spiral,” experiencing poor job growth, little new business formation, and an out migration of its taxpayer base.
The report touched on some important issues but it’s analysis was muddied by inconsistent comparisons and shifting time frames that appear chosen to give the worst impression of Montgomery County. At times all counties in the area are compared, at other times (when the statistics are particularly bad for Fairfax and Arlington) all Northern Virginia counties are lumped together, and sometimes only Maryland counties are compared. Sometimes data is analyzed in percentage growth and sometimes in absolute growth. It is very hard to use the data presented to get an overall picture of how each county has fared.
“The Coming Storm” gives the impression that it is fishing for any statistic that will make the county look bad. Perhaps most glaring is the statistic that measures how dependent Montgomery County is on federal employment compared to the country as a whole. (Spoiler alert! Montgomery County is more dependent on federal employment than the rest of the country!)
Comparing Apples to Apples
One major problem with “The Coming Storm” is that it lumps together the inner ring suburbs in Montgomery County, Prince George’s County, Fairfax, Arlington, and Alexandria City, with exurbs such as Prince William, Fairfax, Howard Counties. A quick glance at the data shows that the inner ring suburbs have all had slower economic growth, greater tax increases and larger outflows of income than the outer counties. This is to be expected since inner suburbs are older, more crowded, and are facing the growing cost of aging infrastructure, while the exurbs are newer and still have more room to grow.
A second problem is that the time period 2001 to 2017 contained two recessions, a mild one beginning in 2002, and the Great Recession beginning in 2008. Picking an arbitrary beginning and end point for a data set can distort the picture unless it takes this into account. It is vital, therefore, to compile as complete a data set as possible for each county.
In this review I will compare only the inner ring counties, a more apples to apples comparison. The results show that all five closer in jurisdictions have followed similar paths. Some differences are apparent and some problems emerge from the data but the conclusion that Montgomery County faces a uniquely perilous future is simply not warranted.
Job growth patterns from 2001 to 2017 are revealing. The counties were affected differently by the two recessions. Arlington was hardest hit by the 2002 recession and struggled for a decade to recover, showing little job growth at all in the first decade of the century. Then in this decade Arlington boomed. Alexandria showed modest growth up until the Great Recession but has never completely recovered since then. Fairfax, Montgomery and Prince Georges counties followed more comparable paths. Fairfax performed better over the entire period but the difference resulted from faster growth before 2008 and a smaller decline during the recession. Job growth for the three counties since the end of the Great Recession has been nearly identical.
The graphs below show total job growth and private sector job growth from 2001 to 2017, then from 2001 to the pre-Great Recession peak; from pre-recession peak to recession trough; and from recession trough to 2017. The recession’s effects were felt differently in each county and the peak and trough occurred at slightly different dates. The Great Recession hit Montgomery and Prince Georges harder than Fairfax. Arlington never got back to 2001 levels until after 2008 but the effects of the Great Recession were brief and their post-recession boom began very quickly. Alexandria has never recovered from the Great Recession.
|Total job growth||Montgomery||Prince George’s||Fairfax||Arlington||Alexandria|
|2001 to pre-Great Recession peak||3.3%||3.9%||7.9%||-0.6%||9.7%|
|Pre-Great Recession peak to recession trough||-4.9%||-5.4%||-2.1%||-2.9%||-6.0%|
|Great Recession trough to 2017||6.2%||7.0%||4.9%||15.0%||-0.8%|
|Private sector job growth||Montgomery||Prince George’s||Fairfax||Arlington||Alexandria|
|2001 to pre-Great Recession peak||4.5%||0.4%||6.7%||-5.7%||4.5%|
|Pre-Great Recession peak to recession trough||-7.3%||-7.9%||-2.7%||2.3%||-6.8%|
|Great Recession trough to 2017||5.5%||8.4%||5.0%||19.6%||-1.7%|
Source: Bureau of Labor Statistics. https://data.bls.gov/PDQWeb/en
Arlington’s stunning turnaround after the Great Recession and it’s 15% growth rate in jobs (20% in private jobs) is a major story that should be examined more closely; as is Alexandria’s failure to recover after the Great Recession, especially its overall loss of private sector jobs for the entire 2001 to 2017 period. Montgomery, Prince Georges, and Fairfax have shown similar levels of job growth since the Great Recession, with Prince George’s turning in a somewhat better performance in private sector job growth.
As for Montgomery County, the Sage Report’s conclusion that “Job growth has been extraordinarily soft in recent years” is not born out by the facts. It appears that way in the Sage Report because they chose the peak year before the Great Recession as the beginning of their data set. Montgomery County then experienced several years of serious job declines but has since rebounded with steady job growth. Montgomery and Prince George’s Counties have had very similar growth patterns since 2000, and since the end of the Great Recession both have had better records than Fairfax County, with Arlington turning in the stellar performance while Alexandria has been the laggard.
Office Vacancy Rates
The Sage Report claims that “slow job growth has translated into elevated commercial vacancy rates.” But we have seen that Montgomery County’s job growth has not been particularly slow. It should not be surprising, therefore, to find that Montgomery’s vacancy rate is not particularly high; in fact, it is the lowest of all the inner ring jurisdictions. Arlington has had stubbornly high vacancy rates which began to be felt by early 2018 when Arlington’s County Manager reported that its high office vacancy rate “will require higher fees and $20.5 million in budget cuts and layoffs in the coming fiscal year” perhaps showing that Arlington was beginning to hit the limits of its rapid expansion.
|Office vacancy rate 2017||13.2%||23.5%||21.1%||22.7%||16.6%|
Private sector business establishment growth
|Private Sector business establishment growth||Montgomery||Prince Georges||Fairfax||Arlington||Alexandria|
Source: Department of Labor, https://beta.bls.gov/maps/cew/US?start_over=true
The growth in business establishments presents a different picture. All three Virginia jurisdictions have shown growth throughout the entire period. Montgomery and Prince George’s counties showed respectable growth prior to 2008, but both have shown a net decline since. Clearly there is no direct connection between the number of establishments and the total number of jobs since Montgomery and Prince George’s counties have both shown growth in private sector jobs while losing business establishments, while Alexandria has shown a growth in business establishments but a decline in private sector jobs.
There are doubtless many reasons for the poor showing by Montgomery and Prince George’s. One thing to consider is that, in Montgomery County, nearly three fourths of all businesses employ fewer than 10 workers. Growth in total number of establishments is largely a story of small business growth. The reasons for Montgomery’s poor performance are beyond this review but one reason came up quite often during this year’s primary election season. Most every candidate for County Council had some horror story of a business trying to get approval from Permitting Services such as an inspector showing up one week and approving their plans only to have a different inspector show up the next week and demand extensive changes. Clearly Montgomery County needs a more user friendly permitting process.
Net Migration of Income
Another critique raised by the Sage report was that there has been a net outflow of income from the county as measured by IRS tax records. The IRS has complete records for fiscal years 2011-2012 through 2015-2016. When all five inner ring jurisdictions are compared, there is little difference between them.
|Income outflows as a percentage of income inflows||2011-2012||2012-2013||2013-2014||2014-2015||2015-2016|
All five jurisdictions have consistently experienced a net outflow of income. This is to be expected as all are expensive, aging urban/suburban areas. High property values, congestion, and rising taxes needed to provide infrastructure and services will naturally cause some people to look for a more affordable, less crowded location, particularly the retired and those on a fixed income.
Similarly, per capita income growth for all five jurisdictions has been nearly identical since 2000.
|Per capita income as a percentage of 2000||Montgomery||Prince Georges||Arlington||Fairfax||Alexandria|
Source: US Department of Commerce, Bureau of Economic Analysis, https://www.bea.gov/iTable/iTable.cfm?reqid=70&step=1&isuri=1&acrdn=7#reqid=70&step=25&isuri=1&7022=20&7023=7&7024=non-industry&7033=-1&7026=51013,51510,51919&7027=2016,2015,2014,2013,2012,2011,2010,2009,2008,2007,2006,2005,2004,2003,2002,2001,2000&7001=720&7028=3&7031=51000&7040=-1&7083=index&7029=20&7090=70
Property taxes in Montgomery and Prince George’s have risen less than in the three Virginia jurisdictions. Efforts to keep Montgomery’s tax rates within the Charter limits have resulted in as many decreases in property tax rates as raises. In the last eight years, Montgomery has raised the tax rate four time and lowered it four times, including in FY18 and FY19.
The Sage Report claims that “rising taxes would serve to further accelerate outmigration, slow business formation and impede tax base growth” but, as can be seen, property taxes have risen more slowly in Montgomery County and Prince George’s than in the Virginia jurisdictions so this critique lacks merit.
Debt payments as a proportion of total budget
The Sage Report points to Montgomery County’s growing public debt both in absolute terms and as a ratio of debt to assets, saying that paying for this debt over time could be enormously challenging. Here the report does have a valid point. Montgomery’s debt service payments take up the largest percentage of its budget of any of the inner ring suburbs and they have been growing.
|Debt Service to total spending||Montgomery||Prince George’s||Fairfax||Arlington||Alexandria|
The County has realized that this debt growth is a problem–last year the Council voted to reduce the number of general obligation bonds to be issued in coming years. While this may bring the debt under control, it will also make it more difficult for the county to fund the many needed school projects, new transit systems and other infrastructure needs. Tradeoffs like this can be seen in many of the older, inner ring suburbs around the country as they struggle to pay for growing demand for aging infrastructure and services. In Montgomery County these problems are aggravated by the fact that almost all new development has taken place and is planned for the I 270 corridor and the urban core, forcing the vast majority of infrastructure demands onto a small slice of the county.
While there are significant differences in the development patterns of inner ring suburbs and exurbs, all of the inner ring jurisdictions have followed quite similar paths since 2000. The major variations have included stronger job growth in Arlington and weaker job growth in Alexandria, a higher debt burden in Montgomery County and weaker business establishment growth in Montgomery and Prince George’s Counties. All have seen rising tax rates, a net outflow of tax income, and changing demographics.
Inner-ring suburbs around the country are undergoing similar stresses, their decline is a nationwide problem. Many are faring much worse that the D.C suburbs. The D.C. metropolitan area has benefitted from its proximity to the federal government. It has also benefitted from a vibrant smart growth community. Smart growth policies encourage the redevelopment of inner-ring core areas by advocating reinvestment in existing infrastructure in older communities rather than building new sprawl.
But smart growth has its limitations. Even with a strong smart growth policy, it has proven very difficult to prevent continued greenfield sprawl. In Montgomery County, high density, transit-oriented development down county has coincided with greenfield development in Clarksburg and other areas. As with other inner ring communities, DC suburbs can’t avoid the soaring costs of aging infrastructure and increased service needs. Our problems with Metro, bursting water pipelines, and crumbling roads testify to this fact.
Smart growth advocates put too much faith in growth as the answer to our revenue needs, often overlooking the fact that long term maintenance costs will overwhelm any short term financial gain. Growth provides powerful short-term incentives since governments pay little of the up-front costs. Local governments exchange short-term income benefits for long-term liabilities. But studies have shown that it may take 75 years of tax payments to pay for maintenance that will need to occur every 25 or 30 years. New growth presents the illusion of wealth, but only in the short term.
Truly sustainable development will need to recognize the limits of growth and plan to balance new development with revitalization of existing communities.
 Inner ring suburbs are the older, closer in suburbs which are much more likely to be in decline than suburbs farther out on the metropolitan fringe. For a list of some inner ring suburbs see here.
 The Washington Post, Arlington’s office vacancy rate could mean budget cuts, layoffs, Feb, 22, 2018, https://www.washingtonpost.com/local/virginia-politics/arlingtons-office-vacancy-rate-could-mean-budget-cuts-layoffs/2018/02/22/4bb6e172-1802-11e8-b681-2d4d462a1921_story.html?utm_term=.fb81734a78b9
Pete Saunders, “Inner Ring Suburbs Could Use Some Attention” Forbes, Sept 26. 2016, https://www.forbes.com/sites/petesaunders1/2016/09/28/inner-ring-suburbs-could-use-some-attention/#204c3a5e3b50
 Bernadette Hanlon, “Fixing Inner-ring Suburbs in the US: A policy retrospective,” University of Maryland, Baltimore County, 2008. https://www.researchgate.net/publication/267250455/download
 Strong Towns, “Illusion of Wealth,” https://www.strongtowns.org/journal/2017/8/17/the-illusion-of-wealth