Montco made tough choices to keep taxes stable

Squeezed by stagnant revenues and increasing health-care and pension costs, Montgomery County commissioners went to several excruciating lengths to balance the 2010 budget.

There were benefits changes. For the first time, county employees were required to kick in for a portion of their health-care coverage.

There was a dip into the savings account. The county borrowed more than $10 million from its cash reserves, reducing the account to just 8 percent of the county budget.

And there were cuts. The county minimized its contributions to its obligated open-space purchases and pension funding, froze employee salaries, and extracted reductions from most departments.

But even though Commissioners Chairman James R. Matthews went for months this year saying that the county's tight financial times left no practical way around raising taxes, political considerations forced the cutbacks.

On the three-person commission, Matthews was not going to get a vote to increase taxes from Bruce L. Castor Jr., a fellow Republican who has opposed Matthews' spending initiatives since Matthews maneuvered him out of power. And Matthews' partner in government, Democrat Joseph M. Hoeffel III, said early on that he could not raise taxes in a recession. He is running for governor in 2010.

"There's no way Hoeffel, as a candidate, is going to raise taxes," Matthews said, "and I knew Castor wouldn't either, because of his posturing. I knew we had to make this thing work without tax increases."

Hoeffel denied that there were political reasons for his stand.

"This just was not the time to ask hard-pressed taxpayers to dig deeper," Hoeffel said a day after he and Matthews passed the budget, 2-1, on Monday.

Among the four suburban Pennsylvania counties, only Delaware County, where no candidate for state office holds a seat on the County Council, passed a 2010 budget that raises taxes.

Bucks County Commissioner James F. Cawley and Chester County Commissioner Carol Aichele are among candidates for the Republican nomination for lieutenant governor. Their counties held the line on taxes in budget votes this month, which was no coincidence, said G. Terry Madonna, director of the Center for Politics and Public Affairs at Franklin and Marshall College.

"Right or wrong, proposing a tax hike on the eve of a nomination for an office is an absolute nonstarter," Madonna said. "It is just handing your opponent a political club to hit you with."

In Montgomery County, the cost of cutting back to keep taxes flat was steep, though officials avoided sweeping layoffs by eliminating vacant positions.

One of Matthews' favorite programs, Montgomery County Community College, will receive $500,000 less than it requested. "That's not keeping our word" to fund a third of the college's operations, Matthews said.

The county's cash reserves, more than $90 million earlier in the decade, are projected to be less than $36 million at the end of 2010. That's close to a threshold that could worsen the county's bond rating and require it to pay a higher interest rate on loans.

With the county looking hard at future borrowing to pay for voter-mandated open-space purchases and its contractual pension requirements, the interest rate it pays is a serious concern. Spending on both programs has been reduced to minimal levels temporarily, but the obligations remain.

So do other burdens. The 3,057 county workers forced to forgo cost-of-living raises in 2010 - while being required to start helping pay for health-care coverage - are not expected to face a pay freeze in 2011.

Matthews said the county could realize some savings on health-care spending this year because it is funding its own insurance plan. And if the economy rebounds in 2010, new construction could lead to higher property assessments and greater revenue.

If not, a difficult question will resurface.

"Next year, they're certainly looking at a tax increase," former Republican County Commissioner Tom Ellis said.

Ellis has applied to be appointed county treasurer, replacing Judge-elect Garrett Page next year. A county tax hike, he said, does not always hinder a commissioner's run for statewide office, provided the increase is adequately explained.

But if Montgomery County's financial shortcomings persist next fall, a tax increase might be harder to deal with or avoid.

"As we get closer to the next commissioner election [in 2011], again, you're going to have the same problem," Ellis said. "There, a tax increase will play even louder than it would statewide."