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Economy in the Backyard of Washington, D.C. is Worse Than it Seems

On June 23, 2015,  the Montgomery County Council will hold a hearing on Bill 60-14, Earned Sick and Safe Leave Act. The bill would require almost all county employers operating and doing business in the county to provide earned, paid sick and safe leave at a rate of 1 hour for every 30 hours that an employee works in the county. It would be the last nail in the coffin for small businesses that are already barely surviving. Here’s why.

It is hard to see the true economic picture of the whole country living in Montgomery County directly adjacent to Washington, D.C. Montgomery County serves as home to 18 federal agencies and installations.  Government employees have been impacted minimally by the current economic state of the country.

According to the latest data (2013) of the Commerce Department, residents in the Washington, DC suburbs made $73,461 personal income per capita. In Montgomery County, the average earnings/job is $76,698 while the nation’s average earnings are $58,057. That being said, the Congressional Budget Office reports  that “on average for workers at all levels of education, the cost of hourly benefits was 48 percent higher for federal civilian employees than for private-sector employees with certain similar observable characteristics.”

Having a large number of people employed by the federal government in the county that have almost 50% more of hourly benefits than private-sector employees distorts the actual economic reality of the county and the health of local small businesses.

There is a big disconnect between small businesses, government workers and government contractors in Montgomery County. According to the Montgomery Economic Development agency,in 2013 alone, the Federal government paid over $4.5 billion in wages to 47,000 Montgomery County workers.  On top of that the federal government awarded $11.5 billion to Montgomery County companies.

Thus, it is hard to determine the health of the economy in Montgomery County as a whole and separating the Federal government’s massive injection of federal taxpayers money. The fact of the matter is that small businesses are struggling in even one of the wealthiest county in the country.

All across Montgomery County, you see colorful signs with advertising that commercial, retail, medical, office areas and even banks are available for lease. In some parts of the county there are literally blocks of buildings with empty commercial areas for lease or sale.

There is a very limited economic information that is available on the Montgomery County government websites.  The Montgomery County Economic Development website states that  there are 511,201 civilian jobs in Montgomery County. According to “Brief Economic Facts, Montgomery County, Maryland (2014) “, the entire civilian workforce is Montgomery County is only 535,271 (2013).  Out of the total Montgomery County workforce, 508,190 (2013) are employed. 211,449 ( 40.8%) of the employed workforce commute outside the county to work. While the entire population of Montgomery County is 971,777 (2010).   The same document states that: “33,300 businesses employ over 360,000 in areas including information technology, telecommunications, biotechnology, software development, aerospace engineering and professional services.”

Moreover, the local government uses outdated numbers from 2007 and 2011 that reflect past economic times but they are used to represent the current economic situation. On a separate page of the same Montgomery county economic development states that there were 440,871 jobs in the county (employed in the county, live outside 233,048 + live and employed in the county 207,823). However, the separate chart on the same website states  the lowest number of jobs that the county ever had since 2001 was 505,008 in 2009. 
The federal and county governments are the biggest employers in Montgomery County. The Brief Economic Facts, Montgomery County, Maryland lists the National Institute of Health, FDA, NIST, Walter Reed National Medical Center, Montgomery College, hospitals among the biggest employers of Montgomery County.
75% economic driving force industries in Montgomery County are:  government; professional, scientific, and technical services (pharmaceutical industry and biomedical research); health care and social assistance; retail trade; other services; accommodation and food services; administrative and support and waste management and remediation services (Montgomery County government).

The other 25% encompasses: construction; financing and insurance; real estate, rental and leasing; education services; information; manufacturing; arts, entertainment and enterprises; wholesale trade; utility; crops and animal production. Agricultural and animal production only creates less than 1% of all jobs, 382 jobs, despite the fact that the agricultural reserve encompasses almost a third of the county’s land resources, 93,000 acres. One can ask how an agricultural industry can exist without agricultural activities. Ironically, since 1980 Montgomery County serves as an example of agricultural and conservation policies to the entire country.

The point of this analysis was to determine the actual number of the jobs in Montgomery County. Regardless of the actual number of county jobs, Mr. Leggett (D), the County Executive, states that “Nearly 95% of Montgomery County’s companies are considered small businesses”.
Currently, the Democratic County Council is on a path of destruction to whatever is left of local small businesses. There is no equality in the way the county council treats the small businesses and big organizations.

Here are a few examples: Montgomery County imposes personal income tax of 3.20% and if the income exceeds $300,000 then the county tax gradually increases the tax to 5.75% (2014) in addition to the State and Federal taxes on its residents. Most of small business owners have sole proprietorship of their company. So all income, company and personal, are treated as a personal income. As a result, a Montgomery County small business owner pays an additional tax from 3.20% -5.75% for the pleasure of doing business in the county and employing its residents. In contrast, the few corporations that are in Montgomery County are exempt from the Montgomery County 3.20% personal income tax.

The county’s main industry is biomedical research. This industry is very popular in the county because of the location of the NIH, FDA, NIST, etc. and massive injection of federal money in the form of grants that pours into the companies (for profit and non-profit). However, there is a double standard again. The county extracts revenue out of small businesses in the form of the Montgomery County Business Personal Property Tax that constitutes $1.83 rate per $100 of depreciated value while research, development and manufacturing equipment is tax exempt.

Montgomery County’s well-being depends on the flow of money from the federal government. As the nation faces a major debt crisis ($18 trillion national debt and $200 trillion unfunded liabilities) that might at some point lead to layoffs of the federal government and consequentially Montgomery County workforce.

The lack of Montgomery County industry and further destruction of already struggling small businesses by Bill 60-14 will negatively impact the future of Montgomery County. The small businesses in well-developed counties are the backbone of the US economy.






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