Friday, June 30, 2017

MoCo Council wants to enter student loan business, as Katz sounds alarm on County debt

Plan would create 
with $20-30 million
start-up cost

After creating a barrage of new offices and six-figure staff positions in the last year alone, opening their own microloan bank, and committing Montgomery County to staggering financial liabilities on bus rapid transit and the Purple Line, the Montgomery County Council is now planning to enter the student loan industry. That's not a misprint, and today isn't April 1. But just four days before announcing its intentions, one Councilmember, Sid Katz, raised red flags on the County's massive debt load.

The Council's proposal would create a new Montgomery County Student Loan Refinancing Authority to refinance student loans, much like the Independent Transit Authority that was panned and ultimately defeated by taxpayer opposition. Such an Authority would potentially have all the features hated in the ITA concept - the ability to raise taxes, carry unlimited amounts of debt that could end up being dumped back onto the taxpayers, and a lack of direct accountability to voters. The specifics will be unknown until a final state bill to create the Authority (sound familiar from the ITA fight?) is written, but one detail known is that the Authority will have the power to issue bonds. It should be noted that no other county in the United States currently is involved in student loan financing.

Does it make any sense from a fiscal responsibility standpoint for Montgomery County government to enter the student loan business at this time? The assessment of Katz, the only Councilmember with real-world business experience, suggests the answer is, "No."

"I, candidly, am very, very concerned about the debt Montgomery County has," Katz said during a June 22 meeting of the Government Operations and Fiscal Policy (GO) Committee. "If we don't get a handle on this, if we don't get a blueprint on debt in Montgomery County, it's going to overtake us. Right now, if [our debt] was a department, it would be the third largest department in Montgomery County."

Katz also expressed concern with the uncertain revenue forecast for the coming years. Trump administration cuts to government could drastically reduce income tax revenue for the County, Katz noted. Montgomery County is locked in a structural deficit as far out as the forecasts go - meaning that, as it is now, we already will be in the red every single fiscal year.

In the context of these red flags, a report by the County Office of Legislative Oversight raises many concerns.

How much would it cost taxpayers to launch the Authority? "The Montgomery County Department of Finance has estimated that a Montgomery County Student Loan Refinancing Authority would need $20 to $30 million to start a $100 million refinancing program," the report states.

The report confirms that these start-up funds "would impact the County’s debt levels (the amount the County can borrow)."

It appears loans would be extended to illegal immigrants, according to Page 4 under "Eligibility." On Page 6 of that section, it floats the idea of requiring a co-signer "if a borrower is not a U.S. citizen." In other words, resident taxpayers would be paying to provide low-cost student loans to non-taxpaying, non-resident students. Wow.

Later, the report notes that there are already numerous private student loan refinancing firms, and that their interest rates are actually less than the state-run loan entities the Council wants to ape. Why would we enter a market where there is no vacuum, with a more expensive product? Nuts.

A response from the office of County Executive Ike Leggett wisely pans the idea of entering the student loan business. "Student loan debt is the largest and fastest-growing share of consumer debt, and has the highest delinquency rate of all consumer credit debt," wrote Timothy Firestine, the County's Chief Administrative Officer, on behalf of Leggett. "As a result, there are few states and no localities willing to incur the financial risk and significant cost of operating a Student Loan Refinancing Authority."

Creating such an authority would "seriously impact many of our critically-important programs, ranging from K-12 education to safety and transportation," Firestine added. Starting it up would likely require the County to issue more debt, he said, and budget cuts in other areas would be needed to fund start-up costs, he wrote.


Anonymous said...

Do you understand that not all residents who are not US citizens are "illegal immigrants"?

Anonymous said...

It certainly is a questionable idea (especially considering the already existing public financing sources), but I'm sure Sidney Katz and Ike Leggett don't want you quoting them only to turn around next week and fling juvenile insults at them and saying they should be locked up. I'm honestly surprised that no one has filed libel claims against you. Maybe no one has told them about your blog.

"committing Montgomery County to staggering financial liabilities"

The rating services disagree with you:
- Aaa Moody's
- AAA Fitch

Robert Dyer said...

9:13: The reason no one has filed "libel claims" is that everything I report is 100% factual. They would be laughed out of court.

We get AAA ratings for one reason alone - the agencies know that the Council has and can raise unlimited taxes to cover any shortfall. Period. It's also worth noting that Warren Buffett, a socialist fellow traveler of the Council, literally controls Moody's, which tends to go easy on socialist jurisdictions like MoCo. Other jurisdictions don't have the political or practical ability to do that. We're in the red every year, and all the Council does is hike taxes to cover the shortfall. Not exactly rocket science. They're idiots, as the above article proves once again.

Robert Dyer said...

8:30: Do you understand that there are far more illegal immigrants attending MCPS than legal immigrants? Do the math.

Anonymous said...

"Warren Buffett, a socialist fellow traveler of the Council, literally controls Moody's, which tends to go easy on socialist jurisdictions like MoCo."

Just like Trump, each new comment surpasses the previous one in craziness.

Anonymous said...

Can someone file a stupidity claim on anonymous 9:13? He's guilty as hell.
He's like watching an ape fling dung.

Robert Dyer said...

9:35: You deny Buffett owns a controlling interest in Moody's? Yes or no? Buffett advocates for massive redistribution of wealth - yes or no? (Hint: Yes for both)

You are badly informed on business news, much like your bosses on the Council.

Anonymous said...

9:36 trying hard to earn his daily attaboy from Dyer!

"Can someone file a stupidity claim on 9:28/9:35/9:38? He's guilty as hell.
He's like watching an ape fling dung."

Fixed it for you.

Anonymous said...

Lol clearly got frightened with the mention of libel above he's trying to cover his tracks, and on a mission to delete any and all posts exposing him.

Robert Dyer said...

9:50: I directly answered your absurd libel claim, and quite effectively. You're just human debris hiding behind a computer, attacking people like me, who are out in the world and getting things done. Sad!