Report offers gloomy assessment of Montgomery County’s economy

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Montgomery County, long regarded as the state’s economic powerhouse, has struggled over the last decade-plus, lagging behind other local jurisdictions and losing millions of dollars in tax revenues annually, according to a report in June from a former county government employee.

The report is the third analysis in the past several years to conclude that Montgomery County‘s economic engine is sputtering. But those in the county have different opinions on what may be driving the decline, and not everyone has bought into the report’s recommendations.

Jacob Sesker, who is now an economic development consultant for Harpswell Strategies in Maine, authored the report. It found that the underperformance caused annual property and income tax losses of at least $37 million from 2007 to 2019.

The county “failed to capture its pre-2007 share of regional job growth,” leading to the relocation of 14,000 “high-quality jobs in key industry sectors,” according to the report. The lagging economy resulted in approximately 32 buildings and 3.3 million square feet of office space not being built.

The report also asserts that Montgomery County lost private businesses between 2007 and 2019. In the same time period, the rest of Maryland, the District of Columbia, Virginia, and Fairfax and Arlington counties saw increases.

Charles Nulsen III is a co-founder of Empower Montgomery, which commissioned the report, and the president of Washington Property Company. He said inaction from local politicians is the “primary driver” of the lagging economy.

He said that politicians point to downtown Bethesda as a sign of the county’s economic growth. But outside of downtown Bethesda, economic growth is hard to find, and in Silver Spring, the last office building constructed was more than 10 years ago, Nulsen added.

“Elected officials have turned their back on business, and they’ve taken for granted that businesses would locate to Montgomery County,” Nulsen said.

The report said one of the factors that could be contributing to the economic decline is the disparity in incentives given to businesses in Montgomery County compared to its neighbors.

In the report, Sesker calls for the creation of a $275 million job creation fund that would include a grant for reimbursing tenant improvement costs and employment-based grants for new jobs. Eligible employers would be those that have an average salary of more than $100,000.

Hans Riemer, an at-large county council member, said the recommendations in the report “make sense” and that he would explore the idea and other ideas from the county’s business community.

Riemer, who is running for county executive next year, added Montgomery County needs to develop a better partnership with the state to replicate some of the successes in Virginia.

“They’ve done everything. They’ve capitalized on all of the opportunities very greatly and created this kind of juggernaut over there,” Riemer said. “Montgomery County and the state, frankly together, has not matched that.”

County Executive Marc Elrich says the problem can’t be fixed through the proposed incentive program.

Elrich doesn’t dispute the job loss that is taking place in the county. But he called the recommendation a “flat-out giveaway.”

“The idea that money will solve everything, if you just give them money, this problem will go away, is pretty bogus,” Elrich said.

Elrich added that he thinks the report was selective in explaining the tax issues at play. Tax structures in Maryland and Virginia differ, which allow Virginia to be more attractive for developments, he said.

“This whole tax structure, which raises far more money from the development community than Montgomery County, Jacob conveniently ignores,” Elrich said. “The amount of money that they’re able to bring to bear to provide infrastructure that encourages people to locate there … just speaks volumes about Virginia’s ability to build the environment that people want to be in.”

Chris Bruch, the president and CEO of the real estate organization The Donohoe Companies, said the factors behind the trends go beyond taxes. He thinks the quality of the school system and traffic congestion in the area need to be improved.

“A lot of people just don’t want to be in Maryland and specifically Montgomery County because of the congestion factor,” Bruch said. “That’s a quality of life issue for the residents. But as an employer, it’s a big decision of where we want to be.”

To Sesker, the author of the report, some of the more alarming trends have taken place in the last couple of years — a time period that the report did not fully cover.

From 2019 to 2020, employment in the professional and business services sector declined by 4% in Montgomery County, according to data from the U.S. Bureau of Labor Statistics. Jobs in the same sector decreased by 0.5% in Fairfax County and increased by 4.1% in Arlington County.

Jobs in that sector also decreased by 7.8% in Prince George’s County from 2019 to 2020.

Sesker said “black swan economic events” — in this case, the coronavirus pandemic — can accelerate trends that existed before.

“If what we’re seeing right now is an acceleration of the long, slow decline that was affecting Montgomery County over several years, that’s certainly something that should be concerning,” Sesker said.

He thinks Montgomery County’s economy is “at an inflection point.”

“If people don’t begin thinking about it, at some point it will become irreversible,” Sesker said. “And I think the sort of narrative of Montgomery County exceptionalism that exists in the county really will need to be questioned.”