F.C. Budget’s 17% Fund Balance Way Out of Line With Its Neighbors’ 5 to 6%

April 3, 2013 6:36 PM4 comments

Taxpayers Will Pay More, But Millions Languish in Bank

It wasn’t that hard to obtain the information, but the News-Press did it, and what is revealed is a shocking discrepancy between the fund balance, also known as “rainy day reserves,” between the City of Falls Church and its immediate Arlington and Fairfax County neighbors.

It means that, from the standpoint of the City’s taxpayers, millions of dollars representing significant amounts for everybody’s real estate tax rates and bills are, by comparison to Arlington and Fairfax, languishing needlessly in City bank accounts that, by the way, are earning almost nothing in interest.

Summing it up: While the Falls Church City Council insists on maintaining a fund balance that is 17 percent of the City’s annual operating costs, amounting to almost $12 million, for Arlington and Fairfax, their comparable cushions amount to around five or six percent. And their bond ratings are as high or higher than Falls Church’s.

Putting it another way, if Falls Church’s fund balance as a percentage of annual expenditures was comparable to its neighbors, around $8 million would be immediately freed up to readily meet the needs of the City and its schools, with their record enrollment growth, while at the same time lowering the tax rate from its current $1.27 level (per $100 of assessed valuation) by around 18 cents to $1.09.

All that would be involved to achieve this would be to remove funds out of a bank account and apply them to the City and school operating budgets.

Lacking this, as it is, the Falls Church City Council is debating raising the tax rate to $1.33 to fund the schools, and by an equivalent of another 5.5 cents to fund a new storm water enterprise fund. That’s why City Manager Wyatt Shields advertised last month a tax rate of $1.41 for the coming fiscal year.

There’s a big difference between a $1.09 tax rate that still fully funds the schools, and a currently advertised $1.41 tax rate.

A missive provided to the News-Press this week by way of Mary Curtius from Arlington’s Director of the Department of Management and Finance Michelle Cowan reads as follows:

“(Arlington) county maintains an operating reserve of five percent of its operating budget that currently amounts to $52.6 million. Maintaining this operating reserve has been a key component in the County’s triple-Aaa bond ratings.

“In addition to the operating reserve, the County also has in place other smaller reserves that are meant to deal with near-term economic or budget concerns; as you can imagine, with the economic weakness over the last few years and concerns about federal sequestration going forward, these reserves provide near term flexibility to deal with an ever-evolving situation. Currently these reserves total $4.3 million.

“Finally, the County is self-insured, so we maintain a $5 million dedicated reserve for any significant unanticipated claims.”

The total of all three funds adds up to about six percent of Arlington’s annual operating budget.

As for Fairfax County, Penny Gross, vice-chair of the County Board of Supervisors, provided the following information to the News-Press:

“(Fairfax) county has two major reserve funds: the Managed Reserve, established in 1983, is maintained at a level of not less than two percent of Combined General Fund disbursements in any given fiscal year; and the Revenue Stabilization Fund (sometimes called the rainy day fund), established by the Board of Supervisors in 1999. That amount is three percent of combined General Fund disbursements, and has very strict guidelines about usage.

“And, if we take money out of the fund (as we had to in FY 2009 when projected revenues decreased more than 1.5 percent in the same fiscal year), we have to put money back in the fund before we can dip into it again. The Managed Reserve is funded at about $69.3 million; the Revenue Stabilization Fund is about $105.3 million. Those were the figures from the FY 2012 Carryover Review, so may change slightly, perhaps downward, as actual Combined General Fund disbursements are calculated for the FY 14 budget.”

So, the total of the two funds add up to about five percent of Fairfax’s annual operating budget.

The main proponent of Falls Church’s 17 percent fund balance has been Council member Ira Kaylin, a veteran of the banking industry himself, who has said repeatedly that if the fund balance could go even higher than 17 percent he would be for it.

He has portrayed frightening images of what would happen to the City’s bond ratings if the fund balance was diminished, and prophesied dooms-day scenarios for the future of the Virginia Retirement Fund, claims that have since been refuted by the Richmond-based head of the fund (see story, elsewhere this edition).

Even City Manager Wyatt Shields had to back away from his comment made at a town hall at the Community Center last month when he said that a draw-down of the City’s fund balance a few years ago due to extraordinary water litigation factors “almost put us out of business.”

He concurred when asked that the City had many options to a diminished cash flow, including its power to tax, to borrow and even to sell assets.

As for a two-page document circulated last week by Falls Church’s Chief Financial Officer Richard LaCondre citing fund balance “best practices” from the Government Finance Officers Association, the document was so fraught with conditions and exceptions to make an across-the-board policy recommendation applicable to all situations virtually impossible.

 

  • FallsChurchCitizen

    One more time, Mr. Benton. In the coming years, the City is going to need to issue about a $100 million bond to fund the construction of a new high school. Credit-rating agencies and investors will pay special attention to the fund balance as they determine our creditworthiness. The better the fund balance, the lower our interest rate on that major financing will be. The lower our interest rate, the less of an impact there will be on property taxes — and on a $100 million bond, that could be significant for a City our size. If we treat the fund as the City’s own cookie jar right now instead of demonstrating some necessary fiscal discipline (3% raise for City employees while sequestration furloughs are hammering area families? really??), then that financing will come with a heavy price tag, if it comes at all.

  • Mark

    Yes, yet another bad idea by Nic Benton concerning FCC’s finances. We do NOT have the tax and business base of Arlington and Fairfax … thus ability to raise money on short notice is not possible. As noted by FallsChurchCitizen – we need to preserve our bond rating.
    Hey Nic, how about putting the schools on a budget? An increase in enrollment does not equal a proportional increase in budget. As current projections we are heading to a homeowners real estate tax assessment of $1.91 per $100 of assessment!! This year our homeowner taxes could go up 10% (if real estate taxes raised to $1.41 per $100) … has everyone’s income gone up 10% this year?
    We need to avoid short-termism … and raiding the reserve (while not putting the schools on a tigher leash) is the type of economic mis-management one sees in Argentina and similar places.

  • http://www.facebook.com/people/Mike-Smith/100002309640996 Mike Smith

    I seem to recall that a couple of years ago the Council passed a series of policies that set out what the fund balance should be and what can be done with any amounts over that balance. Maybe someone can dust those off? I don’t remember the details, but I am certain that spending the balance like sailors on shore leave was not part of the policy.

  • vseidita

    Please name another local jurisdiction in the world that should be able to borrow money at a lower rate than the City of Falls Church. The idea that we need to have 17% of our budget in our checking account earning no interest is absurd. If our city officials are not able to communicate our outstanding financial condition to the lenders than we need new officials not more money in our checking account.

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