Kaylin Blames ‘Accounting Gimmicks’ For Rampant F.C. Budget Confusion

September 25, 2013 7:08 PM4 comments

When Report of a ‘Surplus’ is Not What It Seems to Be, At All

Falls Church City Council members wrestled at their business meeting Monday night with efforts to clarify the year-end financial report for the June 30-completed Fiscal Year 2013 that was first presented at a Council work session a week ago. While the report stated clearly that the City took in $2.8 million more in revenue than had been projected, confusion abounded, it was determined, due to the structural problem of funding the budget with two real estate tax collections that do not align with the budget year.

Yes, it all is very complicated, but everyone on the Council was in apparent consensus that what appeared as a $2.8 million surplus actually wasn’t one at all, because by last spring, the Council anticipated it and designated it to fund some of its programs that would not have to be paid until the new fiscal year — the current one, Fiscal Year 2014 — was underway after July 1.

Still confused? Don’t feel bad. Councilman Ira Kaylin said the whole matter is based on the “surplus” being an “accounting gimmick,” and Councilman Phil Duncan chimed in at that point, saying “any explanation using the word ‘gimmick’ will not be well received by the public.”

Kaylin reiterated the difficulty in an online blog post where, in trying to explain the process in eight bullet-points, he conceded, a “detailed factual explanation” is “not easy to follow,” and called the current budget process a “convoluted and difficult to understand approach.” He charged it “was designed to hide the actual fiscal situation of a municipality.”

“This confusion arises every year,” complained Mayor Nader Baroukh Monday night, who argued for bringing the tax collections and the fiscal years into alignment.

But where the deep disagreements on the Council surfaced was when Vice Mayor David Snyder touted the achievements of the Council in the budget it passed in the spring, noting that the schools, despite record enrollment, were fully funded, the City’s fund balance was maintained at 17 percent, the first payment installment on the new storm water fund was able to be put off until next spring, and the tax rate increase projected by the City Manager was cut more than in half, from a projected $1.41 down to $1.305. “We’re financially strong, and met all our funding objectives,” Snyder crowed.

Kaylin dissented. “These decisions will come back to haunt us by Fiscal Year 2015,” he warned. “This is my prediction.” Kaylin, whose Council term expires the end of this year as he chose not to seek re-election, said he’d “be back around” to witness the shaping of the FY2015 budget (that is, next spring) to see how his predictions turn out.

On the effort to bring the two tax collections into alignment with the fiscal years they are funding, the move could not be made without a significant burden on taxpayers, since it would mean there would have to be at least one year funded out of a single tax collection (half the total revenues anticipated). The misalignment occurred in the early 1990s, when the City was struggling during a recession, and it was noted that by moving the summer tax collection from July to June, it would technically give the City a windfall, one year with three, not two tax collections.

“This change saved our City at the time,” Vice Mayor Snyder recalled, even though it was, at the time, as Councilman Kaylin might say, merely an “accounting gimmick.”

  • JFallsChurch

    need to show a rolling budget for 12 months.

  • Mike Smith

    I notice that Arlington has twice-yearly collection and they are arguing about having too much cash on hand. Other than size, what are they doing different?

    • Ira Kaylin

      Mike,

      In Arlington a surplus is a good thing (even if some believe the level is too high), in Falls Church it is considered poor financial management. Arlington
      uses its misalignment (gimmick) to better its financial situation. Nonetheless, it is still a gimmick.

      Arlington does not commit the surplus of one year to fund the next year; Arlington does not give tax credits; and Arlington does not specifically distribute surpluses to the School Division.

      Arlington takes its entire surplus and puts in its uncommitted General Fund equivalent to suppress the next year’s tax rate or to fund capital expenses. The latter was proposed by Johannah Barry and me, as members of the City Council Budget and Finance Committee, for the City’s FY 2012 budget surplus. The majority of the City Council, however, voted to support the (Council member) Tarter amendment and spend half of the surplus in the form of tax credits and an iPad purchase.

      I am not a 100% sure why the words “surplus” and “General Fund” have a negative connotation among some individuals in Falls Church. Perhaps it is related to the School Board view, as has stated on a number of occasions, that the General Fund (at 17% of expenditures) is too large and that more funds should be provided to the School Division. This belief is especially strong when surplus funds are involved.

      • Mike Smith

        Thanks. That makes a lot of sense. I agree that putting aside and “surplus” as a hedge against the unknown is reasonable. I guess the trick is how do we wean ourselves away from the current gimmick?

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