With $ Pressure on Taxpayers, Schools, How Much Should F.C. Keep in Bank?

March 26, 2014 6:47 PM3 comments
FALLS CHURCH'S CHIEF Financial Officer Richard LaCondre (right) explains his rationale for a 17 percent unassigned fund balance to the City Council tonight. (Photo: News-Press)

FALLS CHURCH’S CHIEF Financial Officer Richard LaCondre (right) explains his rationale for a 17 percent unassigned fund balance to the City Council tonight. (Photo: News-Press)

The City of Falls Church’s Chief Financial Officer Richard LaCondre defended his recommendation of a high fund balance in a lengthy appearance before the Falls Church City Council Monday night, urging the Council to adopt the 17 percent fund balance rate. (17 percent of annual operational budget expenditure, in the case of Falls Church with an $80 million budget, is about $13.6 million of taxpayer dollars that are designated to sit in a bank account earning virtually no interest.)

The 17 percent rate is more than double the rate the City Council adopted in the mid-1990s as the low end of an acceptable range for fund balance (8 to 12 percent). In the last decade, the Council modified that policy to make the acceptable range 12 to 17 percent.

But at eight percent today, the fund balance would be $6.4 million or $7.2 million less than LaCondre wants it to be now. That $7.2 million sitting in the bank if kept by taxpayers instead would amount to over 22 cents on the real estate tax rate. If put to that use, the real estate tax rate this year could be lowered from the present level of $1.305 per $100 of assessed valuation to $1.085, instead of being increased by four and a half cents to $1.35, as the City Manager is now recommending.

More than a “rainy day fund” as LaCondre defended his policy, he said in a jurisdiction the size of Falls Church the impact of a “catastrophic event” would be devastating without such a cushion in the bank.

Councilman Phil Duncan sparred with LaCondre, trying, he said, to find a better term than “an unassigned fund balance” to describe why so much taxpayer money is allowed to sit and do nothing.

“What is all this money protecting us from?” Duncan asked. “That’s what my constituents are asking me.” LaCondre said 17 percent is considered industry “best practice” and is what Moody’s credit rating firm recommends.

“Is this a doomsday fund? How do we answer this?” Duncan continued.

“It’s for the event of an economic downturn,” LaCondre said. “So,” Duncan then said, “It’s more like a stabilization fund. It just sits around doing nothing waiting for doomsday. But I have people who are saying, “It’s raining on me now!”

LaCondre conceded it is for some “catastrophic event,” or “some event that you didn’t plan for.”

In that context, he said, “But individual taxpayer distress does not qualify.” He said he would prefer the City to keep 25 percent in reserve. “Falls Church is small and can be subject to a lot of volatility,” he said.

He noted the fund balance also impacts the ability of the City to borrow money. He said that the Moody’s credit rating house in Wall Street recommends a 17 percent fund balance.

It was noted that investors want a fund balance to be as high as possible to protect their investments, even if the level is an unreasonable burden on taxpayers. Still, the decision on fund balance levels remains with the local City Council.

Council member Karen Oliver said that holding three months of annual costs in the bank is a prudent policy among the non-profits for which she works. She said, “I am aware (the tax rate and stormwater fees) are going to hit people hard, but there are no simple answers.”

Vice Mayor David Snyder also defended the policy. But he said that something has to be done to deal with the proposed rising tax rate on top of an average growth in home values by just under nine percent and a new stormwater management fee. Combined, they threaten a major increase in the amounts that taxpayers will be paying to the City starting in early June.

“Just cutting it (the size the budget, including the School Board request) doesn’t cut it,” he said. “We cannot allow ourselves to wind up with schools that don’t teach, police that don’t respond and fire trucks breaking down.”

Council member Marybeth Connelly, who first questioned the fund balance policy at a Council work session last week, hailed the City Manager’s recommendation of a significant expansion of the parameters for participation by low-income and senior citizens in tax relief programs.

  • Mike Smith

    It is good to see that one of our newest Council mambers and our most experienced one agree on a matter of fiscal restraint and responsibility. Here’s hoping that the good sense of Ms Oliver and Mr. Snyder prevails over the call by the News Press to spend the reserve now and let tomorrow take care of itself.

  • Jeff Weaver

    Kudos to Marybeth Connelly and Phil Duncan for questioning a policy that benefits big bond holders at the expense of Falls Church’s children and taxpayers. The arbitrarily set 17% fund balance may make the Wall Street types sleep easier but its sapping the City’s ability to take care of business right here at home. When all is said and done, budgeting is about priorities. This year the Council has three options: 1) shortchange education, 2) jack up taxes or 3) reduce the “unassigned fund balance” (or perhaps we could call it the “Wall Street Bond Holder Serenity Fund”) to a more reasonable level consistent with many other financially responsible jurisdictions. It will be interesting to see where the Council’s priorities lie.

  • boblaj

    Well-said, Weaver. There is nothing magically about 17%. Wise bond traders realize that if the City raises taxes today, it is more difficult to raise them in the future. (Bond traders should not be confused with bond rating agencies. If anyone thinks we should try to curry favor with the likes of Standard and Poor, watch the movie “Inside Job”. S&P told us that Icelandic banks, credit default swaps, and other exotic investments were a safe risk. Now they claim Falls Church has a better credit rating than the US GOVERNMENT!) Every dollar that is saved in the City’s various “reserve” funds -and there are more than one – destroys 3 to 4 dollars of economic activity in the City.

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