Preliminary projections show that the City of Falls Church will face a whopping $7.6 million shortfall in the coming FY11 budget, City Manager Wyatt Shields told the City Council at its work session Monday.
The shortfall will come on top of a continuation of the wage freeze currently in effect for both City and school employees, as well as mid-term cuts to the current fiscal year budget made earlier this month.
Shields said that the projections are very preliminary, and will not be solid until actual real estate assessments are made public in early February, but they do lay the basis for launching early talks on the next budget beginning with a joint meeting of the City Council and School Board on Nov. 30.
A huge double-digit cut in commercial real estate assessments and an added burden of $775,000 to pension fund obligations are key components of the drop of revenues, currently expected to drop below $60 million next year.
It means that since the Fiscal Year 2009 budget was adopted in April 2008 with projected revenues of $76.4 million, anticipated revenues to the City’s general fund have plunged to $59.4 million. In other words, in only a year and a half, the $17 million decline in projected revenues represents a whopping 22 percent drop.
The problem for the coming budget, Shields told the Council Monday, is that everything is already “cut to the bone.” In previous budgets, savings could be accrued by cutting salary increases or even by layoffs of non-essential City employees.
While the anticipated opening of the BJ’s Wholesale Warehouse next May will add to sales tax revenues for FY11, there are no other major commercial projects anticipated due to the wider economic climate.
The Council’s options have narrowed, and the prospect of utilizing the capability of placing a surcharge on the real estate tax rate for commercial properties threatens only to make a dire situation worse for the City’s commercial corridors.
In the document by Shields and Chief Financial Officer John Tuohy presented Monday, among the assumptions were these:
1. There will be little, if any, impact of a possible economic recovery (in the wider economy – ed.) in calendar 2010. In part, this is due to “the lag between economic recovery and municipal revenues resulting from the annual assessment process.”
2. Real estate taxes are assumed to decline by 9.25 percent in calendar year 2010, and another 2 percent in 2011. The decline in commercial real estate “will be very significant” but hard to predict, with neighboring jurisdictions assuming declines from 18 to 20 percent. It is projected there will be a “slight decline in the value of single family dwellings and a much larger decline in condominiums.”
3. Revenue from the Commonwealth is “very likely to continue to decline as the State seeks to solve the massive budgetary issues it faces.” (A House Appropriations Committee report this week indicated the state may need to cut another $2.9 billion by mid-2012, on top of the $7 billion in cuts since last year that resulted in 1,000 layoffs, three closed correctional facilities and a 15 percent cut in aid to colleges and universities).
4. It is anticipated that the City will not be in a position to fully fund its Virginia Retirement obligations, coming in about $1 million short, and it is currently projected to need to contribute an additional $775,000 more to its pension funds.