Kaylin: Prudent Use of $ from Water Sale Could Offset Need for Tax Rate Hike
The $10-$13 million that the City of Falls Church will net in cash from the sale of its water system to Fairfax County this year could, with good financial management, offset the need for any tax rate increase on City property owners in the coming fiscal year, F.C. City Councilman Ira Kaylin told his Council colleagues in a work session Monday night aimed at offering guidance for the upcoming budget cycle.
The comment came late in the meeting, at it approached the 11 p.m. hour Monday as Council members took turns weighing in on ideas for the next budget, the season fast upon them that will result in the adoption of a Fiscal Year 2015 budget next April.
Projected continued explosive school enrollment growth will again be the main driver of the next budget, as laid out last Thursday at a joint City Council/School Board work session. On the revenue side, however, real estate assessment growth is expected to be a mediocre 2.9 percent (despite last week’s report that Falls Church residential real estate has risen to the highest level of any jurisdiction in the D.C. Metro area) and overall revenue growth at 3.8 percent.
Among other things tonight, the Council spent a lot of time talking about the merits of moving the twice-annual tax payments into the same year as the budget, ending much confusion around carryover “surpluses” and their restrictive uses. The cost of the move, not a real cost but an accounting adjustment only, would be about $400,000, and could be accomplished by tapping the City’s fund balance, currently over 20 percent of annual expenditures. A benefit to tax payers would be the postponement of one tax payment six months, and the Council’s budget deliberations would be relieved of a lot of confusion.
However, the discussion reopened the ongoing debate about the use of fund balance. It was pointed out that the City policy is to maintain a rate of 17 percent of annual expenditures (and that the current balance is significantly higher than that.) However, Council member Phil Duncan pointed out that the adopted City policy is to maintain a balance in the range of 12 to 17 percent, not 17 percent as a minimum, an observation that Kaylin and Chief Financial Officer Richard LaCondre took strong issue with.
8:22 AM
How much are you willing to bet that we will see an increase in taxes…either through an increased tax rate or “increased” property values or comboniation.
1:52 PM
Clarification: What I actually said was that prudent financial management of the water sale proceeds could generate revenue to cover the debt service of our entire FY 2014 borrowings without raising taxes. Prudent use of the proceeds could suppress future tax rate increases by 3 cents but will not, by itself prevent a tax rate increase.
JFallsChurch is correct. We are well on are way to another tax increase. School transfer request will probably be around 10% higher than last year, City expenditures are expected to grow by 4%.. Revenues are projected to grow by about 4% including economic development projects that will be completed this year. Last year’s budget left financial “holes” that will need to be addressed in FY 15 which will add to the tax rate increase pressures. If the shortfall is to be covered by cutting by City side expenditure the rate increase might be ameliorated. However, without reducing/eliminating major City programs there is inadequate “space” for meaningful expenditure reductions.
4:34 PM
The key element of Mr. Kaylin’s comment is “prudent financial management.” I hope I am wrong, but that big pot of $40 million is likely to prove to be too much temptation. Five years from now folks will be asking “where is it?” And we will have little to show for having spent every dime.
12:35 AM
Mike,
The net proceeds after deducting debt and pension obligations (for transferred water system employees) will range between $10-$13 million. I have made a proposed that “lock boxes” the proceeds so that they can’t be accessed by future City Councils.
2:19 PM
As they say in New York: “your mouth to God’s ears.” Once you are off the Council who will keep the boxes locked?
6:15 PM
Mike,
I can understand your skepticism and I share your view. My proposal, reduced to its simplest form, is to place the net proceeds in the City’s Pension Plan and reduce the City’s pension fund transfer (from the General Fund) amount by the equivalent increase in returns.
At 7% average market return the City will save about $700,000 in yearly pension transfers. If the proceeds are around $13 million the average return would be around $900,000 every year in perpetuity. Hence the tax rate benefit would be be between 2 to 3 cents in perpetuity.
I don’t think that amount is enough to prevent future tax rate increases but it will suppress the rate increase by the above amount.
Once the net proceeds are placed in the Pension Plan it is illegal for the City to access those funds.