It was made public for the first time Monday night, including to most members of the Falls Church City Council, that the City will receive in excess of $20 million in the cash component of the sale of the City’s water system to Fairfax County.
The estimated $20,517,192 number is far higher than anticipated by the City staff up to now. During the deliberations on the just-completed coming fiscal year budget, the number was estimated at a range between $11 million and north of $15 million, based on a number of variables.
Monday night’s surprising number, while it was good news to the City, was not received so well by some members of the Council, who questioned how long the staff knew the number was going to be so high, and whether or not suppressing that number might have made a difference on how the Council set the real estate tax rate, and other budget parameters, for the coming year.
In particular, Vice Mayor David Snyder expressed frustration, and demanded to know how long City Manager Wyatt Shields and Chief Financial Officer Richard LaCondre knew the number would be so high. Snyder told the News-Press that earlier Monday, he submitted a “Freedom of Information Act” (FOIA) request from the City to provide details on that information. Shields said the number is still somewhat in flux as the variables are not yet totally fixed.
Snyder issued a statement following the meeting saying, “I am concerned about important budget related information emerging from staff within just three weeks after the conclusion of a difficult annual budget process, including increased funding needs as well as a definite and larger number for the water sale proceeds. I want to know why the community did not have this information earlier. If we had it, a different debate may have occurred. More importantly, it must be clarified for the community as to the logic of the different budgetary categories and why it seems there is money available and yet taxes went up and the water fee was imposed.”
Shields’ office issued a statement to the News-Press Wednesday to explain why the cash proceeds from the water sale wound up so much higher than originally projected. It stated, “When the initial estimates of the net proceeds were done, staff added up the full list of potential financial liabilities the City would have as part of closing (the sale—ed.). Those liabilities included the defeasance of existing debt in the water utility system, setting sale proceeds to meet any unfunded liabilities for the pension costs of retirees and current employees of the water utility system, and legal expenses. For each of these categories, we were able to reduce the financial liability to the City.”
Another concern that arose Monday night that was also shared by Council members Marybeth Connelly, Dan Sze and Phil Duncan had to do with what some called a “rush to judgment” on how to deploy the money from the sale, with the City staff apparently intent on locking up $11 million of it for deployment in the City’s retirement fund where, once invested, it could not be retrieved for any purpose. There it would be subject to the vagaries of the global markets with no guarantees of returns.
Moreover, some on the Council suggest that a super-majority vote of the Council be required for any action on the sale proceeds that did not conform with such strict protocols.
Connelly said, “I don’t like that much money being locked away in the retirement fund when we need to build so many things, like a library and parking lots. There are other ways to utilize it, and not hide and sit on it.”
Sze said, “With the retirement fund already fully funded, why do we need such a massive injection of new money? Why suggest that we need a 5-2 or 6-1 super-majority vote when that could take control out of the hands of we elected officials?”
Council member Karen Oliver added, “Our needs now are to set up for economic development in the future.”
Council member Phil Duncan chimed to challenge the contention that locking the money in the retirement fund was its “highest and best use,” deriving an average seven percent yield when evened out over five or 10 years. However, the head of the City’s Retirement Fund Board was quick to point out that such a rate of return was not guaranteed, at all, but based on averages of past performance over time.
Duncan suggested that there are other options for investment that have not even seen considered, such as land banking.
But when he asked City staff members what was the City’s net yield on its purchase and sale of the Podolnick property, now folded into the current construction of the Rushmark’s Harris Teeter development on W. Broad, there was a telling dead silence in the room.
No one, clearly, had given any consideration to any alternative other than the retirement fund investment.
Sze suggested that other investment options include construction of the kind of public infrastructure that would attract and sustain economic development.
Connelly said it could be used as the City’s annual $800,000 match for state transportation funds, which would yield a 200 percent return every year. Snyder chimed in with school infrastructure use.
Any perceived attempt to run roughshod over the Council with the retirement fund option (including the inclusion of a model “reversion amendment” in the Council’s papers for the meeting that, if filled in and signed Monday night could have locked in the retirement option right away, fell apart as these alternative options began coming forward.
It became especially evident that no action was advisable on such a large sum of money without a lot of public input, first.