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Falls Church City Council Mulls Policy Changes to Take on Debt

THE JOINT MEETING of the Falls Church City Council and School Board Monday night resulted in move to adjust the City's official debt and fund balance policies to accommodate bonding for a new high school, if that is the direction the two boards eventually agree up and the voters approve in a referendum next year. (Photo: News-Press).
THE JOINT MEETING of the Falls Church City Council and School Board Monday night resulted in move to adjust the City’s official debt and fund balance policies to accommodate bonding for a new high school, if that is the direction the two boards eventually agree up and the voters approve in a referendum next year. (Photo: News-Press).

In order to accommodate an option, not yet decided, to spend $115 million on the construction of an entirely new George Mason High School, the Falls Church City Council Monday took steps to alter some of its own policy guidelines on the amount of debt the City can carry, and as an offsetting step, to increase the ceiling on its unassigned fund balance.

The matter will come before the City Council for a vote this Monday night, Dec. 12. In the meantime, Council member Karen Oliver crafted a commentary for the News-Press that she submitted Wednesday.

She wrote that, seeking to avoid the fate of the lazy and imprudent grasshopper in the famous Aesop’s fable who ridiculed the hard-working ant while himself failing to store away enough for the winter, “The City faces a fiscal winter. We have enormous capital investment needs in the next 10 years, and our current capital reserves are not enough to cover all of it. The needs for school facilities, as well as investments in the library, city hall and our transportation network are enormous. Like the ant (in the fable), we have already started saving, but we need to do much more.”

Policy changes the Council will act on this coming Monday are designed to handle the high level of debt the City will carry in coming years, and Oliver said, “The revisions come with a cost to taxpayers as soon as the next budget year,” but, “We need to prepare together so that we can survive the winter.”

The first change is to clarify that the City’s capital reserves, including money set aside from the 2014 sale of its water system to Fairfax County, can be used to cover annual debt service. “This gives us an additional financial strategy for reducing the tax rate burden,” she wrote, adding that it can’t eliminate a rate increase, but can mitigate it.

This won’t be enough, however. “We’ve further tweaked our policies to allow us to borrow sufficient funds” and a collateral “plan to mitigate the risk.”
“Municipal debt management policies are designed to reassure lenders that city bonds are a safe investment so that we can borrow at the least possible cost,” she wrote. “To show lenders we can manage our debt load, our policy holds that the annual debt service load to 12 percent of the total operating budget. We also demonstrate that the city considers borrowing capacity for future projects. The current policy parameters require that the city use 20-year-level principal debt so that at least 23 percent of our debt is paid off within five years and 50 percent paid off within 10 years.”

A second policy revision allows the City to issue 30-year level payment debt if a plan exists to rebuild debt capacity within five years. A third policy allows the City to exceed the 12 percent debt service limit if additional resilience is created by increasing the unassigned fund balance.
“We need to stock our cupboard before winter comes,” she wrote.