Budget Process Begins
Excerpt from Justin's March Newsletter
From 2002 until 2009 the City was enjoying the run-up in the residential real estate market. Our General Fund budget increased by an average of 6.5% per year. The work force in City Government grew from 2,229 Full Time Equivalents (FTE) to 2,660 FTEs during that period.
In Fiscal Year 2010, the bottom fell out as the Great Recession took hold. The City adopted its first negative budget in at least 40 years, reducing spending from Fiscal Year 2009 to 2010 by over 2%. From 2010 to 2017, the General Fund budget increased by an average of 2.9% per year.
Sustaining an average budget growth of less than 3% per year with 4% annual student enrollment growth, employee healthcare costs increasing far above rates of inflation, long-deferred infrastructure needs, and ever-escalating funding challenges from Metro is impossible.
The most important decision the City Council makes each year is the adoption of the annual operating budget and capital improvement program. The operating budget generally funds the ongoing costs of government (primarily personnel), while the capital budget funds one-time expenditures that provide the community with an asset (new schools, new roads, new playing fields, transit buses, etc).
Last week, the City Manager presented his proposed Fiscal Year 2018 budgets to the City Council and our budget process is now underway.
Under current rates, projections are that we would experience an anemic 1.8% revenue growth. That would provide an additional $12 million of new revenue.
The Washington Metropolitan Area Transit Authority (WMATA) is tentatively requesting an additional $7 million of operating funds from Alexandria next year. This is to support existing operations and safety initiatives.
Increases to debt service and cash capital contributions to our capital budget require an increase of $6.5 million.
Providing City employees with scheduled merit increases alone costs an additional $5 million.
Increases in employee healthcare costs total another $1.1 million.
While not an exhaustive list, those costs alone total $29.1 million of new spending. One cent on the real estate tax rate this year generates $3.9 million of general fund revenue. So that represents nearly 7.5 cents of the real estate tax rate of requested new expenditures.
To address these funding challenges, the City Manager employed a series of efforts, including:
$5 million of General Fund reductions to City spending $2 million reduction to the request of the Alexandria City Public Schools (providing a $7.5 million increase, which amounts to 3.6% growth) 2.7 cent increase in the real estate tax rate. Creation of new Stormwater Utility Fee to remove stormwater costs from the City's General Fund and more equitably distribute the costs, Changes to the City's Supplemental Pension Plan
Last month I wrote in this newsletter about my concerns over new Federal budget policies and their potential impact on Alexandria's economy. In order to prepare the City for these challenges, the City Manager has proposed a $9.1 million contingency to address sudden revenue shortfalls.
The proposed general fund operating budget is $712.4 million, an increase of 3.5% from Fiscal Year 2017. With revenue growth in the low single digits, the City Manager included a proposed increase of 2.7 cents in the real estate tax rate.
The City Manager's proposed 10 year Capital Improvement Program continued the focus on expanding infrastructure investment. The 10 year plan increased by nearly 20%, driven largely by $368 million to address Combined Sewer projects, an additional $161 million for increases for WMATA capital funding, $144 million of increases for Alexandria City Public Schools capital funding, and $47 million to address City facilities deficiencies.
At the proposed real estate tax rate of $1.10 and including the impact of assessment increases, the average single family homeowner will pay an additional $294 during 2017. The average condominium homeowner will pay an additional $89.
Yet, even with a 10 year, $2 billion Capital Improvement Program, the proposal leaves large gaps in the Alexandria City Public Schools capacity and modernization plans, as well as in City efforts to address deficient municipal facilities.
At Council's request, the City Manager also included a Supplemental capital package, which could be funded by an additional five cent real estate tax rate increase, a dining tax increase and a personal property tax increase.
If the Council were to choose the full supplemental capital package, the average single family homeowner would pay $659 more in real estate taxes alone. The average condo owner would pay $245 more.
Alexandria currently has the second lowest real estate tax rate of major Northern Virginia jurisdictions, and given the current budget proposals of our neighbors, that is unlikely to change significantly.
We have just begun the budget process. We have a series of work sessions to dig through each portion of the budget.
We must make the adjustments to City spending to better align our long-term projected revenue growth with the projections for the growth in expenditures. That means addressing long-deferred capital maintenance and restraining the growth in the operating budget. Neither of these efforts are small tasks.
On Monday, March 13th at 4 PM, the City Council will be holding a public hearing to accept testimony from residents on the proposed budget. You can sign up in advance online to speak to the Council.
On Tuesday, March 14th, the Council will be adopting the highest real estate tax rate that we might consider this year. Under state law, once we choose this rate we can go lower, but no higher.
I look forward to working with the residents of this City to adopt a budget that is reflective of our values as a community.