Charting our Fiscal Future
Excerpt from Justin's April Newsletter
This is now the seventh City budget that I have worked on during my time on the City Council. While I've never had the opportunity to work on a budget when revenues were skyrocketing, some years have been worse than others.
I've tried to have the same approach in each budget; push for efficiency and savings within the operating budget, but maintain strong levels of investment in capital infrastructure.
At various points, this philosophy has gotten me in trouble with people on either side of the debate about the relative size of government. I have generally opposed extensive growth in the operating budget but strongly supported addressing deferred capital needs.
The operating budget provides the resources to fund employees and their benefits. A competitive regional labor market have pushed employment costs higher. That drives our operating expenses to grow at a rate greater than general inflation.
Capital expenditures are the City's investment in our infrastructure. These investments can reduce operating costs, promote economic development and reduce the need for larger tax increases in the future.
Despite large efforts to address deferred capital investment in recent years, the City stands at a crossroads. With a perfect storm of infrastructure needs for school, sewer, city facility, transportation and recreation, the practices of the past will not sustain us in the future.
The City Manager's proposed Capital Improvement Program identifies over $500 million of unfunded capital investments despite funding $2 billion of needs over the next decade.
We have to do something dramatically different. Deferring capital investment further will threaten economic growth and ultimately exacerbate the challenges we face.
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.
There were even campaigns calling for Council to limit spending growth to "just" 3% per year.
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.
Today, the City workforce is proposed to be 2,563 FTEs, 4% lower than 2009.
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.
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 Washington Metropolitan Area Transit Authority (WMATA) is requesting an additional $7 million of operating funds from Alexandria next year. This is to support existing operations and safety initiatives.
The School Board's proposed operating budget for the Alexandria City Public Schools has requested an additional $9.6 million.
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 were projected to total another $1.1 million. We just learned last night that they will grow by $2.8 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
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.
Earlier this year, I wrote in an earlier edition of 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. That is generated by nearly all of the City Manager's proposed 2.7 cent increase.
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.
Knowing that it would be unable to address all our infrastructure needs, Council requested that the City Manager also include a Supplemental capital package. The supplemental 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, included $325 million of unfunded capital initiatives.
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. Our City is not unique in the region. Others face similar challenges.
Last month, the Council was obligated to "advertise" the highest tax rate that we might consider during this budget process. The Council voted 6-1 to embark on a new direction.
Mindful of the significant capital overhang as well as the opportunity to collaboratively plan truly joint municipal facilities, the Council voted to advertise a total rate increase of 5.7 cents, which would bring our rate to $1.13. The Council also provided direction to the City Manager to develop the composition of a new group that would be empowered to develop a truly joint facilities plan, providing recommendations as to how the community might prioritize over $600 million of municipal facility spending for both the City and the Schools over the next decade.
You can watch the Council's full discussion on the matter online.
The City is entirely too small and dense to continue building single use municipal facilities. We must break down the barriers between the City, the Alexandria City Public Schools and other public agencies and use our scarce capital funds to truly collaborate. I'm hopeful this newly proposed process will help facilitate that.
Please let me know your thoughts..