Demand for Massive $ Increase in Virginia Retirement Fund Jolts F.C. School Budget

Plans by the Commonwealth of Virginia to pass through to local governments a huge increase in costs for operating its retirement system forced City of Falls Church Schools Superintendent Mary Ellen Shaw to present a proposed Fiscal Year 2005 budget Tuesday that does not meet the agreement she made with the City Council last summer to strictly limit school operating budget increases to $1 million.

In her remarks at Tuesday's School Board meeting, Shaw said that despite an anticipated 3.9% enrollment increase, bringing the student population in the Falls Church School System to 1,918 by next fall, the operating budget will grow under her plan by only $1,057,300, meeting the constraints agreed to last summer when the School Board and City Council agreed jointly to support passage of November's bond referendum to fund construction of a new middle school.

However, that total does not take into account the demand by the Commonwealth that the City bear the burden of a whopping 42% increase in its annual contribution to the Virginia Retirement System, or $564,500.

"When we agreed to hold our budget increase to $1 million last summer, we did not anticipate this would be coming from the VRS," Shaw told the News-Press in an interview yesterday. "Our agreement to restrain our budget growth was with the understanding that such restraint would do no harm to our system. Based on our projections for growth, we were able to accomplish that. But we cannot find a way to accommodate the size of this new VRS demand within those constraints without cutting seriously into vital programs."

The stunning, one-year jump in VRS requirements hits every local jurisdiction in the Commonwealth in the same way, she noted. All the state's 133 superintendents of schools have been asked to show at a press conference in Richmond next Tuesday to show their concern. Shaw said she will be there.

However, there is little the state legislature may be able to do. The need for the additional funds is based on an analysis of the health of the retirement system by its board. A combination of factors, according to VRS officials, has led to the call for a significantly-increased infusion of funds.

First, they stated, there has been a lower than expected return on investment in the VRS portfolio, due to low interest rates and poor stock performance. Second, there was the recent decision to lower the eligibility age for the program from age 55 to 50, meaning there are more applicants than ever before. Third, greater longevity is requiring the system to pay out longer to its beneficiaries.

The VRS board originally estimated the City of Falls Church's increase in participation could be closer to $800,000.

But Governor Mark Warner fashioned his state budget in a way that the City's requirement would be cut to $564,500. Shaw said that a "best case scenario" could lower the amount by another $190,000, but that would require resolute action by the state legislature.

$564,500 represents about four cents on Falls Church's real estate tax rate, which now stands at $1.13 per $100 assessed valuation. Falls Church City Manager Dan McKeever indicated that the first year's service on the new school construction debt authorized by City voters last November would add 13 cents to the tax rate, alone. Thus, City taxpayers could face a net 17 cent rate increase, from $1.13 to $1.30, based on current projections. That would constitute the biggest one-year increase in over two decades.

But Shaw said the huge, one year VRS rate hike is unprecedented. She said it usually remains steady, and in recent years has even gone down a little. She was shocked by the news of the sudden, enormous increase.

Aside from the VRS increase, Shaw's proposed budget limited growth to $1,057,300, less than half the amount of the increase the City Council approved for last year's City Schools budget.

The total size of the Falls Church City Schools budget, under Shaw's plan, is now $30,290,807, including the added VRS contribution, up 7.8 percent from last year. The City's portion of that total is $22,781,478, or an increase of 7.7%.

Shaw's budget accommodates a projected 72 additional students. To maintain the competitiveness of the system, she said, it also includes a 2.8% increase in all employee salary scales and a step increase for eligible employees. New state mandates have also driven some other cost increases, including for conducting a triennial school census and additional time for a system-wide testing coordinator.

School Board work sessions on the budget will commence on Saturday, Jan. 24, at 8:30 a.m. at the Thomas Jefferson Elementary School. Others will be held on Saturday, Feb. 7, and Tuesday, Feb. 17. Public hearings on the budget will be held Tuesday, Jan. 27 and Tuesday, Feb. 10, at 7:30 p.m. at the Council chambers in City Hall.

The final School Board vote on the budget will be Tuesday, Feb. 24, at 7:30 p.m. At that point, the budget will be forwarded to the City Manager, who will attach it to his budget for presentation to the City Council in early March. The final budget for the coming fiscal year will be completed by April 26.