F.C. Retains AAA Bond Rating Despite Fairfax Water Suit Loss

Sets New ‘Budget Guidance’ to Buoy Fund Balance

Falls Church City Manager Wyatt Shields reported to the Falls Church City Council Monday night that a meeting with Fitch, one of the three leading Wall Street bond rating agencies, following the City’s loss of its final appeal in its lawsuit against Fairfax Water earlier this month determined that Fitch has maintained its perfect AAA bond rating for the City.

The heartening report was underscored by Joe Mason of the Davenport Group that advises the City on fiscal matters, who said that bond rating agencies these days are handing out more downgrades than upgrades.

He said that Fitch was impressed by Falls Church’s willingness to restore its fund balance to levels established by City policy guidelines by Fiscal Year 2012, and that it will be watching carefully to see that the City maintain accurate revenue forecasts so there are “no surprises,” and that an “early warning system” be in place through long range planning.

“This shows it is not all doom and gloom,” F.C. Mayor Nader Baroukh commented. “The City has managed well through a tough environment,” he said, noting there are positive signs going forward. In addition to Fitch’s AAA rating, Falls Church enjoys a AA-1 rating from Moody’s and a AA rating from Standard and Poors.

In the context of this report, the City Council took an unprecedented move at Monday’s meeting to front-load its upcoming Fiscal Year 2012 budget deliberations, due to be completed by late next April, with the unanimous adoption of a resolution setting out advance “budget guidance” for Shields and his staff.

While the guidance makes a priority the setting aside of two cents on the tax rate to recharge the City’s fund balance – in accordance with Fitch’s recommendations – it also calls for holding revenues received from residential real estate taxes at an actual sum no greater than for this current fiscal year.

Given that real estate assessed values are expected to continue dropping, this “breakeven” would result in a four-cent tax rate increase, from $1.24 to $1.28 per $100 of real estate valuation.

However, Shields acknowledged Monday that with these parameters, even with zero growth in the School Board and City employee salary numbers, the City would come up $500,000 short.

Other variables are also not taken into account, including increased City and School obligations for pension and retirement fund benefits, increased costs (already forwarded to City Hall) for Arlington Court and Fire Services of five percent, increased enrollment in the Falls Church School System, and reduced levels of support from state and federal sources.

Mayor Baroukh and others on the Council were adamant to insist that “we are not adopting a budget tonight,” that “nothing here is being written in stone,” and that this was merely a starting point for fashioning the parameters of the next budget.

Council member Robin Gardner made sure the point was made that, if the School Board presents a budget requiring additional funds, that the Council might have to increase the tax rate above the four cents indicated for a “zero growth” revenue budget. “It will be interesting when the School Board comes in with its requirements,” she said. “I don’t want folks at home to think we’ve decided on four cents tonight.”

While other Council members concurred, Councilman Ira Kaylin said, “I’ll have trouble going over $1.28.”

But Council member Johannah Barry stated that the guidance resolution was intended to provide “broad guidance and discipline to avoid last minute” pressures and said there should be “early consistent and collegial dialogue with the School Board.”

“This does not put anything to stone,” Baroukh said. “It is just a way of moving the process forward…It is a little bit of an experiment.”
Shields presented a calendar for the coming budget cycle, beginning with the guidance he was due to present Tuesday to City department heads coming out of Monday’s meeting.

The first major date comes Jan. 11 when the Falls Church Schools Superintendent Dr. Lois Berlin presents her FY12 budget recommendations to the School Board. The School Board, after a series of public hearings and a joint meeting with the City Council (set for Feb. 7) will adopt its budget request on Feb. 15. The City Manager will present his recommended budget on Mar. 14, and the Council will adopt the final FY12 budget on April 25.