By Bob LaJeunesse
Debt is good, so why tighten fiscal policies?
Many City of Falls Church leaders are so worried about passing debt on to future generations that they want to make the City’s current fiscal posture even more conservative. What these people fail to grasp is that traditional municipal finance transfers both assets and liabilities to future generations. Borrowing may obligate future residents with financial payments, but it also endows them with the physical facilities that are the bedrock of society.
Recent generations have not burdened us with very high debt levels, but nor have they bequeathed sufficient physical assets to us. They were negligent in fulfilling their social contract by not building schools, libraries and municipal buildings. (Current leaders exacerbated this problem by selling public water assets and, rather than replacing those assets, used the money to reduce the liabilities of future taxpayers by contributing around $10 million to the City pension fund). If previous leaders had “burdened” us with bond payments tied to physical assets, we would have fewer urgent building needs today. The lesson is that being financially prudent is largely imprudent from a socio-economic perspective. With interest rates at historic lows, what constitutes a greater burden to future generations – bond payments or shoddy schools?
City leaders may have noble intent in trying to endow future generations with physical capital assets without transferring the related liabilities. However, such a plan is a recipe for failure because it requires pre-emptive taxes that will retard growth and competitiveness.
Attempting to pre-fund borrowing with pay-as-you-go financing requires higher taxes today. Current taxpayers have already subsidized future taxpayers by pre-funding pensions, the fund balance, and the capital account (often with year-end surpluses). But now the Council is seeking to tax us even more by codifying the conservative budgets of the last few years. If they really care about the future, they should leverage future growth by borrowing more to make the bonded investments needed to “crowd-in” the future growth that will make it easier to retire the liabilities. Trying to pre-emptively offset some of that borrowing though pay-as-go balances only raises current taxes and makes Falls Church less competitive. It creates an unfair burden on current taxpayers and deviates from a long-standing social contract that has used traditional municipal finance to pay for essential government services over extended time horizons.
If any changes are made to the City’s financial guidelines, they should liberalize borrowing restrictions so that elected officials have the flexibility to pursue innovative, sustainable, and attractive physical assets. Specifically, the City should not commit to minimum pension contributions for the City and Police regardless of actuarial need. After bolstering City pensions with water asset proceeds, codifying minimum annual payments is tantamount to an additional wealth transfer to future taxpayers, and makes it harder for the City to meet its school (VRS) pension payments.
Why would we want to pre-fund future pension obligations more than we need to when we have so many other pressing needs in the City? Secondly, we do not need to make it more difficult to access the fund balance. Why have rainy-day funds if you can only use them during a 100-year storm? Additionally, the City should increase its borrowing durations to 30 years. If household do it, why can’t the government? Besides, any new public buildings should easily last 75-100 years. Most importantly, the City should change its debt limit from five percent of assessed value to 10 percent as allowed by the Virginia Constitution.
If you are tired of subsidizing future taxpayers while nothing gets built, now is the time to speak up. If you expect to lobby for more money for the schools, parks, libraries or other services, now is the time to speak up. If you are tired of the City paying for financial consultants, now is the time to speak up.
Waiting for the budget season will be too late. The City will have already committed itself to this conservative guidance and City leaders will treat it as gospel when denying us the services and infrastructure we need.
Bob LaJeunesse is a City of Falls Church resident. He ran unsuccessfully for F.C. City Council in 2013.