The Falls Church City Council and School Board held their annual joint meeting Monday night to get a first glimpse at what the coming budget cycle will look like, and with the citizens’ solid approval of a $120 million bond referendum to build a new high school, there was no talk of holding the line on taxes, but only on how to manage the rate increase that will certainly come.
Kicking in the process for the new school construction involves a minimum six cent tax rate increase above the $1.33 per $100 of assessed real estate valuation that exists now.
But can the City and the school system forego any other funding increases? On the good news side, from a taxation standpoint, the schools have faced a new enrollment increase of only eight this fall, though that it is clearly an anomaly not expected to continue. Next year it is expected to rise by 63 students, or 2.5 percent.
The other good news is that the City is expecting revenue growth higher than for either of its larger neighbors, expected to be three percent, due in part to higher than regional-average growth in real estate assessed values, and new commercial development. The total growth adds up to an estimated $2.5 million.
There are rising fixed cost demands that will impinge on that number, for things such as interjurisdictional agreements, increased debt service on capital projects, facilities maintenance and equipment replacement, school enrollment projections and employee compensation.
Uncontrolled new costs include for health insurance premiums and WMATA obligations (at $470,150 for the coming year), though state retirement fund obligations will decline by $103,000 for City employees and $168,589 for school employees this coming year. Projected school enrollment growth will add $707,161, and the net total of such known cost increases will be $1.8 million.
Maintaining a competitive edge in salaries and compensation will be the biggest concern, with personnel accounting for 84 percent of the schools’ budget and 60 percent of the cost of general government operations.
Next Monday, the City Council is expected to adopt a budget guidance resolution that will not be measured against a tax rate standard, but one that maintains stability overall, measured against a six cent rate increase this coming year.
With that minimum six cent hike, to handle the overall debt the City will need to draw down its reserves in the next couple of years from $11,055,000 to under a million dollars ($721,000) in fiscal year 2021, before those reserves rebound to $8.3 million the following year.
Under this plan, the six cent rate hike will have to hold through FY2022 when the rate, all other things being equal, can drop by two cents.
To enhance the stability of all this, the City’s financial consultants, Davenport LLC, have helped draft a revised fiscal policy resolution that will help the perception of the City in the eyes of Wall Street bond rating agencies. It will raise the fund balance rate — a combination of the unassigned fund balance and capital reserves — to 20 percent in the event the City exceeds its debt service to total expenditure rate above 12 percent.
The City’s current high bond rating can be maintained in this way, and the fact that the City has been looking forward to a $100 million-plus new high school cost has been known to its Wall Street bond raters for more than a half-dozen years already, City Manager Wyatt Shields said Monday.
In the context of all this, the City’s chief financial officer Kiran Bawa reminded the joint meeting that the projections being used are on the basis of continued overall national economic growth, and do not calculate the end of an economic growth cycle, which after 10 years of (sluggish) growth, still cannot be expected to last forever.
Shields’ draft budget guidance statement, that the Council will be voting on next Monday, states, “The City Council seeks a FY2019 budget development process that advances the City vision and comprehensive plan; supports the City’s excellent schools and excellent government services; and adheres to adopted fiscal policies that keep City finances on a sound footing. The City of Falls Church is committed to providing valuable public services that promote high quality of life in a cost effective manner.”
The guidance includes a paragraph that states, “It is the Council’s intention to maintain appropriate discipline on operating budgets for general government and schools with a vision toward reserving financial capacity for the major capital projects in the City’s immediate future, including the George Mason High School and Mary Ellen Henderson Middle School projects, the Mary Riley Styles Library project, and the City Hall public safety project.”