City Needs Long-Term Budget, Better Information

The Saturday April 4, Town Hall meeting concerning the FY2010 budget raised a number of issues requiring attention. Specifically:

Need for Long Term Projections

It is not clear how the City Council, let alone citizens of Falls Church, can make intelligent and informed decisions on a year by year basis, when the financial consequences of those decisions are not presented.

It is essential that a ten-year projection be presented in a standard format that allows for uniform year-to-year comparisons.

Such long-term projections are not intended to precisely predict the future, but rather as a crucial decision support mechanism providing a context for detecting trends and magnitudes.

The Tysons Corner development proposal used 40-year estimates. Corporate financial planning routinely requires 25-year projections. The 5-year numbers of Falls Church City’s Capital Investment Program are of little value in understanding future operating expenditure “drivers” (e.g. schools) or revenue “drivers” (e.g. real estate tax revenues), and it is these factors that most affect the tax rate.

For Falls Church City Council and citizens, longer-term projections would permit a focused discussion on the future requirements of the City. We could then begin taking actions prior to the advent of the all too predictable budget crises we face.

The City’s FY 2010 budget presentation focuses mostly on the past and little on the future. Why not update the budget gap analysis prepared in November 2008 by the chief financial officer and extend it further into the future?

As mentioned in Saturday’s town hall budget meeting, the “low hanging fruit” of short-term expenditure reductions will be picked this year. Indeed, some 2010 cuts will go beyond low hanging fruit, creating a variance between City staff and teachers and disagreement between users and non-users of the GEORGE bus service.

Next year’s budget discussion will be more painful and contentious.  To balance the budget next year and beyond, the City Council and City Manager must address the structural imbalance between projected expenditures and revenues.

Affordable Housing

Without any future budget projections there is no indication as to when the $2 million loan to the Falls Church Housing Corporation and approximately $750,000 in direct and indirect project costs are expected to impact the budget. Will the $2 million short-term loan to the potential FCHC partner be repaid to the City in  FY2010? If not, when does the City expect the loan to be repaid and to what City account will it be designated?

The City has already indicated that the affordable housing project could increase the real estate tax rate by approximately three cents. We are entitled to know the status of the project, as well as the expenditure reductions or tax increases required to accommodate the project. These issues have been raised before. Now answers are required.

Investments

Though not a driver of City expenditures, the $436,000 decline in investment income is puzzling. The City Manager indicated that it was related to a 67 percent decline in investment returns. Having reviewed that City’s Pension Investment Policy it does not appear that the acceptable investment “asset classes” used by the city would have declined by 67 percent.

In 2008 the Dow Jones index declined by 34 percent, and the S&P 500 fell by 39 percent.  Broad based pension fund indexed returns, given their relatively more restrictive investment policies, fell approximately 27 percent. How is it that our investment income fell by 67 percent? In what assets did we invest?  Was there special accounting treatment regarding pension assets?  This information needs to be readily available to City residents.

In short, we need a budget process that is open, focused, issues driven and forward looking. The current process does not achieve those objectives.

Ira Kaylin is former Chief Risk Officer for the Inter-American Development Bank and a current member of the Falls Church Economic Development Authority.  The views expressed above are his own and do not reflect the views of the EDA or any other organization.

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