July 29, 2010

This comment is my personal view as a taxpayer and a voter, not as Chairman of the Long-Range Financial Planning Working Group.

I was more than taken aback by the request from the Falls Church Housing Corporation (FCHC) for the City of Falls Church to bail it out of its current financial predicament.  In no way is this a “minor modification” of the terms set forth by the City Council for the Wilden Project.  It is a major change to the terms and to the project risks.  Anybody who understands real estate development would understand that fact and Mr. Young confirmed it in his interview with the FCT.  What we now have here is an admission by the FCHC that it is financially insolvent because it cannot make payment of its $2.7 million note due on August 7.  To be clear, the definition of financial insolvency is when a borrower cannot meet its financial obligations as and when they come due.  It also admitted that it may have to sell assets at a loss to make good on the note.

The FCHC also admits that it is attempting to help the Sawner estate settle its debt to the City.  It goes on to admit that whoever the other “partners” are who invested $750,000 in pre-development work will lose their funds.  The FCHC, for reasons that defy logic, spent $1.2 million on pre-development work when it had neither complied with the very soft terms set forth by the City Council nor had it lined up all of its equity and bank financing.  By way of clarification, a loan from the City does not qualify as equity by normal accounting principles, even for a non-profit.  Now, the FCHC has the audacity to ask the taxpayers of Falls Church for a bailout caused by financial mismanagement and overly optimistic forecasting for the entire Project.  The City would not just be bailing out the FCHC, but all of the parties associated with this project, according to the FCHC memo.

Any assertion that this project ever made financial sense for the City is distinctly contrary to a thorough and well-reasoned analysis prepared by Mr. Mike Novotny of the EDA and comments made by Mr. John Lawrence, Chairman of the Planning Commission, who voted against the project.  It would cost the City at least $100,000 in lost tax revenue–when every penny counts.  If this project made that much sense, perhaps Mr. Young should advance the FCHC $1 million, inasmuch as he would be a benefactor of the total project.

To put the $1 million request into the context of the Schools’ budget, that would be the equivalent of 12 teaching positions plus 2 or 3 support staff.  Down the road, the subsidized cost of at least $100,000 per annum would be the annual equivalent of 1.5 teaching positions.  If we go through the math of the project, it is expected by the FCHC that in 15 or 16 years the City would essentially forgive the $2 million loan.  How many teachers or policemen or firemen does that equate to?

In terms of the financial gimmickry of the FCHC request, if I understand Mr. Rogers’ memo to the City Manager, taxpayer funds will flow from the City to the FCHC and then back and forth between the FCHC and the Sawner estate, with a some portion of the funding maybe returning to the City in some guise to make it appear this is nothing more than a usual and customary fiscal arrangement.  It would also allow Mr. Young to proceed with his development and then recoup $25,000 per parking space from the City.

I think that the City Council would be making a huge mistake taking taxpayer funds that were meant to restore the depleted fund balance and finance operations such as public safety and the schools and redirect funds for 66 subsidized housing units.  The City Manager even stripped the CIP of all but $385,000 of capital expenditure to fund the operating budget.  We just heard from the City Manager that he had approached Davenport & Co., the City’s investment bankers, about going to the debt markets to fund the depleted CIP.  The Assistant Director of Finance has confirmed that tax collections are running $3.5 million behind last year.

After we listened to City employees pleading for their jobs in the Council Chambers (and on the City’s TV station) just 3 months ago, this is a major insult to them and their families.  At the end of the day, the real issue is not whether the City Council would be voting on 66 subsidized housing units in the middle of the commercial district to be funded by depleting the fund balance again, but whether this Council wants to bail out the financial mismanagement of the FCHC and place further strain on the City’s operating budget.

Even if the City borrows the money from a bank, it would be sending the wrong signal to every household in the City that had to accept a 16% hike in real estate taxes to support the City’s operating budget, not bail out an entity that is admitting insolvency.  It is an audacious argument on the part of Ms. Jackson and Mr. Rogers to say that the Virginia Development Housing Authority would turn its back on Falls Church for not funding this $1 million request for an admittedly insolvent FCHC.  The Council needs to call in an independent auditor to examine the finances of the FCHA and its financial controls and not bail out the FCHC.  The City should not the “bailout banker” of last resort for a non-profit that speculates in land development.

Mr. Sommerfeld is a businessman who lives in Falls Church City

Editors’ Note:  The Falls Church Times has invited the Falls Church Housing Corporation to submit a Community Comment making the case for its request in this matter, and we invite others to share their views on this topic or others of importance to the City.  Our comment policy appears in our “About” section.  Please send your submissions to contact@fallschurchtimes.com.

July 1, 2010

Four Falls Church City Council Members and Members-Elect rolled out a “Blueprint for Action” document yesterday aimed at improving the City’s financial planning and responsibility processes.

Sitting Council Members Nader Baroukh and Lawrence Webb and Council Members-Elect Johannah Barry and Ira Kaylin describe the document as a “discussion draft” designed to set priority areas for the Council in the coming term.

The Baroukh-Webb-Barry-Kaylin draft proposes the following action items for the City:

1)      Develop a five-year projection of the City’s financial situation;

2)      Undertake a comprehensive review of the City’s operating structure and organization;

3)      Develop revenue enhancing measures in the form of cost savings and additional net revenue from appropriate application of user fees;

4)      Adopt a three-year rolling budget though the budget approval process will be undertaken on a yearly basis;

5)      Align City budget preparation process that coincides with that of the School System in order to identify possible long term funding gaps (starting with the 5-year financial projections);

6)      Receive monthly & quarterly financial reports;

7)      Develop a minimum effort policy for capital investment;

8)      Develop a policy for a “Rainy Day” or Reserve/Stabilization Fund Policy;

9)      Continue to proactively and creatively market the City, including additional resources for the Economic Development Office;

10)   Adopt an Area Planning Process.

In a press release, the four made the following statements regarding their proposal.

Baroukh

Baroukh:  “It has become clear that we must do a better job managing our budget and projecting the state of our finances for the future, including a focus on economic development.  What we are announcing today is a series of common-sense budgeting and financial practices to help us do that.  They’re not flashy, but they are very important.  I look forward to working with all members of Council as we develop priority areas and establish a Council work plan in the near future.”

Webb:  “The City’s financial situation is the most critical issue we face.  That’s why it’s important that we begin to improve our practices quickly.  I’m pleased to be able to work on this immediately upon the start of the new Council session.”

Webb

Kaylin:  “These are action items that Johannah [Barry] and I discussed during the campaign. Our primary objective is to establish a path toward economic sustainability in order to maintain an independent Falls Church City. We need to improve our fiscal management now and plan for the future expansion of our economic base.  The purpose of the document, therefore, is to begin these important discussions.  I hope the new Council puts these issues front-and-center.”

Barry

Barry:  “In business or government, surprises are something you want to avoid.  Sometimes they are inevitable, but if we can minimize the number of surprises we face, we will be better off.  That’s what we are attempting to do here.  We want a budgetary and financial system that is predictable.  Discussing and laying out the steps of how to accomplish this are critical.”

According to Baroukh, other Council Members are reviewing the draft in order to add their input.

Kaylin

The new Council session starts tonight, when Barry and Kaylin and Member-Elect Ron Peppe will be sworn in.  Current Council Members returning are Baroukh, Webb, Robin Gardner and David Snyder.

The discussion draft document appears below.

———–

Discussion Draft

Organizing Principles
Blueprint for Action

The purpose of the working document is to outline the priority areas of the City Council with a view to initiate specific actions.  These areas are:

—Budget: Expenditures and Revenue

—Economic Development

—Change Council review processes that permit more careful (not necessarily longer review) analysis of proposed projects/actions (i.e. not deadline driven).  Recommended changes will be described in a companion document.

The Blueprint for Action recognizes the impact of excellent schools on the City’s housing prices although difficult to quantify, and certainly positive and the City’s sense of community.  The overall impact is the inter relationship between overall revenue and cost generation.

The Blueprint for Action recognizes the need to expand and address such issues as green spaces, arts and community events, and library capital improvement needs.  Nonetheless, the City’s budget and economic development issues must be given priority in order to properly develop and implement such items.

Budget

Based on recommendations previously made to the City Council and enhanced and expanded by the Long-Range Financial Planning Working Group (“LRFPWG”) the following course of action is suggested:

Expenditures

—A five-year projection of the City’s financial situation.  Projections should be based on current financial data.  These projections are to be provided by the City and will serve as the basis of budget decisions.  The City can use an in house model or that of the LRFPWG, but the City must take ownership (i.e. they are to be considered official City projections).

—Once the “gaps” are identified the City and the School System should seek multi-year long term cost reductions to narrow or eliminate funding gaps.  Expenditure reductions to close these “gaps” should be distributed in an equitable and fair manner.

—No analytical model has been developed by economists that can measure the tradeoff between the School System’s benefit to housing values (and City revenue) and the dampening impact on housing values of increasing real estate taxes.  As such, these factors should be given equal weight.

—City side expenditure reductions should be based on a comprehensive review of the City’s operating structure and organization.  The City Council should prepare the scope for the work to be performed with inputs from the City side.  The review should be undertaken by a consulting firm specializing in organizational structure.

—The City’s Fund Balance needs further recapitalization especially for the large anticipated Capital Improvements Program (“CIP”).  Providing the School System with needed Capital Improvements is also a priority.

Revenue

—The City has less control over the revenue side than it does over expenditures.  Revenues that can be increased are those cost savings such as elimination of redundant functions between the City and School System, and further outsourcing with adjacent jurisdictions and/or private sector.  Some user fees can be increased, which may lead to a more equitable allocation of costs.

—Further efforts at greater utilization of existing retail and office space should be aggressively pursued as well.

While the above will assist in increasing revenues, none of the revenue enhancers will materially improve the City’s short or long-term fiscal situation.

For the City’s long-term financial viability to be assured; that is, our independence and our Schools, the City’s economic base must be prudently expanded.

Budget Process

—Adoption of a three-year rolling budget (within the parameters established in the longer term strategic plans).  This is essential.  A quote from the LRFWG is merited, “A multi-year rolling budget will provide financial discipline and show the effects of decisions made today.”

—City budgets would be approved on a yearly basis as is required.  Three-year rolling budget projections are to be used as a decision support tool and are not to be taken as binding.

—The City and School budgets should be considered at the same time; not sequentially.  In that regard, the School System budget process has been undertaken in a timely basis and should be used by the City to gauge the timing of its budget preparation.

As recommended by the Gerhart Report and the LRFPWG, the City should prepare and distribute to the City Council the following:

—Monthly & Quarterly financial reports.  Better financial management and forecasting should be possible if the City’s financial staff regularly generates timely financial reports.

—Minimum Effort Policy for Capital Investment.  The City Manager slashed the CIP and capital outlays in recent years in an attempt to balance the budget, thus putting aging infrastructure at risk for the City and the School System.  This will cause significant safety and financial problems for both the City and the Schools within 3 years.

—Adopt a “Rainy Day” Reserve/Stabilization Fund Policy:  The City currently has no dedicated “rainy day” fund to offset one time spikes in expenditure needs.

Economic Development

The long-term financial sustainability of the City depends on its ability to expand, diversify and sustain its economic base.  Specifically:

—While greater occupancy rates for existing commercial/retail space will generate additional revenue it will still be insufficient to close the expected budget gaps, even at 100% occupancy.

—An active City, which includes a vibrant night life, readily accessible restaurants, etc., would complement the City’s effort to attract larger commercial investors.  To expand the City’s presence within the region, additional resources should be provided to the EDO to proactively and creatively market the attributes of the City.

—The land available for commercial/office construction has been identified for years.  The City is fortunate that the three logical development zones (Metro stops and S. Maple) are already in commercial/business corridors; thus future development need not impact the residential core of the City.  It is recognized, however, that wherever the development is located it will border on some homeowner’s property and this must be taken into account.  The City must complete “revitalization plans” for key commercial areas (East End, EFC Metro, WFC Metro, and Downtown).

We are aware that Arlington County’s planned development for the East Falls Church Metro area is already underway and the subject of public hearings.  This planned, high density development, which is intended to optimize the area’s commercial and residential location, will impact the City’s landscape and development options and should be, to the extent possible, jointly conceived and executed.

—Given the projected size of the City’s budget shortfalls, future development will be, by necessity, of a higher density and should be better planned than is currently the norm.  Such development should retain a sense of proportion and harmony with existing residential neighborhoods and must be economically sustainable.

—The challenges of undertaking such an approach are well known and are not to be trivialized or dismissed.

Background

In the early to mid 2000’s, the financial consequences of inhibiting commercial/office development were obscured by the housing bubble.  The City is exposed to considerable revenue volatility since approximately 80% of the City’s real estate assessments are residential.  Expenditures, however, are not as volatile and tend upward even in poor economic environments, as is shown in the analyses of the LRFPWG.

With the good times rolling, fundamental structural imbalances between the growth in revenues and the growth in expenditures, though recognized in many quarters, were not effectively, if at all, addressed.  The City’s apparent financial well-being was not based on sound fundamentals of having a diversified revenue base.

The economic situation today is radically different from that of 2007. Continued reliance on residential real estate taxes that fueled the City’s revenue and expenditure growth is now an impediment to the improvement of the City’s financial well-being and a challenge to the discretionary household incomes of our citizens.  The City’s structural imbalances are now clear and evident.  The likelihood of a reemergence of the housing market as a growing revenue generator, in the near or medium term, is remote and cannot serve as the basis for the City’s long term financial sustainability.

There are claims that no commercial developers are interested in investing in the City and future efforts are likely to produce the same result.  However, there remains some question as to how energetically and creatively the City actually pursued commercial development, especially in light of the housing boom.

Conclusions

The long term choices confronting the City lie between the: 1) commitment to significantly expand the City’s economic base or, 2) eventually incurring significant reductions in the quality of services provided by the City and its School System.  In the worst case, but plausible, scenario the independence of the City would be at risk.

Significant reductions in the quality of City services will result if we continue along our current development path.  Underlying these choices is the assumption that while some increase in real estate taxes may need to be absorbed in the short-term, continued real estate tax increases is not an economically viable long term solution.

The best solution is to strategically expand the City’s economic base in a carefully planned, thoughtful manner that maintains and enhances the high quality of life that we currently enjoy.  The City’s current financial situation does present opportunities.  Falls Church has real and viable development opportunities.  We should begin a well-focused “Area Planning Process,” including City financial support, and with a clear City financial commitment to pursue such development (including other sources).  Once a Plan is developed the City must adhere to the Plan.  The City must also develop an implementation plan as part of this process.

The City has commissioned and ignored previous plans, including some that were well conceived.  There appears to be justifiable “Studies” fatigue.  However, if the planning process is to be correctly done we should seek the professional service of a recognized firm specializing in revitalization programs.  To accelerate the process and broaden our options the previous studies should be presented to the selected firm in order to take advantage of already completed work.

The above focuses on two salient issues (i.e., the Budget and Economic Development).  Of course, there are many other activities that are essential.  However, if future budget discussions produce results similar to that of FY 2011, the City’s sustainable future will be compromised because continued deterioration of City services will be the norm rather than the exception.

Recommendations

The following is a summary of the recommendations contained above:

1) The City will develop a five-year projection of the City’s financial situation.

2) A comprehensive review of the City’s operating structure and organization will be undertaken.

3) Revenue enhancing measures in the form of cost savings and additional net revenue from appropriate application of user fees will be developed.

4) The City will adopt a three-year rolling budget though the budget approval process is undertaken on a yearly basis.

5) The City’s budget preparation will coincide with that of the School System in order to identify possible long term funding gaps (starting with the 5-year financial projections).  Budget reductions should be done on a fair and equitable basis.

6)  Monthly & quarterly financial reports will be provided to Council.

7)  A minimum effort policy for capital investment will be developed.

8)  A policy for a “Rainy Day” or Reserve/Stabilization Fund Policy will be developed.

9) The City should continue to proactively and creatively market the City, including additional resources for the EDO.

10) The City will adopt an Area Planning Process.  A Working Group, which would report directly to the City Council and include the Planning Commission, Planning Staff, EDO, and the EDA, will be tasked with developing the scope of work for developing the plan. The scope of work should include consideration of retaining a consultant with proven success in urban revitalization programs.

May 25, 2010

Monday evening the Falls Church City Council approved the budget for the FY 2011 Capital Improvements Plan and a related resolution covering the years FY 2012-15.  The CIP for the coming fiscal year will be funded primarily through federal and state grants and the local funding matches necessary to activate the grants.  The extended program, which is non-binding, would require debt financing to achieve its major objectives.

Although the measures passed unanimously, both clearly were constrained by the City’s financial situation.  Councilman Dave Snyder referred to the FY 2011 program as driven “by extreme necessity; we have no choice.”   Councilman Nader Baroukh concurred, stating that “the decision was made last year when we had the shortfall.”

Councilman Dan Maller, who chaired the meeting in the absence of Mayor Gardner and Vice Mayor Lippman, seemed initially reluctant to vote on the CIP, going so far as to ask City Attorney John Foster the consequences of deferring a vote on either measure.  Mr. Foster advised that under the City’s charter such plans must be approved within 28 days of the passage of the budget and that Monday therefore was the deadline for such action.  He further stated that if a vote were delayed, any program subsequently adopted would likely be void.

Prior to passage of the extended CIP the Council amended the resolution to include language stating that the plan would be subject to periodic review.

Before the vote Mr. Maller stated, “We’re all disappointed . . . I recognize the great fiscal uncertainties that are facing the City right now, and I hope that by establishing an ongoing process we can address the lack of  a true long range plan .  .  .  I was prepared to not vote in favor of this, but I think we’ve established a very large placeholder and on that basis and on the basis that we’re going to have a continuing process, I’m prepared to support it.”

Most of the FY 2011 funding is for storm water management improvements.  The extended plan calls for $30 million for school construction (FY 2014), $10 million for City Hall renovations (mostly in FY 2013), and $1.6 million for storm water improvements (spread over four years, the majority set for FY 2012-13).  Some observers have estimated that the school costs could be as high as $50 million.

The related documents on the FY 2011 plan and that for the following years are available as part of last night’s meeting agenda on the City’s website.

The Falls Church Times recently posed questions to Richard Sommerfeld, chairman of Falls Church City’s Long-Range Financial Planning Working Group (LRFPWG), regarding his views on financial issues important to the City.   In the interview, Sommerfeld notes his concerns over the City’s financial situation and the action the City should take to address that situation.  Our conversation with him appears below.

FCT:  Why was the Working Group created, and what is its mandate?

Sommerfeld:  The Working Group was established by the City Council in October 2009 to work with the CFO in developing forecasts of long-range revenue and expenditure requirements, as well as analytical tools and reports.  We are there to analyze the potential ramifications of revenue and expenditure policies and budgets on the City’s financial condition.  Our analysis and recommendations within the context of capital spending options and whatever those implications may be.

FCT:  Are you limited in the areas in which you may provide advice?

Sommerfeld:  As constituted, our focus is only on the City’s budget and financial planning.  However, we have been instructed to coordinate our work with the School Board, the Planning Commission and the Economic Development Authority.

FCT:  You have said, “The math just doesn’t seem to stack up for the Wilden” senior affordable housing project.  What do you mean?

Sommerfeld:  I believe that there was a community comment article by Linda Neighborgall not long ago which provided an insightful analysis into the Wilden.  I took the time to work through her analysis and not only found the math to be correct, but I also agree with many of her policy conclusions from a public administration perspective.  Just like the schools, the FCHC does not have the capacity to either borrow or service the bond which must be financed by the City.  Essentially, the City is taking prime economic land and minimizing the tax revenue benefit.  The Wilden will not pay for itself, and only financially benefit the developer and the contractor.  I ask you, is that prudent financial management?

There are other policy considerations to factor into the discussion.  For instance, we are a jurisdiction of a mere two square miles and precluded from annexing land in Fairfax County.  As the urbanization pressures inside the Beltway mount, affordable housing for seniors here makes no sense at all.  Unless we raise the height restrictions of buildings and fill the empty condos, the increasing financial burden will fall on the 4,500 households to pay for it.

I believe that with the election so close, Council members voted with their hearts and not their minds for this project.  City government is not in the business of operating a housing corporation.  It is not an “essential” service to the majority of City residents, like public safety, schools, paved roads, or wider economic development.

FCT:  On the Falls Church Times site, you recently provided comments on the topic of real estate development.  How important is development to Falls Church’s financial health?

Sommerfeld:  Prudent real estate development is essential in order to diversify the City’s revenue base.  Six years ago, household real estate taxes accounted for 49% of total revenue.  In FY11, it will rise to almost 68%.  We are going backward, not forward.

I have talked to various people, including members of the City Council who claim that they could not find commercial real estate developers to come into Falls Church.  I’m rather skeptical of that defense.  I grew up in Fairfax City and watched as Arlington and now Tysons are building vibrant commercial districts.  Fifty percent of Arlington’s real estate taxes come from commercial and retail properties while we are now at 22% and heading toward 20%.  They had a plan.  We don’t have a 5 or 10 year cohesive and realistic development plan for Falls Church.  The LRFPWG has recommended to the Council that a plan be drafted ASAP.

Falls Church must encourage a commercial office and retail market that’s appropriate and has a character that will encourage others to come to the City.  The old guard of the village image atmosphere is both outdated by 20 years and an impediment to Falls Church’s sustainability.

Commercial offices and larger retailers would bring new real estate and business taxes to Falls Church.  This is clearly the type of development we need.  It would not burden the school system with additional students and it brings revenues from outside the City.  The City can either engage a professional planning firm or work in concert with students from Virginia Tech on urban planning and the University of Pittsburgh on public administration policies.

FCT:  You recently met with the candidates for City Council.  What was the purpose of that meeting?

Sommerfeld:  The work of the LRFPWG is for the benefit of our city government and fellow residents.  We provided lots of analysis and targeted recommendations to the City Council and staff.  Why not provide the same information to the candidates for the Council?  We believe that every candidate—incumbent or wannabe—should have the same information.  Everyone needed to know exactly what the financial condition of the Little City actually is.  As constituted by the Council, we helped raise the bar of transparency with the purpose of making sure that whoever wins in the next election, they will have all of the facts and will make better decisions for all residents.

FCT:  What aspects of our financial situation concern you the most?

Sommerfeld:  First and foremost I’m concerned about the sustainability of the Little City.  I don’t believe that you can blame the City’s budgetary crisis on the Great Recession.  The recession only put local government, our core values, and our ability to pay for these things under the microscope.  Revenues were rising 7% annually and so were expenses, but inflation was only rising 3%.  The sales tax error by Richmond and the dispute with Fairfax Water contributed to the financial challenge and have been wrongly blamed for the current financial dilemma.  The reality is that Falls Church has been addicted to spending but nobody questioned why.

Second, I am concerned about our diminished economies of scale.  We are only 4,600 households with a City government trying to offer the services and run a school system many times larger than what we are financially capable of providing.  It’s time to revisit our core values and develop a 5-year plan.

Third, I’m concerned about the financial impact of budgetary decisions on every household in Falls Church.  We worked through the math and the 17-cent real estate tax increase will reduce discretionary household incomes by about 9%.  That is a big number.  Comparisons of tax rates to McLean, with median household incomes 53% higher than ours and median home values twice as high as ours were more than incorrect, they were misleading.  Until the LRFPWG raised the issue and drilled down on the household impact of taxes and user fees, City staff and the Council were in sync with the City Manager’s recommendations.  At the end of the day, we need to also consider what is affordable.

Fourth, until this year, Falls Church did not generate an interim financial statement.  In the private sector we generate quarterly financial reports.  I have talked to other city managers who manage to generate them on a quarterly basis.  It should be standard operating procedure for us.

Lastly, very soon we are going to have to come to grips with the schools budget which is clearly not sustainable for a city with our economies of scale.  That will be a political hot potato.  Falls Church no longer solely exists to support the schools.  Times have changed and the economies of scale issue have finally caught up with the City and the schools.

FCT:  What is the single most important action for the City to take to improve our financial situation?

That would help us see what the Little City can reasonably afford with our economies of scale.  It would mitigate the annual budgetary game of chicken between the City and the schools.  It would allow the schools to have more certainty regarding its own budgeting process.  A multi-year budget would allow us to engage in sounder economic planning and direct our development efforts—all with an vision to the future of a sustainable Falls Church.

FCT:  Who are the other members of the Long-Range Financial Planning Working Group?

Sommerfeld:  We are only a small group but the cross-functional skills we collectively have is substantial.  As a group, we have experience in strategic planning, economic development, public finance, restructuring and cost mitigation, financial analysis and forecasting, budgeting and fiscal management, accounting and economics.

Tom Kaye works for the GSA where he does financial modeling and budgetary analysis.  Tom did the heavy lifting in terms of designing the financial forecasting model the LRFPWG provided to the City.  He was raised here in Falls Church.

John Metya is Managing Director of Providencia Partners Group, an international investment consulting company.  John’s contribution to the team has been in the area of macro-economic affairs and the implications it has on financial planning and policy.  John has been a Falls Church resident for more than 30 years.

John and I have each have profit and loss responsibility for budgets larger and more complex than the budget and operations of Fall Church.

FCT:  Do you feel City officials are listening to the Working Group’s advice?

Sommerfeld:  I do.  I believe that both the City Council and the staff listened to our advice and reasoning.  Some accepted much of our analysis, our logic and our targeted recommendations.  Some things we focused on or challenged were not so well received and that was to be expected.  Tom, John and I are not politicians or paid civil servants.  We are residents, taxpayers, voters and professionally competent in our day jobs.  Our agenda is the Falls Church agenda, not the parks, or schools or public safety, but rather the greater and all-inclusive Falls Church agenda.

FCT:  What’s your background  – your day job, academic history, time in Falls Church, etc. ?

Sommerfeld:  I’m a Partner with Tatum, the largest executive services company in the US providing financial and operational consulting services to chief executive and chief financial officers in public and private companies, as well as non-profits and governments.  During my career I have been a CFO for international investment companies and publicly traded companies, as well as the CEO for multimillion dollar manufacturing companies.

I’m originally a native of Fairfax and after earning my BA in International Affairs from Virginia Tech, I went on to the University of Pittsburgh to obtain my Masters of Public & International Affairs from GSPIA (the Graduate School of Public & International Affairs).  Currently, I’m a member of GSPIA’s Board of Visitors.  After graduate school I went into investment banking with both Continental Bank and Citicorp.  Most of my working career has been spent abroad where I have also advised governments on foreign exchange controls, public finance and economic policies.

I moved to Falls Church in 2005, but my wife has been a resident here for 29 years.

FCT:  Thank you for taking the time to speak with us, and for your service to the City.

April 26, 2010

Tonight the Falls Church City Council unanimously approved the FY 2011 budget and a 17 cent increase in the property tax rate.  The vote marks the end of an long, arduous process that involved three public hearings, four town hall meetings, and 11 work sessions, plus numerous “Gang of 8″ meetings and discussions with City and School Board staff.

The $62.4 million dollar budget is $4.5 million dollars lower than that for FY 2010, a decrease of 6.8%.   City Manager Wyatt Shields had proposed a higher number in March, but the Council trimmed his request by $924,000 and cut 3 cents off the proposed tax rate.

The FY 2011 property tax rate will be $1.24 for every $100 of assessed value.  This rate, though higher than that in neighboring Arlington and Fairfax Counties, is somewhat lower than rates in other local jurisdictions.  However, as property values are higher in Falls Church, the typical tax bill is often higher as well.  Under the new budget, the average Falls Church home owner will face an increase of $798 or 12.3%.

Council members generally felt that the budget represented their best effort in what Mr. Shields described as “a very tough year financially.”  Councilman Dan Sze, who had earlier suggested a 10 cent tax increase, acknowledged that that was “not the sense of Council.”  Councilman Dave Snyder referred to the finished product as a “budget nobody loves”, but said he was optimistic about the future.  “If we pull together we’ll pass on to others the same quality of a city that we inherited.”

Vice Mayor Hal Lippman stated ”For the second year in a row the Council has delivered in every sense on what our citizens have hoped for and expected.  .  .  .  I can sleep well for the first time tonight.”

Councilman Nader Baroukh, who cast the only dissenting vote at first reading of the budget, felt that the process, though collegial, had not been ideal and that the Council should have devoted more attention to budget matters sooner, rather than focusing on issues such as the election date change.

Public comments prior to the vote, though few, were hardly sanguine. 

Council candidates Johannah Barry and Ira Kaylin both criticized the Council’s performance during the course of the budget cycle.  Ms. Barry stated that the budget shortfalls and the issues which led to them were not a surprise.  Mr. Kaylin called the process a reprise of the previous year in that there was still an absence of any long term strategy.  He also was highly critical of the Council’s $2 million subsidized loan to the Falls Church Housing Corporation.

City employee Mary Gonda spoke in opposition to some of the personnel reductions at City Hall, stating “We’re not FTEs (Full Time Equivalents), we’re employees.  .  .  .  Recruitment might be down, but ‘employee issues’ are up.”   She noted that morale had suffered this year as a result of the cuts.

Robert LaJeunesse criticized the Council’s efforts to increase the fund balance, stating “A vote for  this budget is a vote for fiscal conservatism and pandering to bond markets and credit agancies over the needs of taxpayers and employees of the City.”

Falls Church News-Press editor and publisher Nick Benton continued to call for funding weekly publication of the City FOCUS in his paper, citing the cost as only $5 a year per resident.  He pointed out that the News-Press is widely read beyond the City and that the paper could be used to help encourage economic development.  Councilmen Snyder, Sze, and Dan Maller were somewhat receptive to this idea.  Mr. Maller felt that Mr. Benton had a good point and that the publication of the FOCUS might need to be reviewed and modified accordingly.  However,  Mayor Robin Gardner was only lukewarm to this method of promoting the City, cautioning “We don’t want to tie ourselves to only one way of doing it.”

The General Government operating budget of $28.4 million represents an 8.5 percent reduction in spending compared to the current year.  The budget imposes reductions in virtually every department and a City employee pay freeze for the second year in a row.

The budget fully funds the budget approved by the Falls Church School Board.   The school transfer for the year will be $27.86 million, a 6 percent reduction to this year’s transfer amount.  Increases in state revenues and decreases in expenditures for pension and health costs realized since the School Board acted on its budget request on March 2 allowed the Council to reduce the school transfer amount by $426,000 without affecting school programs, while allowing the schools to take advantage of additional technology funding from the state.

Water and sewer commodity fees will remain unchanged for the fifth consecutive year. The water rate will remain at $3.03 per 1,000 gallons in FY11 and the sewer rate will remain at $5.91 per 1,000 gallons.  The City’s water rates are below average for the National Capital Region.

The budget cuts 17.5 full-time equivalent general government positions, or 23 fewer positions than FY09, for an 11 percent reduction in the workforce.  It also requires employees to pay for increased health insurance and pension costs, eliminates the deferred compensation match and reduces tuition assistance.

Police patrols will not be cut back.  Two supervisor-level positions, including the emergency management coordinator, will be filled through internal promotion and outside recruitment.

Funding for urban forestry, library materials and databases, technology equipment and special events will be reduced, as will funds for printing of brochures, flyers, and other Communication Office publications.

The Pendleton House, a former group home, will be sold.  This sale will contribute substantially to the restoration of the City’s fund balance.

GEORGE bus service will continue at least until fall to allow time to develop options for alternative funding streams and operations.

City refuse collection will be out-sourced.  Street sweeping will be less frequent.

The Mary Riley Styles Public Library will close on Sundays and hours during the week will be reduced, as will hours of operation at the Community Center.

The July 4th celebration for 2011 and the Watch Night Celebration for Dec. 31, 2010, have not been funded.

Recreation and Parks program fees and building permit fees will increase.  The City’s contribution to the Falls Church Housing Corporation will be reduced.

Mr. Shields’ slide presentation on the budget is available at the City website.

By GEORGE BROMLEY
Falls Church Times Staff

April 23, 2010

At literally the eleventh hour the Falls Church City Council last night concluded a marathon work session by tentatively agreeing to a 17-cent tax increase for FY 2011.  The Council also raised the City’s projected fund balance to $8.2 million, slightly above its target level.

The Council now appears likely to approve a tax rate of $1.24 after a final public hearing next Monday evening.  City manager Wyatt Shields’ proposed budget had called for an even higher rate of $1.27 for every $100 of assessed value, which would have been a 20-cent boost over FY 2010.    The 17-cent increase tentatively agreed to by the Council is likely the largest in Falls Church City’s history and one of the highest in the area.  On Tuesday, Fairfax’s Board of Supervisors raised the County’s tax rate five cents to $1.09 for FY 2011.  Arlington County has advertised a tax rate of 96.5 cents for CY 2010.

The Council also agreed to sell the Pendleton House, but not the adjacent lot.  The sale is projected to earn $600,000, but that estimate may be conservative as several area realtors have estimated the property would sell for considerably more.

The Council decided to retain the $426,000 “school adjustment” received from Richmond, allocating $326,000 to operations and the remainder to fund balance restoration.  Vice Mayor Hal Lippman did not concur with the decision.  The School Board had hoped to receive the entire allocation.

GEORGE bus service was funded only through September.  The fate of the service will be one of the first issues facing the Council when its new term begins on July 1.

Sensitive to public safety issues, the Council decided to retain the police positions of community resource officer, records clerk, and parking enforcement officer.

Library hours will not be reduced but periodicals and data base subscriptions will be cut back.  Special events such as the Easter Egg Hunt and the Halloween Carnival have been dropped.

The Council’s final deliberation and adoption of the FY 2011 budget begin at 7:30 pm, Monday, April 26 in the Council Chamber at City Hall.

By GEORGE BROMLEY
Falls Church Times Staff

April 20, 2010

With its deadline only one week away the Falls Church City Council last night continued its efforts to trim as much as five cents off the proposed tax increase for FY 2011.   City Manager Wyatt Shields’ proposed budget calls for an increase of 20 cents on each $100 of assessed value.  The current property tax rate is $1.07.

The Council’s work session produced no definite conclusions but a list of potential cuts gradually emerged.  After lengthy discussion, Mayor Robin Gardner reviewed the following list of items for consideration.

GEORGE Bus Service -  The buses would continue running after June 30, but service may be further curtailed.  The Council briefly discussed the question of “decommissioning” the buses by giving them to Arlington.

Pendleton House and Adjacent Lot -  Sale of one or both properties now appears more likely though some councilmen have been lukewarm at best.

Recycling or Solid Waste Carts -  Implementation of one or the other may be deferred, saving perhaps $30,000.

City Library -  Service cuts (e.g., fewer periodical subscriptions) appear more likely than cuts in hours of operation, such as closing earlier on Friday.

Falls Church Housing Corporation -  Potentially a cut of  $20,000.  The mayor noted that the City would have to review its agreement with FCHC before making a decision.

City Positions -  Possible cuts include Human Services program analyst (part time), contracts manager (now vacant), Recreation and Parks administrative assistant (from 40 to 33 hours),  FCPD records clerk, community services officer (now vacant), and parking enforcement officer.

Mentoring Program -  Maintained by Court Services, the program pays for mentor training and placement of mentors with youths.

Special Events -  Potentially $55,000 in reductions, in addition to those already cancelled, such as the 2011 fireworks.

Information Technology -  Some members expressed concern about deferring maintenance or replacing equipment or software, but the $170,000 budget likely will be trimmed.

Constitutional Offices -  Mr. Webb called for a breakdown of costs and suggested that the Sheriff’s Office’s reductions could be larger and more in line with those offered by the Treasurer’s Office and the Commissioner of Revenue.

Urban Forestry and Landscaping -  The current budget calls for $600,000 and four positions, which seems high.  Mr. Sze stated he was not sure what Urban Forestry does.

Highways, Streets, & Sidewalks -  The general view was that the City could reduce upkeep in the short term.

City Council Contingency Fund -  Likely to be cut in half to $7,500.

Employee Compensation, Deferred Compensation, Tuition Assistance -  The mayor stated any decisions would need to consider how many employees would be affected.

The Council also discussed how to distribute the Commonwealth’s unanticipated $426,000 contribution to the schools.  School Board Chairman Ron Peppe, who attended the session, stated that it was the Board’s position that the money should be used to increase the contingency fund and support maintenance needs.   Vice Mayor Hal Lippman suggested allocating $200,000 to the schools and the remainder to the City, primarily to improve its fund balance.   Councilman Nader Baroukh pointed out that directing all or a portion of these funds to the City did not constitute a reduction of the School Board’s request for FY 2011.

There was a brief discussion about raising the City’s meals tax.  Councilman Dan Maller stated that an increase of a half cent or one cent would not have a major impact on restaurant business.  Mayor Gardner suggested that any such increase be designated for a specific purpose, such as school funding.

The City Council will hold its final budget work session Thursday evening.  A public hearing and second reading of the FY 2011 budget will be held next Monday, April 26.

Our second video clip of last Saturday’s Town Hall budget meeting features local businessman Steven Wertime, who told the gathering that he faced a double whammy: higher City taxes and lower business receipts.

Wertime said he learned from his parents after they lived through the Depression: “If you can’t afford it, do without.”

He asked City Manager Wyatt Shields, “At what point does a tax increase become onerous and unfair . . . Are we getting to the point where we’re no longer financially viable?”

Watch the 3-minute video below.

The video is now available of last Saturday’s Town Hall budget meeting, and one snippet worth seeing is the interaction between City Councilman Dan Maller (shown at right) and City Manager Wyatt Shields.  Maller stated that “at least 10 cents of the tax increase is not to provide services but to restore the fund balance.” Whether now is the right time to impose that cost on taxpayers is something that needs to be discussed, he said. Shields countered that in fact only 2 cents of the tax increase would go to the fund balance. “Those numbers don’t add up,” Maller responded, blaming the confusion on the fact that the upcoming tax bills due in June will charge the FY 2011 rate, but be counted in FY 2010.

Watch the 4-minute video segment below.

April 13, 2010

Twenty residents and public employees spoke their minds at last night’s City Council hearing on the FY 2011  budget.  Most favored the preservation of  specific programs and the continuation of current levels of service.  The turnout and the tone were in sharp contrast to that at last Saturday’s Town Hall session where comments were more evenly divided between those opposed to or in favor of a substantial tax rate increase.

City workers led the charge.  Library employees first spoke in support of their institution, followed by workers from several government departments.   Barbara Fowler of the Commissioner of Revenue’s office summarized the employees’ consensus, stating ”cutting the budget will impair our ability to serve the citizens of Falls Church.”

Several residents implored the Council to retain the part time position of the Cherry Hill coordinator, elimination of which would necessitate closing the facility.  Councilman Dave Snyder endorsed their comments, noting that the site frequently receives positive mention in local media.

Sharon Scholler stated she supported whatever level of  tax the  Council believes is necessary to preserve the schools and the City’s core values.  After noting that the schools had cut $2.7 million in the last two years she stated the cost per pupil for the upcoming year would be $17,158, an amount which includes federal and state assistance.  She said the cost per pupil to the City would be $13,712.  Ms. Scholler recommended the Council maintain the library’s current hours and keep the Senior Center open.

One resident echoed some of the speakers at the Town Hall.   John Gonda observed that “world class schools require a world class city.  We’re beginning to see the effects of the budget cuts on City staff.  Without equal pain it’s likely the City will go away within a decade –no City, no City schools.”  He asked the Council “to do as the city manager has proposed and balance the pain across all sections of  the City.”

Falls Church News-Press editor and publisher Nicholas Benton asked the Council to continue to pay for publication of the weekly double-page FOCUS in his newspaper, calling it an “amazing bargain,” since the City pays only one-third the retail cost for News-Press advertising.  Last year the City paid the News-Press $57,000 to print news of the City and the schools in the FOCUS pages. Benton endorsed the proposed tax rate, stating he saw it more as an investment than a tax increase.

Former Planning Commissioner Maureen Budetti said she was moved by the employees’  testimony and encouraged the Council to “give their remarks careful consideration and be as creative as you can to either spread the pain or do whatever you can do to maintain the highest level of service.”  She stated that some of the decisions made in the recent past have been costly to the City but did not elaborate, though she noted “the GEORGE bus pales to some of those big ticket items.”

Council candidate Barry Buschow suggested tearing down the Pendleton House and adding the property to the adjacent park.  He was skeptical that the tax rate could be reduced to 15 cents.  “It looks like 18 to 20 cents is going to have to happen .  .  .  let’s save jobs not buses.”

After the public hearing City Manager Wyatt Shields asked the Council to correct a typographical error and vote again to advertise the tax rate at $1.30 for every $100 of assessed value.   A document had incorrectly listed the rate at $1.03, and Mr. Shields, who compared the situation to President Obama’s re-taking the oath of office, recommended the action after consultation with City Attorney John Foster.  The Council then voted to approve the intended rate 5-2, with Councilmen Snyder and Nader Baroukh again dissenting.