In just a few weeks, Fairfax City Manager Rob Stalzer will present his proposed FY 22 budget. But first, at the City Council’s Jan 5 work session, he gave his quarterly review of the FY 21 budget,
Because of the pandemic, he’d had to dramatically revise the current budget to accommodate potential revenue losses and provide the City with the necessary tools and flexibility to deal with a rapidly changing situation. To offset a possible, lengthy economic downturn, Stalzer significantly streamlined the City’s operating and capital budgets, while freezing funds for many initiatives and placing them in reserve.
“We’re not out of the woods,” he told the Council. “But we’re slightly, cautiously optimistic, based on the trends we’re seeing.”
Chief Financial Officer Dave Hodgkins explained that, regarding Fairfax’s meals tax, “A lot of our restaurants have experienced losses. But our grocery stores have picked up the slack and made up some of the difference.”
AS FOR SALES TAX REVENUE, he said, “Overall, we’re doing much better than anticipated and almost just as well as pre-COVID. And the same goes for the use tax because of how well the grocery and hardware stores did.”
Christine Johnston, director of Real Estate Assessments, discussed the FY 21-22 real-estate outlook. “The residential, real-estate market continues an upward trend,” she said. “And residential, real estate makes up 65 percent of the City’s overall $6.5 billion real-estate tax base.”
However, she said, “Commercial property declined, and the vacancy [numbers] could be as much as 10 percent higher than last year. And rent has dropped in the retail sector.” Nonetheless, said Johnston, “We’re looking at a very healthy tax base, going into this [upcoming] budget session.”
Hodgkins said the City ended 2020 with a balanced budget and a slight surplus. “To balance the budget, we had to cut our [employees’] compensation and fringe benefits, freezing some positions and eliminating temporary labor. For FY 21, we expected a significant decrease in revenues, so we decreased our expenditures.”
“We now have an estimated surplus, although we still have a way to go before this fiscal year ends,” he continued. “Our sales-tax numbers are much greater than were budgeted, and our meals-tax numbers are more than $1 million higher than our worst-case estimate. So FY 2021 is currently projected to end with a $2.4 million surplus, assuming our assumptions for the next six months hold true.”
Hodgkins also noted that development is continuing and has not slowed down significantly. Therefore, he added, “We hope to bring a balanced budget to the Council for FY 22, without recommending any real-estate tax increase. And we expect to start generating a surplus – a lot of it from development activity in the City.”
“Our residential tax base is almost twice our commercial tax base,” said Mayor David Meyer. “I hope commercial uses will increase.”
“Most of the development has been mixed-use,” replied Johnston. “So we may see a little bit of a shift.”
Hodgkins also showed a chart listing items in three categories – FY 21 Initiatives/Increases, Operations and Personnel – that were left in reserve to reduce the FY 21 budget shortfall, but not removed from the budget. He then indicated which items “we believe are most critical” to take out of reserve. Altogether, they total $1,462,500.
STALZER said that, even if that entire amount was restored to the budget, “We’d still have roughly a $1 million surplus.” Included is a partial thawing of a hiring freeze that the City had to implement. Said Stalzer, “We’ve got two to three dozen [personnel] positions in some state of being frozen that we’d like to look at.”
Councilmember Sang Yi said he hoped the $1 million surplus could be used “to reduce the next real-estate tax rate for our residents because they, too, have been suffering, on various levels.”
Even if all the funds held in reserve are restored to the current budget, said Meyer, “It doesn’t mean they’ll necessarily be all used up by the end of this fiscal year, June 30. And then we could consider where in the FY 22 budget to apply them. For example, our City employees didn’t receive a pay adjustment, at all, this year.”
Councilmember Jon Stehle praised the results the City achieved by placing the items in reserve “to help close a projected, nearly $18 million, FY 21 budget shortfall.” The Council then gave a thumbs-up vote approving all the previously reserved items that Hodgkins and Stalzer recommended for restoration to the current budget.
“This was a helpful exchange of opinions,” said Meyer. “[City] staff now has our guidance on these matters going forward.”