Halfway There with Alexandria Budget

Halfway There with Alexandria Budget

Almost everything to know about the city budget so far.

The city is about halfway through deliberating the proposed FY2018 budget. Here’s a survey of the ground covered so far. Dominant themes that have emerged include long-term health of infrastructure and of collaboration between the city and Alexandria City Public Schools (ACPS).

Feb. 21: Proposed Budget Presentation

City Manager Mark Jinks formally proposed his budget, culminating a process of engaging citizens, city staff, and City Council.

Despite “anemic revenue growth and increasing expenditure demands,” Jinks said his proposed budget will “help … keep our community in sound social, economic, and physical condition.”

Jinks’ proposal consists of two main components. First, the annual operating budget pays for the city and schools personnel, services, and debt. Jinks proposed an all-funds grand total of $874 million. That’s a 2.5 percent increase over last year, owing in part to ACPS’s operating request, of which Jinks proposed to fund 99 percent.

Second, the 10-year Capital Improvement Program (CIP) — of which the annual capital budget constitutes the first year — pays for major, multi-year infrastructure projects. Jinks proposed $2 billion through FY2027. That’s a 20 percent increase over last year, owing mainly to overhauls of sewers, Metro, and ACPS and city facilities. Mayor Allison Silberberg called this combination “a bit of a perfect storm.” The state and feds mandate sewer improvements. Jinks supported WMATA’s requested subsidy, saying, “Metrorail is our economic lifeline.” He proposed funding 61 percent of ACPS’s $611 million CIP request, saying, “[W]e can’t afford the whole thing.”

Jinks also presented a $325 million “supplemental” CIP. It provides unfunded alternative options for the council to consider. About two-thirds have to do with ACPS, one-third with an array of other projects — for example, affordable housing and a new swimming pool.

To balance the budget, Jinks proposed increasing the real estate property tax rate by $0.027 (2.5 percent), increasing various fees, and bumping up the city’s debt ceiling.

“I think the staff has left no stone unturned and … so there is no more fat,” said Councilman Tim Lovain. “And that’ll be the challenge as we go forward.”

Feb. 21 – Work Session #1: Revenues, Compensation and 5-year Financial Plan

Morgan Routt, the city’s director of management and budget, outlined noteworthy sources and changes in Alexandria various revenue streams.

The city generates half of its revenues through real estate taxes. Over the last six years, new construction has added $20 million annually in new revenue. The proposed $0.027 increase would add another $10 million. Alexandria’s tax rate — residential and commercial — would remain lower than other Northern Virginia jurisdictions in all but one case. Altogether, the proposed tax and fee hikes would cost homeowners an average $300 extra per year.

The proposed 30 percent increase on the Sanitary Sewer Maintenance Fee generated much discussion. The increase would pay for improvements to the city’s four “combined sewer” (storm water plus wastewater) outfalls into the Potomac. The rate “is expected to increase by double digits annually,” said Routt’s presentation slide — a total increase of 500 percent by FY2027.

Participants debated the pace increase. Jinks recommended “proceed[ing] with all deliberate speed” in order to buy good will with the state. Rather than a gradual phase-in, Vice Mayor Justin Wilson wanted “one larger increase that is directly attributable to a … potential [state] legislative action .…” Silberberg advocated “a gradual increase” because “for a lot of families this has a huge impact,” which they must plan for. And Councilwoman Redella Pepper feared that too much revenue growth at once might tip the city’s hand, dissuading state subsidization.

Regarding compensation, participants mainly considered a proposed change to the Supplemental Retirement Plan for city employees. Retirees can take their pension as a one-time lump sum. But the city’s current formula provides employees with an unintended and unsustainably high amount. Jinks said that last year around 70 retirees received an average lump sum of $200,000 each — $14 million total. This payout depleted more than 10 percent of a fund that needs to support as many as 1,500 retirees. So Jinks proposed amending the formula to yield smaller lump sums. “We need to make this change because the system is hemorrhaging monies and will not be financially stable if we leave this in over the long-term,” said Jinks.

Regarding the city’s five-year planning model, Routt noted that expenditures are growing about twice as fast as revenues. The model projects a shortfall as high as $72 million through FY2022. “This is one thing that we’ll want to be mindful [of] as we move through the budget process and we’re making final decisions. We have tried to take long-term sustainability into consideration in making some of the decisions that we made going into the budget,” said Routt.

Feb. 28: City Debt Policy Update

Kendel Taylor, the city’s finance director, outlined proposed amendments to loosen the city’s debt policy. More borrowing would enable spreading the cost of more CIP projects over time.

Alexandria is one of a handful of cities nationally that gets a AAA credit rating. “The rating agencies base their determination on our economy, our tax base, our overall finances, fund balance, city management, as well as our pensions and our debt,” said Taylor.

Because certain infrastructure is “self-supported” through fees, “we’re actually over-conservative with how we’re looking at our debt,” said Taylor. So Jinks proposed that the limit for “debt as a percentage of fair market real property value” increase from 1.6 percent to 2.5 percent. He also proposed that “debt service as a percentage of general government expenditures” increase from 10 percent to 12 percent. His proposed CIP would cause these ratios to rise as high as about 2.1 percent and 10.5 percent, respectively — above the current but below the proposed ceilings.

Several council members praised the increase. Wilson noted the “hidden debt” in delaying capital projects. Their costs “go up at a rate that … exceeds the cost that the city pays to borrow .…”

Responding to discussion about leftover debt capacity, Jinks cautioned: “The future that far out has so many unknowns that leaving room is important.”

Silberberg reiterated another potential revenue source: “We absolutely must hold hands with all the jurisdictions in the area and say that we need a dedicated revenue stream — maybe that one percent sales tax across the region — for Metro.”

March 1: Work Session #2 - Capital Improvement Program

Wilson said, “I want the CIP to be based in firm reality,” summing up “the theme we’ve been talking about the whole night.” Unspecified funding sources — what Wilson called “unicorns” — include, for example, where to find $80 million in dedicated revenue for WMATA.

Discussion also focused on poor cross-communication between the city and ACPS. “We know that we can only fund a certain amount. But … we have not been given … the prioritization of … what [ACPS] can do or what they want to do with their sites,” said Councilman John Chapman. “We have always struggled when we are dealing with a municipal building that is driven by another entity, whether it is ARHA or … ACPS,” said Wilson.

Lovain suggested that a “construction management czar within ACPS,” rather than “one person [in charge] per project,” might streamline the process. He also inquired about increasing borrowing to fund some of the supplemental CIP. “I think we also need to look to the schools for assistance,” he said.

March 8: Work Session #3 - Public Schools

City Council and the School Board addressed inadequate collaboration. ACPS governs itself, though its revenue — 83 percent in FY2017 — mostly comes from the city. City Council decides the overall dollar amount, though not how ACPS uses it. Both sides expressed some frustration with the process.

The city has bristled at the schools’ CIP request. Jinks said that his proposed compromise is still “the largest increase a city manager has ever put forward.”

ACPS thinks its need for “modernization” (renovating existing schools) and “capacity” (building new schools) accrued from long neglect. “[W]e’re saying this every year … because we’re not getting funded each year,” said School Board member Karen Graf. ACPS, already over capacity by more than 1,000 students, projects average enrollment growth of 12 percent through 2022. “[L]ast year we were asked [by City Council] to come forward with, ‘What would it take to close the seating gap?’ And that’s what this proposal does. And it was completely ignored in the city manager’s proposal,” said School Board member Christopher Lewis.

ACPS increased its capital outlook from six to 10 years in FY2012, “at the request of the city,” says its FY2012 CIP. Of ACPS’s first-year appropriation and total CIP requests since that time, the city has funded an average of 96 percent and 74 percent, respectively, according to a March 6 memo from Routt’s office. Annual shortfalls over that period average $1.3 million and $86 million, respectively. On average during that timeframe, the city has funded 99.6 percent of ACPS’s annual operating budget requests.

Both sides expressed a general desire to communicate and collaborate more effectively. “The citizens look at us and they don’t see two bodies,” said Graf. Chapman said “trust still needs to be built,” especially toward seizing joint land acquisition opportunities. ACPS wants to hire a “communications outreach specialist” though Silberberg questioned this addition while the city has shed personnel. Chapman said “a change in process or …procedure” might suffice. Lovain revisited his idea about a school construction czar. Though Lewis expressed “a concern” that the selection committee for such a position might include even one member from the city staff.

Participants made little headway in hashing out dollar figures, agreeing they should meet again.

March 13: Public Hearing

Council heard testimony from 64 residents, 38 of whom spoke in favor of ACPS.

“While I have heard this called ‘the perfect storm,’ that insinuates that we were not able to project this would happen, which I highly disagree with. We’ve watched this ‘perfect storm’ develop for a 10-year period and it should not be a surprise to anyone,” said ACPS parent Marie Randell.

Many told of overcrowding and dilapidation: Crumbling foundations and playgrounds; leaking ceilings and mold; students wearing winter coats indoors because malfunctioning heating; classes in hallways and windowless converted utility and office spaces; bean bags in classrooms because not all students have chairs; students standing in lunch lines so long they barely have time to eat; and shoddy plumbing and flooding when it rains.

Others worried about maintaining economic vibrancy and a sound tax base. “I can tell you firsthand that companies are selecting other jurisdictions with increasing regularity partly due to the inferiority of our public school system,” said commercial real estate agent David Goldstein. “I know we’ve had people complain that raising property taxes or floating a bond is somehow punishing homeowners. But, let’s be honest, people looking to buy a home and businesses looking to relocate pay close attention to the school system,” said ACPS parent Justin Rosario.

Only a few spoke openly against ACPS’s request. Jack Sullivan called ACPS “profligate.”

Other topics ran the gamut. “Investment in affordable housing is an investment in vital infrastructure for this city,” said Michelle Krocker of Housing Alexandria, a coalition. City employees challenged the proposal to change the Supplemental Retirement Plan. The Chamber of Commerce urged haste in building the new Potomac Yard Metro Station. Another speaker said council should quit the project. Others favored funding childcare subsidies, health care for the poor and uninsured, and other human services. Advocates for Alexandria Aquatics pushed for a new pool at the Chinquapin Rec Center. Others supported recreation center activities for seniors.

March 14: Introduce Maximum Property Tax Rates

Discussion focused on a two-part motion from Wilson, which ultimately passed 6-1, with Silberberg voting no. One part set a maximum tax rate of $1.13 per $100 of assessed value. City Council may adopt a lower, but not a higher, rate in the final budget. The three-cent increase over Jinks’ proposal would serve as “a cash capital funding source” for the CIP, said the memo. The maximum rate plus fees would cost homeowners an average $460 extra per year.

The other part directs the creation of a Joint Ad Hoc Alexandria Municipal Facilities Plan Steering Committee. This independent committee — comprising experts in construction, financing, public-private partnerships, etc. — would give dual input to the city and ACPS’s future budgets. It would also advise about using buildings jointly for education and city administration. In a March 18 interview, Wilson said he thinks ACPS is “cautiously optimistic.” Jinks will work out the details and present a comprehensive recommendation in the next few weeks.

“We need to get ourselves to a 10-year capital funding level that is sustainable and then stick to it … And that’s clearly going to require additional revenue,” Wilson said. With respect to ACPS, “It’s got to be so much more collaborative at both the staff level and the policymaker level .…”

Several council members expressed openness to a final tax rate lower than the maximum, though they supported the higher ceiling. “If any individual one of us is committed to a lower tax rate, bring [the council] a real proposal to do that. What are your cuts? … That hasn’t been done in the past,” said Chapman. Several also supported trying a new approach to the city-ACPS interface. “That whole dynamic, that whole relationship, has to change,” said Smedberg.

Silberberg countered: “To have that 5.7 cent increase, on top of the new fees, is a great deal to ask of our taxpayers … I was actually going to suggest … 3 or 3.25 [cents].” Regarding the new joint committee, she said, “I think that we have these other [existing bridging] entities. We’re potentially … adding another layer .…”

“I’d also like to make sure affordable housing is in this conversation,” said Councilman Willie Bailey. Some “say folks are leaving the school system. But how come the school system is overcrowded then?” Pepper agreed, saying, “Everybody here … ran on affordable housing.”

March 15: Work Session #4 - Healthy and Thriving Residents

Council engaged in the first of four sessions, each organized around a budget “focus area.”

Participants discussed sustainability of programs in light of expected federal cuts. “[B]y all the accounts [the federal budget is] going to be pretty devastating across the board,” said Smedberg. “I really do think we have to prepare for this, even if it’s half of what they’ve proposed, it’s going to be major shifts, and some very tough decisions will have to be made .…” The federal budget came out the following day.

Kate Garvey of the Department of Community and Human Services (DCHS) worries about changes to Medicaid, “particularly for behavioral health services reimbursement.”

“Another likely target is transit,” said Lovain, speculating that demands on the city to subsidize WMATA might increase further.

“There are all sorts of areas where we get aid but not enough … to cover what the program is supposed to,” said Jinks. However, because the feds forward allocate funds for certain programs, the city would have more than a year of “lead time” before cuts took effect. In a March 21 interview, Routt said the city is taking a full “inventory” of its federally subsidized services.

“[I]f the community wants a certain level of service … this is why the tax rate is: whatever. … It’s not just schools — … we’ve got a lot of ‘this’ [and] ‘that’ we’re picking up the tab on. I don’t think our community understands that … as well as I think they should,” said Chapman. “I hate to say it, but it’s an easier conversation for the city when someone else pulls the money .…”

The Department of Recreation, Parks & Cultural Activities (RPCA) is moving toward opening recreation centers for specific uses only, but reducing overall hours of operation. “So all the programs still are offered. I’m just trying to operate it differently, in a more efficient, entrepreneurial manner to save tax [dollars],” said RPCA’s James Spengler. Silberberg and Pepper worried about the impact of RPCA cuts, as well as fee increases, on seniors and low-income families.

“It’s an example of some of the things that a lot of our departments are going to have to deal with moving forward,” said Smedberg. “[I]t just sort of states the reality of things.”

Residents can find budget documents, videos, and calendars at www.alexandriava.gov/budget.