November 26, 2014
Results of the Fairfax County
Budget Forecast Meeting
To the FCTA board members:
Yesterday, Jim Ruland and I attended a budget forecast 2 and ˝ hour meeting at Fairfax County Government Center. All of the Board of Supervisors including the Chairman, all of the School board, Ed Long, the County Executive, Susan Datta, CFO and Director of OMB, Susan Quinn, COO of the School system, School Superintendent Karen Garza, Kevin Greenlief, Director of Tax Administration and a raft of other important Fairfax County officials. Besides county officials, over 100 people were crowded in the conference room. No comments or questions were allowed of the citizens and there were over a dozen different handouts which were distributed sparingly. I have two sets of the handouts. Briefly, here is the presentation:
OVERVIEW BY ED LONG, COUNTY EXECUTIVE: Mr. Long presented a bleak picture for the FY 2016 and FY 2017 Fairfax County General Funds and School Funds. We are currently in FY 2015 for this fiscal year that ends 30 June 2015. He mentioned economic uncertainly contributing to restrained revenue growth. This has resulted in continuing impact of Federal Government sequestration, slow job growth, very weak commercial market including the fact that the commercial market now has the highest vacancy rate since 1991, and lower than projected residential values.
His projection for the next fiscal year for residential property to increase by only 3%. He mentioned that many unmet needs and investment requirement pose a major fiscal problem. Combined with increasing spending requirements, the County is facing budget shortfalls of $100.1 million for FY 2016 and $79.3 million for FY 2017. Mr. Long stated that Fairfax County has cut 653 positions since 2008.
LOCAL ECONOMY, LABOR MARKET, and the HOUSING MARKET: According to Mr. Long, the local economy is underperforming as the job market has slow growth of only 4,900 jobs as of 9/30/14 compared to a year ago. Northern VA. job growth is 0.4% vs. 2.4% prior to the recession. The cornerstone of jobs, i.e., federal government and professional jobs and business services are losing jobs in this county to the tune of 8,200 in the last 2 years and a loss of 4,700 Federal Government jobs. October was the 8th consecutive month with year-over-year decline in house sales which has fallen from 12,719 to 11,340, a 10.8% decrease.
The supply of homes on the current market puts downward pressure on prices as average monthly listings through October of 3,045 up 46% over last year and a 3.7 month supply of homes for sale up from 2.5 month supply as homes are taking longer to sell at an average of 55 days in October compared to 35 days last year. Home prices are rising very slowly. To about 1% over a year ago.
COMMERCIAL REAL ESTATE and other REVENUE CONDITIONS: The stalled labor market impacts non-residential property values. The office vacancy direct rate is 15.2% ( I thought it was 19%?) and 16.5% with sublets. Countywide office asking rental rates are flat over last year. The commercial vacancy rate is the highest since 1991 which means that the residential real estate will have to fill the void. As there are around 170,730 residents to tax, this number is down from 2008 which there were 176,500 residents. Residential values will still be 3.3% below the peak values of 2009. Real estate growth (revenue) is expected to increase 3% for FY16 and 3% for FY17. Personal property is expected to grow only 1% in both FY16 and FY17. That is the second largest source of revenue after Real Estate taxes, the third item is sales tax which is expected to grow 2.5% in both FY16 and FY17. The fourth largest is BPOL which is expected to grow only 1.5% in FY16 and 2% in FY17.
According to the speaker, Mr. Harry Klaff, Managing Director of Jones, Lang, LaSalle, compared to other major cities in the USA, the Northern VA. is lagging in commercial occupancy from 2011 to the present as commercial markets have grown in NYC, Chicago, LA, San Francisco, Houston, Atlanta and DC, but the Northern VA. commercial market has DECREASED commercial inventory of 1.6%. I believe that Mr. Klaff stated that Arlington Co. has a 55 to 60% commercial vacancy rate. According to Mr. Greenlief, Director of Tax Administration, commercial real estate of $540,440,277 taxed at $.0109 = a -$5,890,799 (decreased) revenue for the county as of 9/30/14. Assessed values of commercial real estate have decreased the most in Herndon, Reston, Dulles area, Chantilly, Centreville, Fair Oaks, Oakton, Vienna, Tysons (substantial), McLean, Falls Church, Seven Corners, Annandale, Bailey Crossroads, Lincolnia, Franconia, and Springfield.
DISBURSEMENT FORECAST REDUCTIONS - EMPLOYEE PAY & BENEFITS: County disbursements are expected to increase about 5% for FY16 and 4.25% in FY17 due primarily to 3% in operating $53 million in FY16 and $55 million in FY17, capital support $13 million, debt service of $5 million each for both years and support for full-day Monday schools $3 million each for both years. County Pay increases and Benefits of $64.8 million in FY16 and $62.4 million in FY17, Public Safety staffing plan $9 million for FY16 and $11.7 million for FY17, Human Services initiatives $12 million in FY16 and $8.3 million in FY17. According to Mr. Long, county revenue projections do NOT support this level of increased disbursements. County pay is forecast to increase $46 million in FY16 and $41 million in FY17. This would mean an average employee increase of 2.5% in FY16 and 2% in FY17 excluding MRA. As to Employee Benefits, a forecast includes increases of $19 million in FY16 and $21 million in FY17.
BOND RATING CONSIDERATIONS: Currently Fairfax County has a TRIPLE BOND RATING! However, two of the County's ratings will face negative pressure in the next 12 months that may result in a DOWNGRADING. The rating agencies have expressed three areas of concern. Lack of one time balances for FY15 when, in the past, these balances were used to fund recurring expenses in order to balance the budget. Now, none exists!
Second issue, is the woefully lacking of pension funding. As of 30 June 2013, the County's three retirement systems had a 80% combined funding status. The Board approved over $9 million in additional funding in FY15 Adopted Budget. The County's goal is to reach 90% funded status for all plans by 2025 and 100% in 2030 (If you believe that, I got some land in FLA to sell you!)
The third item is that the County's reserves are lower than those of other Triple AAA rated jurisdictions whereby Montgomery Co. MD., Arlington Co., Loudoun Co., all have higher general fund balances (reserves) than Fairfax County. According to Chairman Bulova, the staff will send a letter to the three rating agencies in January 2015 demonstrating the Board's commitment to addressing these three serious concerns.
SCHOOL OPERATING FUND AND BUDGET: According to the speaker, Superintendent Karen Garza, Fairfax County school system is the 10th largest in the USA. During FY15, the school population will reach almost 187,000 students. In FY15 the Special Education has 25,700 students or 13.8%, English for Speakers of Other Languages (ESOL) is 32,000 students of 17.2%, students eligible for Free or Reduced Price Meals is around 52,700 students or 28.2%. All of these numbers have INCREASED since last year. Since 2008, the Fairfax County Public School (FCPS) enrollment increased by around 22,000 resulting in increased costs of more than $190 million. Since 2008, class sizes has increased 3 TIMES resulting in an increase of 2 students per teacher.
According to Mrs. Garza, budget reductions since FY 2009 through FY 2015 have been a cumulative $434.9 million. She said that pay was frozen in FY 2010 and FY 2011 and no step increases were given in FY 2010, FY2011, FY2013 and FY2014. She stated that employee salaries are a division wide priority and the FCPS are behind in competiveness in this region. Specifically, she stated that for salary comparisons that Fairfax County was second LOWEST in Maximum Teachers Salaries now set at $100,898. Arlington has maximum salary of $111,260, followed by Prince William Co. at $109,609, followed by Alexandria City at $107,259.
As for Starting salaries, Fairfax County is in the MIDDLE at $446,756 with Falls Church at the highest at $48,500 followed by Arlington at $48,228, followed by Loudoun Co. at $47,500. Teachers Salaries Beginning 10th year + Masters Degrees shows Fairfax County NEAR the BOTTOM at $61,253 with Arlington at $77,093, followed by Alexandria at $76,626, followed by Falls Church City at $68,541. (Of course, she does NOT present the whole picture that the FCPS has one of the most generous RETIREMENT SYSTEMS and FREE MEDICAL!).
The forecast for FY16 is $2,579,700,000 total projected expenditures which represents an INCREASE of $82 million over FY15 approved amount of $2,497,700,000. The projected DEFICIT for FY16 is $117 million with a county transfer of 3% reducing that number down to $63.9 million.
Mrs. Garza stated that she has heard many complaints from parents of elementary school children about the larger class sizes. Also she stated that student technology and connectivity is lacking and the need to access technology and the internet at school and at home in order to learn and to compete in this world is a problem. Recurring funding is needed to reduce long-term costs for preventive and major maintenance as well as replacement of equipment such as computers, school buses, and vehicles. Health insurance cost are expected to increase by 6% annually.
VIRGINIA RETIREMENT SYSTEM (VRS): According to Mrs. Garza, the VRS contributions will have to increase from 80% to 90% of the actuarial rate. The VRS rates were artificially lowered in FY2011 to help balance the state budget. However, the state law requires fully funding the actuarial rate by 2019 to 2020. VRS funded status for teachers as of 6/30/13 was 62.1%. The County is going to be forced to kick in more money to VRS as VRS has been underfunded for some years. Keep in mind that the VRS has over a $20 billion unfunded pension liability!
I could go on and on but I will stop at this juncture. I am sure that Jim Ruland can add some of his comments to this missile of mine. The bottom line is for Fairfax County’s budget is BLEAK to say the least. Guess what it will do to our real estate increases?
-- Chuck McAndrew, Fairfax County Taxpayers Alliance board member