February 8, 2003
Mr. Paul Ferguson, Chairman
and County Board Members
Arlington County Board
2100 Clarendon Boulevard, Suite 300
Arlington, Virginia 22201
Dear Mr. Chairman and Members of the Arlington County Board:
I am pleased to submit to you the proposed annual budget for Fiscal
Year 2004. This proposed budget has been developed in an economic
climate where many local and state governments -- in Virginia and across
the nation -- are facing major service reductions. The federal budget is
also in a deficit.
Given this economic environment, Arlington is, indeed, fortunate to
consider a balanced budget that meets the following objectives:
- Full funding of the revenue sharing agreement with Arlington
County Public Schools, providing an increase of $20.1 million for a
total local commitment to education of $253.3 million (a nine percent
increase).
- Fulfillment of all multi-year subject-to-appropriation contracts.
- Full year funding for strategic options approved in FY 2003 for
affordable housing, fire services, local transit, and the environment.
- Commitment to Arlington as an Employer of Choice, with sufficient
funding to maintain employee step increases, healthcare, retirement
benefits, and a competitive pay plan (details to be presented in March
2003).
- Funding for the re-opening of the Langston-Brown Recreation Center
and the opening of the new Powhatan Springs skate park.
- Investment in the County’s infrastructure through the allocation
of $9.0 million in non-recurring funds for the Pay-As-You-Go Capital
Program.
Current Tax Rates Maintained
This budget proposal is balanced within current tax rates and has
been prepared in accordance with sound financial practices, avoiding the
use of one-time funds or other quick fixes to support ongoing
operations.
At a time when some jurisdictions are drawing on their rainy-day
funds to balance their budgets, Arlington’s proposed budget added $1.0
million to its General Fund Reserve—consistent with the County’s policy
to maintain a two percent balance. As proposed, our rainy-day fund will
stand at $13.6 million.
The maintenance of current service levels and policy commitments
within existing tax rates is made possible by the following factors:
- An extremely strong real estate market. The County’s real estate
values grew 15.2 percent over the past year, reflecting Arlington’s
highly desirable location in the Washington area. Increases were not
consistent across all sectors, however, with residential single family
values surpassing commercial values at 17.3 percent versus 8.6
percent.
- Recovery of the hospitality industry. The transient occupancy tax
(hotel tax) and meals tax have recovered strongly since the closure of
Reagan National Airport in the aftermath of the attack on the
Pentagon. Transient occupancy taxes are expected to increase by 12.5
percent; meals taxes are expected to grow 7.2 percent. Together, these
two taxes make up less than 7 percent of the County’s tax revenues.
- Access to additional federal funding to support critical human
services needs. Arlington’s historically strong commitment to human
services and its unique integrated system have enabled the County to
access over $5 million in federal funds through the state. This
revenue source has enabled Arlington to avoid major service reductions
in the human services area from recent state budget cuts and to
consider meeting critical needs in the strategic initiatives outlined
below.
- Prudent decisions during the growth years of the past decade to
limit both service expansion and tax reduction.
- Maximizing revenue diversity to the extent permitted by law.
Financial Constraints
In addition to the general economic factors discussed above, several
external forces have limited the ability of the County to expand
services or consider tax rate reductions: state budget reductions, a
dramatic increase in insurance costs and liability claims precipitated
by the September 11, 2001, terrorist attacks, and flat growth in major
tax sources.
- State budget reductions. The state has reduced funds to
local governments three times in the past year. Details regarding
additional cuts will not be known until the end of the current session
of the Virginia General Assembly. The proposed budget reflects a $2.8
million reduction in state funding for FY 2004. Cumulatively, the
County has experienced a reduction of $5.1 million over two fiscal
years. These state revenue losses have been offset by $0.7 million in
federal human services grant funding, $0.5 million in other revenues,
and $0.9 million in reductions in a variety of departments receiving
state support through internal process re-engineering, keeping vacant
positions unfilled, and reducing discretionary operating funds
wherever feasible.
- Post-9/11 impacts. Insurance costs have risen sharply for
all sectors following losses from the 9/11 terrorist attacks. The
proposed budget includes a total of $1.3 million for insurance costs
(including Worker’s Compensation), which represents a 34 percent
increase over the current fiscal year.
- Flat Growth in Major Tax Sources. After several years of
strong growth, revenues from personal property taxes are projected to
decrease slightly in FY 2004. Personal property taxes, which include
taxes on cars and business property, are the second largest source of
tax revenue in Arlington (after real estate taxes) and make up more
than 15 percent of tax revenues. Contributing to the decrease is a
reduction in the value of used cars. Sales taxes are also flat,
projected to grow by only 0.9 percent. An update on sales taxes in
February will capture holiday sales. Sales taxes make up more than 5
percent of tax revenues.
The proposed budget is based on the best information currently
available regarding revenues; however, this information is incomplete
and is subject to revision over the course of budget deliberations. We
will reassess revenues with particular emphasis in three specific areas:
additional state funding cuts; the Business, Professional and
Occupational License (BPOL) Tax; and the Personal Property Tax.
- Additional State Funding Cuts: Final decisions emanating
from the current legislative session will not be known until late
March.
- Business Professional and Occupational License (BPOL) Tax:
The County’s BPOL tax revenue estimate presented in this proposed
budget is conservative. Since approximately 90 percent of the BPOL
revenue is collected from February through June each year, there is
not enough quantifiable data at this time to support a revenue
estimate change. Adjustments will be made to the revenue re-estimates
at the mid-year or third-quarter reviews.
- Personal Property Tax: This tax is also experiencing a loss
of revenue growth due to a decrease in the value of cars registered in
the County and the value of business tangible property.
Strategic Initiatives
The proposed budget includes recommendations for the County’s first
Living Wage policy. Two phases of implementation are offered. The first
phase would be to ensure that County employees receive a living wage.
The cost to implement this phase is approximately $0.2 million. The
details will be included as part of the compensation plan to be
presented in March and would be funded from the compensation contingent.
The second phase would ensure a living wage to in-home service
providers, who serve the most vulnerable of the County’s residents,
enabling them to live safely within their homes and avoid institutional
placements. The cost of this effort is approximately $0.7 million and is
proposed for funding within the human services strategic initiative
outlined below. Funding of a living wage for in-home service providers
is a priority to be funded with available federal funds.
The third phase of the living wage would extend to contractors;
however, due to current financial conditions, it is not recommended for
Fiscal Year 2004.
Beyond the Living Wage recommendation, current revenues do not
provide for new initiatives that require additional tax support.
Self-funding initiatives that would further the County’s commitment to
economic sustainability, transportation, human services, and
neighborhood conservation are being recommended for consideration.
- Economic Sustainability: The Economic Sustainability
strategic initiative includes two components: The Rosslyn Business
Improvement District, supported by the creation of a special taxing
district; and the development of the Arlington Conference Center,
supported by an increase in the transient occupancy tax.
- Transportation: The Transportation strategic initiative
addresses the transportation needs of Arlington’s urban environment
related to pedestrian, transit and parking issues. Funding for the
transportation initiative is recommended through an increase in
parking meter rates.
- Human Services: The Human Services Grant Allocation
strategic initiative includes federal funding for critical human
services needs. Of the available funds not previously committed, 50
percent are recommended for supportive housing initiatives (including
a living wage for in-home service providers). The remaining funds are
proposed for prevention and early intervention programs, language
access, behavioral health services and technology.
- Neighborhood Conservation: The Neighborhood Conservation
strategic initiative proposes the addition of staffing necessary to
support the increased number of projects that will be generated from
the FY 2002 Neighborhood Conservation Bond, as well as to reduce the
backlog of current projects.
Unfunded Priorities
While proposing a balanced FY 2004 budget that maintains current
levels of service and other County financial obligations is a major
accomplishment, the Board may want to consider other priority areas
should additional funding become available. Details on these unfunded
priorities would be provided in the event that mid-year or third-quarter
estimates of revenues are more favorable. Any consideration of these
priorities, however, will have to be balanced against any change in the
property tax rate.
These priorities include: housing grants for homeowners; affordable
housing investment; environmental health; Real Estate Assessments
staffing; administrative support for the County Board, Communicable
Disease Program, Emergency Communications Center, and Cultural Affairs
Office; art grants, and the third phase of a living wage policy.
Arlington Counts!
Accountability and Performance Measurement
In an ongoing effort to demonstrate prudent use of County resources,
we have implemented Arlington Counts!—a three-year initiative that will
enhance Arlington’s performance measurement system. Phase one of
Arlington Counts! was initiated this year by engaging in a rigorous
review of all departmental and program mission statements to ensure that
they reflect the societal and customer needs they were created to
address. Departments have revisited their performance measures to ensure
that they have identified outcome measures and provided results that
will demonstrate the degree to which they are achieving their mission.
Where historical data were not available on some of the newly-identified
measures, data collection will commence in FY 2003. This first phase
will enable us to ensure that we have clear alignment with resource
allocation and the County Board’s priorities. Phase 2 will focus on
customer responsiveness and employer of choice factors.
Conclusion
Arlington benefits from a long history of financial integrity and the
highest possible reputation in the financial community. The Fiscal Year
2004 Proposed Budget seeks to continue this enviable tradition.
Ultimately, the issue before the County Board and the community is one
of balancing many competing interests. The extensive community debate on
the proposed budget and the detailed budget reviews by the County Board
will lead to a number of changes as priorities emerge. It is through
this deliberative process that the County has created its financial
reputation and advanced its vision of a world-class urban community.
Sincerely,
Ron Carlee
County Manager
