Fiscal Year 2004 Proposed Budget

REVENUES
ECONOMIC OUTLOOK AND FY 2004 REVENUE PROJECTIONS

The past two years have seen a significant economic downturn in the national and regional markets. The events of September 11, 2001 accelerated the impact on the tightening of business and consumer spending. In Arlington, certain sectors of the market were affected more than others. The local hotel and travel market suffered the largest declines in revenue. This most significantly impacted the County's revenue in transient occupancy tax receipts, car rental tax and sales tax. However, due to the County's diverse tax base, declines in revenue from one source were offset by increasing revenue in others. The County has continued to see a strong real estate market. Appreciation in real estate assessments has averaged 13.5% over the last three calendar years (CY 2001 – 2003).

Forecasting revenues has been difficult the last two years due to the uncertainty about the economic recession, the recent impact of terrorism, the potential national, regional and local impact of war with Iraq and state budget reductions. The state has been experiencing a substantial budget crisis. For the second year in a row, the Governor has proposed expenditure reductions and funding cuts to offset the loss of state revenue. The state's budgetary problems have significantly affected Arlington's share of state funds. The County provides many services for the state; and for FY 2003 and FY 2004, the County projects a loss of state revenue funding of approximately $5.1 million, not including escalating inflationary costs. In addition, there are several legislative bills proposed in the state's General Assembly that would severely constrain the County's ability to control its local tax authority.

For FY 2004, many tax revenues are estimated below historical averages. However, several local tax revenue sources have shown strong growth in the last few years. Real estate tax revenue, which has been driven by the increasing assessment value of real property, recordation tax revenue from the sale and refinancing of homes, and meals tax receipts have offset declines in other local tax revenues. This phenomenal growth in these sectors is not expected to continue. Interest rates are expected to rise and a slowdown of the hot real estate market is expected. Personal property taxes appear to be leveling off in the current fiscal year and sales tax receipts are below previous estimates. As mentioned above, Arlington has a diverse tax base and the weakness in one area has historically been offset by strength in another. Due to the current economic climate and the uncertainty of the state reducing local funding directly and through legislative constraints, conservative estimates of revenues are forecast for FY 2004.

County budget information compares budgeted revenues and expenditures from the current fiscal year to the proposed fiscal year. Most of the percent changes are calculated this way in the County Manager's transmittal letter and the budget summary charts. The revenue section detail information includes revised estimates of tax revenue for the current fiscal year since these estimates form the basis for the revenue forecasts for FY 2004. Most of the growth calculations in this section, derived from historical trends and other data, are calculated against the revised estimate for the current year. This is necessitated primarily because of the County's assessment of real estate as of January 1 of each year. The value of real estate, determined in the middle of a fiscal year, has a significant impact on the current fiscal year's revenue (since the first payment is due in June, prior to the end of the current fiscal year) and drives the forecast for the subsequent fiscal year. As a result, growth rates in this section will differ from the calculations based on budget to budget comparisons. The revised estimates are more fully analyzed as part of the mid-year and third quarter reviews for both revenues and expenses, and are, therefore, not used directly to forecast year-end fund balance at this time. However, growth from real estate taxes in the current fiscal year forms the basis, together with previously set-aside balances from earlier fiscal years, for projecting year-end fund balance for use in the proposed budget. The revenue spreadsheet at the end of the section includes both the adopted revenue amounts and the revised estimates for FY 2003.

General Fund revenues (excluding fund balance) for FY 2004 are anticipated to increase by 3.7 percent over FY 2003 re-estimates. Given that real estate taxes comprise 48 percent of General Fund revenues, the growth in real estate materially affects total revenue growth. While some increases in the real property base is the result of new construction, appreciation in values of existing real properties is the primary factor influencing the growth in the real estate assessments for calendar year 2003. Tourist generated taxes are projected to increase over the prior years; however another terrorist attack would severely affect this forecast. All other tax revenues are projected to grow at rates similar to the regional inflationary rate.

Overall, Arlington will continue to be fiscally sound and will benefit from its abundant economic, cultural and educational resources. Arlington's unemployment rate remains low and per capita income remains high in comparison to other counties and cities in the nation. Residential properties experience strong market activity due to Arlington's strategic location. Commercial office properties exhibit relatively low vacancy rates attributable to Arlington's commercial development near metro station areas.

TAX COMPETITIVENESS

Arlington County continues to have a tax structure that is competitive with the region and with the nation. The County's $0.993 real estate tax rate in calendar year (CY) 2002 is one of the lowest in the Washington metropolitan area. Arlington's personal property tax rate of $4.40 (effective rate for vehicles is $3.96) is lower than that of the Cities of Alexandria and Falls Church, and Fairfax County. Arlington does not have a residential consumer's utility tax, unlike all surrounding Northern Virginia jurisdictions. Changes throughout the past several years have reduced the business license tax liability for many small and medium-sized businesses. In addition, the Commissioner of the Revenue lowered the depreciation schedule for computer equipment beginning CY 2000 (FY 2001), reducing business tangible tax bills for most businesses. Charts comparing tax rates and tax bills for various Washington-area jurisdictions are found later in this section.

FINANCIAL STANDING

Arlington is one of approximately 20 counties in the United States to be awarded a triple Aaa/AAA/AAA credit rating. In May 2001, Fitch Inc. rated the County's bond credit rating for the first time and awarded Arlington County its AAA rating for the County's bond issues, the highest rating given by the firm. In May 2002, Fitch Inc. reaffirmed the County's AAA credit rating. Moody's Investors Services also confirmed in May 2002 that Arlington would maintain a rating of Aaa, a rating the County has held with the firm since 1978. Standard & Poor's announced in May 2002 as well that Arlington would maintain its AAA rating, a rating the County has held with S&P since 1989. With a triple Aaa/AAA/AAA rating, this validates that Arlington's financial position is outstanding and reflects the continued growth of high wage jobs in the technology, communications and financial services sectors, high per capita retail sales and strong operating reserves.

PROPOSED TAX RATES, USER CHARGES AND PERMIT FEE CHANGES FOR FY 2004

The following changes have been proposed for FY 2004 and are reflected in the Proposed Budget revenue totals.

In the General Fund, changes in several departments are reflected in the department revenue narratives and the General Fund total revenues. These include the following actions:

• In the Department of Public Works, decrease the Chain Bridge Road Service District tax rate 3.9 cents to $0.087 for each $100 of real estate assessment value. This tax is imposed to fund the repayment of the extension of a sanitary sewer line along Chain Bridge Road. This service district tax rate is in addition to the real estate tax rate.

• In the Department of Environmental Services, increase the household solid waste rate by $4.68 to $232.60 per year. The fee is charged per refuse unit and is set to recover the full cost of refuse collection and disposal, including administrative costs.

• In the Department of Human Services, increase the maximum fees to the Madison Adult Day Health Care Center from $68/day to $69/day, and the minimum program fee from $3/day to $5/day.

• In the Department of Human Services, increase the fees for the Services for Continuing Independence dinner program. It is proposed that the sliding fee scale be increased from $35/month to $40/month for the minimum fee and from $100/month to $105/month as the maximum fee.

• In the Department of Human Services, increase the food establishment license application processing fee from $40 to $60. The proposed increase will partially offset the state's reduction in funding allocations.

• In the Department of Community Planning, Housing and Development, increase the certificate of occupancy fees and the subdivision plat review fees. These fees vary based on the type of construction and are charged with the review of all building permits for compliance with the Zoning Ordinance.

• Increased recreation services fees for summer and holiday camp programs, preschool, swimming memberships, recreation fitness center memberships, and rentals for facilities. The increase will cover the direct costs of running the programs in the Department of Parks, Recreation and Community Resources. A detail of the program increases and proposed fee changes can be found in Section L of the proposed budget.

In the Utilities Fund:

• Increase the water/sewer rate from $4.70 to $5.30 per thousand gallons.

The proposed Strategic Initiatives include revenue that is not reflected in the base budget for FY 2004.

• Rosslyn Business Improvement Service District proposed tax rate of $0.048 to fund additional services in the downtown Rosslyn area. This service district tax rate is in addition to the real estate tax rate.

• Increase the County's transient and occupancy tax 2.0%, from 5.25% to 7.25%. In the spring of 2002, the General Assembly passed enabling legislation allowing Arlington to increase its transient occupancy tax an additional 2% provided the funds are dedicated to the construction of a visitor and convention center. Included in the FY 2004 proposed budget strategic initiative is a proposal to increase the County's TOT tax 2.0%, from 5.25% to 7.25%. The estimated revenue for FY 2004 is $5,900,000.

• Increase short-term parking meter rates from $0.75/hour to $1.00/hour and long-term parking meters from $0.50/hour to $.075/hour. This rate increase would generate an additional $900,000 in revenue to provide enhancements to the County's pedestrian initiative and expansion of local transit.

• The Human Services Grant Allocation includes federal funding for critical human services needs. Of the available funds not previously committed, $1.9 million is recommended for supportive housing initiatives. The remaining funds are proposed for prevention and early intervention programs, language access, technology upgrades, behavioral health services and contingencies ($2.4 million).

GENERAL FUND REVENUE SUMMARY

The FY 2004 General Fund budget is financed by a variety of revenue sources, which include local taxes, service charges, fees, and revenues from the Commonwealth of Virginia and the federal government. For FY 2004, General Fund revenues, including fund balance, are projected to total $661.9 million. The pie chart below depicts the major sources of General Fund revenues. As in the past, local taxes are the largest revenue source, projected to total $521.1 million, or 79 percent of total General Fund revenues. For FY 2004, total revenues (excluding fund balance) increase by 3.7 percent, or $23.4 million, when compared with FY 2003 re-estimates.

Beginning with the FY 2003 budget, local tax revenues are shown net of tax refunds. During the year, the County may be required to repay or refund a portion of local taxes paid by taxpayers. If this tax payment were challenged for the current year's taxes, the adjustment would be refunded or reduced in the current year's tax revenues. Prior to FY 2003, if this tax payment were challenged for taxes paid in past years, the refund would be recorded as an expenditure in the general fund. Due to the accounting of the repayment as an expenditure, the reduction in funds was not treated as a reduction in revenues. With the agreement to share with the Arlington Public schools local tax revenues net of tax refunds, all local tax refunds are reduced from current year local tax revenue budgets.

Local tax revenues are net of tax refunds and are projected to increase by 6.4 percent or $31.4 million over FY 2003 re‑estimates.

LOCAL TAXES The pie chart below illustrates the local taxes that the County collects. As demonstrated by the chart, real estate and personal property taxes are the largest tax categories. Together, they account for 77 percent of local tax revenue. A description of the local taxes and a discussion of the FY 2004 projections follow:

REAL ESTATE TAX Real estate tax revenues are the largest source of funds, generating $317.3 million or 48 percent of all revenues for the FY 2004 budget and 61 percent of all local tax revenues. The FY 2004 revenue projections reflect the CY 2003 real estate tax rate of $0.993 for each $100 of assessed property value (applying both to commercial and residential real estate). Under current state statute, the real estate tax rate must be the same for all classes of real property.

From CY 2002 to CY 2003, the value of real property in the County excluding Public Service Corporations (PSCs) increased approximately 15 percent on average. New construction added 1.3 percent to the tax base, while assessments of existing property increased 14.0 percent overall. From CY 2002 to CY 2003, the assessed value of the average single-family residence increased by about 17 percent, from $269,500 to $316,000. Therefore, at the proposed real estate tax rate of $0.993 the average single family residential tax bill will increase by about $462 over CY 2002. The tax base of multi-family residential properties (rental apartments) including new construction increased in assessed value by 15.8 percent. The commercial property showed the smallest increase at 8.6 percent in assessed value. While some increase in assessed value of residential property is the result of new construction, renovation, and remodeling, the bulk of the assessment increase is the result of higher market prices for homes in Arlington County. In the commercial sector, the value of office buildings increased by 10 percent while hotels and motels remained relatively stable after showing significant declines in CY 2002. The net effect of the 15 percent increase in assessed value is an increase in the FY 2003 re-estimated real estate tax revenue from the FY 2003 adopted budget level, since assessment growth was projected to be 8.0 percent.

Change in Assessed Value of Real Estate in Arlington County
Calendar Year 2002 to Calendar Year 2003
(In millions, numbers may not add due to rounding)

The composition of the real estate tax base has changed over the last two decades. In 1981, 49 percent of the tax base was single family houses and townhouses, 26 percent was commercial, 10 percent was condominiums and 15 percent was apartments. In 1988, commercial property attained a recent history peak of 38 percent of the total assessed real estate value. In CY 2003, the tax base is 42 percent single family houses and townhouses, 32 percent commercial, 12 percent condominiums, and 14 percent apartments.

Arlington County prorates real estate taxes for the value increase on new construction, a policy adopted in FY 1986. Previously, a property owner paid real estate taxes based on the January 1 value of a structure. No additional tax was assessed if the building was completed during the course of the year. With proration, property owners pay a prorated share of the real estate tax increase during the calendar year, based on when the building is substantially completed.

The real estate tax base of 31.3 billion for CY 2003 affects the October 2003 billing that is included in the FY 2004 real estate revenue forecast. For CY 2004 the real estate tax base is projected to grow by four percent (including reassessment and new growth), which reflects a conservative continued growth estimate in the residential and commercial sectors. This projected increase in the real estate tax base will affect the revenues for the June 2004 tax payment in FY 2004.

The FY 2004 budget for real estate tax revenues are net of $1.1 million in tax refunds.

The following table shows the projected revenue generated by a real estate tax rate of $0.993 per $100 of assessed value in FY 2004.

PERSONAL PROPERTY TAX This tax is levied on the tangible property of individuals and businesses. For individuals, personal property tax is primarily assessed on automobiles. For businesses, examples of tangible property include machines, furniture, computer equipment, fixtures, and tools. Personal property taxes are projected to generate 12.5 percent of the General Fund revenues for FY 2004. The current rate of $4.40 per $100 of assessed valuation has not changed since 1987. This budget also assumes that the plan to phase-out the vast majority of the vehicle portion of the personal property tax, enacted into law in 1998, will continue to be revenue-neutral to the County. Under the Personal Property Tax Relief Act (PPTRA), for each qualified vehicle, the reduction in the amount of tax should have been fully phased in for calendar year 2002. However, the governor has postponed the scheduled phase in and froze the reduction level, thereby keeping the reduction level at 70 percent. If a plan is approved during future General Assembly sessions that is not revenue-neutral, vehicle personal property tax revenues for FY 2004 and out years will have to be adjusted accordingly.

The FY 2004 budget for personal property tax revenues is net of $1.5 million in tax refunds.

For the CY 2002 tax book, the assessed value of personal property in the County (excluding PSCs) totals approximately $1.8 billion. The make-up of the County-assessed portion of the personal property tax base reflects increased assessed valuation per car, however; the number of vehicles in the County has declined from the previous year. Business tangible receipts have also declined over the same period. This trend change has resulted in a lowering of the FY 2003 estimates. For FY 2004 a modest increase is projected over the revised FY 2003 estimate.

Vehicles in Arlington County are assessed using the average loan value from the National Automobile Dealers Association (N.A.D.A.) Used Car Guide, whereas other neighboring jurisdictions (except for Loudoun County) use the average trade-in value. This results in a lower assessment (about 10 percent less or at an approximate rate of $3.96) for vehicles in Arlington County. If vehicles are in the County for only part of the year, the tax is prorated for the time located in Arlington. The estimated average assessed value (average loan value) for vehicles billed by the County for CY 2002 was $6,405. Therefore, the average vehicle tax bill was $282 and the average household (assuming 2.0 cars per household) received a bill of $564 for its vehicles. For CY 2003, the estimate is $584 per household.

BUSINESS, PROFESSIONAL, AND OCCUPATIONAL LICENSE (BPOL) TAX These taxes are levied on entities doing business in the County and are in the form of fixed fees or a percentage of gross receipts. For the first year of business, a firm is required to obtain a business license within 75 days of operation. The business license tax is based on the previous year's gross receipts (except in the case of new businesses which must estimate their receipts until they have been in business a full calendar year). All licenses that are paid based on estimates are subject to adjustment when the actual receipts are known. Effective in 2001, the due date for filing and renewal of business license changed from January 31 to March 1.

The FY 2004 budget for BPOL tax revenues is net of $1.9 million in tax refunds.

The Virginia General Assembly enacted the electric and gas deregulation during the 1999 and 2000 General Assembly, which eliminated BPOL taxes of such businesses beginning January 2001. The deregulation eliminates the BPOL tax for the electric and gas utilities and replaces it with a consumption tax charged to the consumer based on usage. This deregulation will result in a decrease on BPOL revenues from these utilities for FY 2002 and beyond.

The FY 2003 re-estimate remained unchanged from the adopted FY 2003 budget. Historically, approximately 90% of the BPOL revenue is collected from February through June each year. BPOL revenue may be higher than the FY 2003 re-estimate, however; since there is not enough quantifiable data to support a revenue estimate change, adjustments will be made to the FY 2003 BPOL revenue at the mid-year or third quarter reviews.

LOCAL SALES TAX The Virginia retail sales tax is 4.5 percent, of which 1.0 percent is a local option tax, which is returned to localities by the Commonwealth. The chart illustrates the trend in County sales tax revenues from FY 2000. Sales tax revenue for FY 2004 is estimated at three percent above the FY 2003 re-estimate. FY 2002 saw a drop in sales tax receipts due in part to the effects of September 11, 2001. This estimate also assumes the General Assembly will not increase or decrease the sales tax percentage to what consumer goods the local sales taxes may be applied.

TRANSIENT OCCUPANCY TAX (TOT) A 5.25 percent local tax is levied on the amount paid for hotel and motel rooms (0.25 percent is dedicated to the promotion of tourism). FY 2002 was severely impacted by the events of September 11, 2001. The FY 2003 re-estimates and FY 2004 projections reflect a rebound in the hotel market. The FY 2004 revenues are projected to increase seven percent over FY 2003 re-estimates. The 0.25 percent dedicated tax to the promotion of tourism is estimated to generate $0.75 million in revenue in FY 2004 and is reported separately in the Travel and Tourism Promotion Fund (tab O of the proposed budget).

In the spring of 2002, the General Assembly passed enabling legislation allowing Arlington to increase its transient occupancy tax an additional 2% provided the funds are dedicated to the construction of a visitor and convention center. Included in the FY 2004 proposed budget strategic initiatives is a proposal to increase the County's TOT tax 2%, from 5.25% to 7.25%. The potential revenue that would be received from this tax increase to fund the construction of a new convention and visitor's center is $5,900,000 for FY 2004. The strategic initiative proposed can be found in the Introduction and Summaries section (tab A) of the proposed budget.

MEALS TAX The restaurant meals tax was enacted effective June 1, 1991. The tax of 4.0 percent is charged on most prepared foods offered for sale. The tax is in addition to the 4.5 percent sales tax. Meals taxes have been common in most Virginia cities and a number of Virginia counties for many years. Airline catering services are assessed at a rate of 2.0 percent. Meals tax has shown a consistent increase over the last several years and has not been severely impacted by the recent economic downturn or the events of September 11, 2001.

OTHER LOCAL TAXES The chart below lists other sources of local taxes.

Car Rental Tax In 1992, the General Assembly, at Arlington's initiative, voted to increase the car rental tax from 2.5 percent on the gross proceeds from the rental of passenger cars to 4.0 percent. These funds are collected by the state and remitted to localities where the rental transaction occurred. Car rentals are anticipated to reflect continued growth in activity.

Bank Stock Tax The bank stock tax is a tax on the net capital of bank and trust companies. The tax is assessed at a rate of $0.80 per $100 of capital.

Recordation Tax The local recordation tax is assessed at the rate of $0.05 per $100 of value for all transactions including the recording of deeds, deeds of trust, mortgages, leases, contracts, and agreements admitted to record by the Circuit Court Clerk's Office. Recordation tax revenues may fluctuate due to the volume of mortgage refinancing as a result of lower or higher interest rates. Re-estimates for FY 2003 reflect increased home sales and refinancing due to the low interest rates. FY 2004 assumes a lower level of home sales and refinancings.

Cigarette Tax A tax of $0.05 is assessed on every pack of 20 cigarettes sold in the County. This $0.05 per pack rate is the state ceiling, which Arlington has unsuccessfully requested the General Assembly and the Governor to increase.

Estate Tax The local estate tax was introduced in FY 1992. The tax is charged for the processing of estates by the Circuit Court Clerk's Office. At one-third of the existing state estate tax rate of $0.10 per $100, the County rate is $0.033 per $100 of estate value.

Short-term Rental Tax A person is engaged in the short-term rental business if not less than 80 percent of the gross rental receipts of such business in any year arises from transactions involving rental periods between 31 and 92 consecutive days, including all extensions and renewals to the same person or a person affiliated with the lessor. The rate of the tax is one percent on the gross receipts of such business.

Commercial Utility Tax Arlington charges a utility tax on commercial users of electricity and gas. This tax is based on kilowatt hours (kWh) or hundred cubic fee (CCF) delivered monthly to consumers. The tax rate on electricity and gas was capped by the state at the FY 2002 level. This cap will expire on January 1, 2004 allowing the County future flexibility on this local tax revenue. Unlike other localities, Arlington does not charge this tax to residential consumers. In addition to electricity and gas, other localities impose this tax on consumers of telephone and water utilities.

Consumption Tax The deregulation of electric and gas utilities, enacted during the 1999 and 2000 General Assembly, eliminates the BPOL tax on electric and natural gas companies and creates a new tax charged to consumers based on usage. This consumption tax is collected by the utilities and remitted back to localities effective February 2001.

LICENSES, PERMITS, AND FEES Revenues in this category are levied to offset the cost of licensing certain trades, inspecting various types of construction, and providing related services.

Decal Fees An annual license tag fee of $24 is imposed for all applicable motor vehicles. This annual fee compares similarly to charges by the surrounding jurisdictions. Projected revenues for FY 2004 total $3.7 million.

Franchise Fees The agreement with the cable service license contract includes a franchise fee of four percent of gross revenues. This is paid to the County each year during the term of the certificate as compensation for the use of the public rights-of-way.

Permit Fees Building permits are calculated on a square footage basis and fluctuate based on the number of projects. Electrical permits are charged on all electrical work in homes, commercial and apartment projects such as services, outlets, lights and motors. Plumbing permits are required for water and sewer service, all plumbing fixtures and gas installations for new construction, repairs, alterations and additions. Mechanical permits are charged for boilers, cooking appliances, heating and air conditioning systems, ventilation and smoke control systems. The number of new construction, alterations and additions in FY 2004 are estimated to be lower than in FY 2002 as reflected in the permit revenues.

Right-of-Way Fees The FY 2004 budget includes the public rights-of-way use fee which was approved during the 1998 General Assembly and enacted by the County Board effective October 1, 1998. Adopted revenues from the right-of-way fees for FY 2004 reflect the rate of $0.60/line. This fee covers the use of highway and street right-of-way by certificated providers of telecommunication services and is charged to the ultimate end user.

Other These include elevator certificate fees, building plan reviews, and occupancy permits.

FINES, INTEREST, RENTS These revenues include fines, interest, rent, lease agreements, paid parking, rental and sale of surplus.

Fines/Tickets This category is comprised of traffic moving violations, parking tickets, arrest fees, court reporter's costs, and miscellaneous court costs. Fines are also collected on infractions that occur at Reagan National Airport.

Interest Interest is earned on County general and bond funds, which are invested on a short-term basis until needed to pay for County expenditures. Interest earned varies due to changing balances and interest rates.

Other Courthouse Plaza rent, County employee's parking fees, rentals and sales of surplus, and lease agreements are also included in this revenue category.

CHARGES FOR SERVICES This category encompasses revenues received for a variety of County services. Service charges are structured so that the users of a particular service are the ones to pay for a majority of its costs, as opposed to using general tax dollars to fund services that benefit a small segment of the population. The chart below highlights the major sources of revenues.

For FY 2004, the combined residential customer rate for refuse collection, disposal and recycling is projected to increase $4.68 from $227.92 to $232.60 per year. The County's policy for the refuse rate is recovery of 100 percent of disposal costs and at least 50 percent of collection costs. In FY 2004, the solid waste fee will generate approximately $7.6 million in revenues based on the current number of households served by the refuse collection and recycling programs.

The change in revenue for court costs reflects the amount of court-related activity. The Falls Church reimbursement represents a charge for services provided by the County. Proceeds from this charge are used to partially offset the cost of maintaining the enhanced E 9-1-1 call processing and dispatching system. Recreation fees include charges for summer and holiday camp programs, senior adult programs, competitive swimming, and membership to the Thomas Jefferson Community Center and for use of athletic fields. A listing of major categories of fees proposed by the Department of Parks, Recreation and Community Resources can be found in section L of the proposed budget.

Major revenue sources in the "Other" category and their estimated FY 2004 revenues are: fees from human services programs ($0.9 million); reimbursement from the Utilities Fund for administrative functions of County staff agencies ($0.9 million); ambulance service fees ($0.6 million); technology services to outside agencies ($0.6 million); sidewalk frontage assessments ($0.6 million); Library fines and fees ($0.5 million); engineering service charges ($0.7 million); and Arlington Transit (ART) charges ($0.5 million).

REVENUE FROM THE COMMONWEALTH Arlington receives funds from the Commonwealth of Virginia for a variety of state-mandated and supported functions and services. The County also receives its portion of some revenues collected by the state. The chart below highlights the total amount received from the Commonwealth of Virginia and details the sources that comprise the total.

Beginning with the 2002 General Assembly and continuing with the Governor's most recent budget proposal, Arlington and other Virginia jurisdictions are being severely impacted by the state budget reductions. It is estimated that by the end of FY 2004, Arlington will have incurred $5.1 million less in funding than in FY 2002 as a result of state cuts. Cuts by the state have been most severe in human services and compensation board funding. The chart below shows a 6.2% decrease in state revenue from FY 2002. For FY 2004, the total state revenue is higher than budgeted in FY 2003. This increase is primarily due to the budgeting of Commuter Assistance Program (CAP) revenue that was traditionally appropriated as the grants were approved and were added to the budget subsequent to budget adoption. Because the grants have continually exceeded the budgeted amount, the proposed FY 2004 budget is being updated to reflect probable grants. However, due to the uncertainty of the state's financial position and the numerous legislative bills currently proposed for the state's 2004 legislative session, the risks of additional state funding cuts are possible.

The County receives highway aid as a result of Arlington's decision not to join the Commonwealth's secondary road system in 1932. The County assumed maintenance responsibilities for the secondary roads in Arlington, and receives state highway aid for that function. These funds are derived primarily from the Commonwealth's collection of new car sales and gasoline taxes, and other vehicle related fees and taxes. Lowered state revenue collections in these sources are reflected in the funding level for FY 2004 from actual FY 2002. In addition to highway aid, the County receives funds of approximately 50 percent of its costs for maintaining traffic signals on state roads.

Changes in Social Services budgeted revenues include a decrease in the state reimbursement of social services programs.

This revenue source fluctuates depending on the number of state social services caseloads. The Comprehensive Services Act (CSA) is a consolidation of court and social service programs targeted at preventing out-of-home placements for troubled youths and totals $2.2 million for FY 2004. The revenue source is comprised of approximately 54% state match and a local match of 46%.

The County also receives a reimbursement for a portion of the costs to construct the Arlington Regional Jail. Other major revenues that the County receives from the Commonwealth include support for health and mental health/retardation programs. Other revenues from the Commonwealth include Compensation Board funding for support of elected officials who perform state-mandated and local functions, such as the Commissioner of the Revenue, Treasurer, Sheriff, Commonwealth's Attorney, Circuit Court Clerk, and the General Registrar. The FY 2004 revenue allocated to Compensation Board is reduced by the Governor in his proposed revised FY 2003 and FY 2004 budget. Cuts were taken by all these compensation board agencies.

REVENUE FROM THE FEDERAL GOVERNMENTThe federal government provides funding for employment assistance, housing programs, drug enforcement, aid to the elderly, and other programs. The Workforce Investment Act (WIA) funding is based on unemployment data and poverty levels and is based on the current year's allocation by the state. In FY 2004, Arlington's allocation of HUD/HOME funds increased to $1.3 million. Revenue of approximately $11.3 million from the federal government for social service programs is passed through from the state budget to Arlington County. Since many of the federal social service programs are 100 percent reimbursable, revenue will change with changes in caseloads. FY 2004 includes approximately $1.1 million in federal funding appropriations from a Local Public Assistance Cost Allocation Plan (LPACAP) to support ongoing costs. In FY 2002, revenues for social services include one-time federal funding. Revenue for U.S. Marshall prisoners is generated through an agreement with the U.S. Marshall's Office to house federal prisoners in the Arlington County Detention Facility when bed space is available. The remaining federal fund revenue includes payments for grant funding through the Older Americans Act, mental health reimbursements and other miscellaneous grant and reimbursement funding. FY 2003 included approximately $4.1 million in federal funding appropriations from LPACAP.

MISCELLANEOUS REVENUEThese include revenue sources that do not fall under any other category and include one-time or pass through funds. The sale of land and buildings are included in miscellaneous revenues; and for FY 2003, this reflects $2.8 million from the settlement of the Navy League property. It also includes payments from Comcast Cable of Maryland, Inc. for administrative reimbursements and pass-through payments to the Arlington Community Television (ACT) as part of the cable television agreement. Included in the FY 2002 actuals are revenues of $1.0 million from the repayment to the County on loans made through the Arlington Housing Investment Fund, $2.4 million in lease purchase proceeds and $3.0 million from the Federal Emergency Management Agency (FEMA) for reimbursement stemming from costs associated with September 11, 2001. Other categories include various revenue to the Department of Human Services for a lease agreement with Cherrydale Nursing Center, Comprehensive Health Investment Project (CHIP) of Virginia, and Teens Against Tobacco. Other department funding includes Office of Support Service reimbursements.

TRANSFERS FROM OTHER FUNDS The amounts for FY 2002, FY 2003 and FY 2004 include the Automotive Fund transfer to the General Fund to cover its share of insurance costs, funding for the Chesapeake Bay program and the Georgetown Shuttle. During FY 2002, additional funds were transferred to the general fund ($1,273,591) for Hunter Park at Cherrydale from the housing reserve fund.

PRIOR YEAR FUND BALANCEFunds unspent (under-expenditures or increased revenues) from previous fiscal years have been used to support one-time expenses in subsequent year's budgets. At the end of FY 2002, $6.3 million was set aside by the County Board to help finance the budget for FY 2004. Higher than anticipated real estate assessments in January, 2003, are expected to generate additional real estate tax revenue in FY 2003 (assuming no change in the rate), providing additional fund balance ($5.1 million) for use in FY 2004. Of the projected year-end balance of $11.4 million, $1.4 million will be needed in FY 2003 to begin design services for the Emergency Communications Center/Emergency Operations Center capital improvements during FY 2003. In addition, an additional $1.0 million in projected fund balance will be allocated to the General Fund Operating Reserve. This will raise the reserve level to $13.6 million, sufficient to achieve a reserve amount equal to 2% of the General Fund budget, consistent with County policy. The balance available, $9.0 million, is proposed to fund capital improvements in FY 2004.

TOTAL GENERAL FUND REVENUES Below is a summary of the revenue categories previously described, as well as total revenues for the General Fund in Fiscal Years 2002, 2003 (re-estimated) and 2004.

TRAVEL AND TOURISM PROMOTION FUNDThe FY 2004 revenue budget for the Travel and Tourism Promotion Fund (Fund 002) reflects a fourteen percent increase in projected transient occupancy tax revenues from the FY 2003 adopted budget. Funds are used to market and promote tourism in Arlington County. Reorganization of the County Manager's Office in the latter half of FY 1999 resulted in the transfer of County store revenue from the General Fund to the Travel and Tourism Fund. During FY 2003, a federal recovery grant totaling $400,000 was received. The grant funds will be paid out over the next five years and are being used toward the cost associated with the build-out and the rent related to the newly located Visitors' Center in Pentagon Row. For FY 2004, the lease costs and reimbursed revenue is estimated to be $59,773. The General Fund transfer supports the personnel costs associated with the Arlington Convention and Visitors Service, which was transferred from the General Fund in FY 1992.

UTILITIES FUND For FY 2004, the Utilities Fund (Fund 003) revenues total $43,431,062. The revenues for this enterprise (self-supporting) fund are derived from water/sewer service charges, water service connection fees, sewage treatment service charges, interest earnings, and other fees for service. Beginning in FY 2003 the utility marking fee was transferred from the Department of Public Works General Fund to the Utilities Fund.

Water/sewer service charges are the largest source of revenue for the Utilities Fund and are derived from quarterly utility bills paid by residents and monthly or quarterly bills paid by commercial establishments. The water/sewer rate is proposed to increase $0.60 to $5.30 per thousand gallons for FY 2004.

Water service connection fees, which are paid by new water users to connect to the water system, recover 100 percent of costs. The fee amount is based on the size of the pipe being connected into the water system.

Sewage treatment charges are revenue received for operations and maintenance cost reimbursement from neighboring jurisdictions (Falls Church, Alexandria, and Fairfax County) and federal government installations (Pentagon, Reagan National Airport, Columbia Island Marina and Fort Myer) that use the County sewage system, but supply their own water.

COMMUNITY DEVELOPMENT FUND The FY 2004 revenue budget for the Community Development Fund (Fund 006) are used to address low- and moderate-income housing needs and other community projects. The Community Development Block Grant (CDBG) program was established as a separate special revenue fund in FY 1987 to comply with requirements of the federal Department of Housing and Urban Development (HUD).

SECTION 8 HOUSING ASSISTANCE FUND This program provides vouchers for housing to eligible Arlington County residents. The federal funds are used for the administrative costs of the program, as well as for the rental subsidy payments.

AUTOMOTIVE EQUIPMENT FUND The Automotive Equipment Division of the Office of Support Services operates as an internal service fund (Fund 009) and supports the County's automotive fleet.

PRINTING FUND Revenues in this internal service fund (Fund 011) are received from outside agencies and the Arlington County Public Schools for printing and photocopying services, as well as a General Fund transfer for non-billable services.

JAIL INDUSTRIES FUND The Jail Industries Fund (Fund 012) was created in FY 1995 to track and report the activities of a program within the new Detention Facility which trains inmates in the processes of traffic sign manufacture, park maintenance, printing services and catering services. Revenues accrue from charges to outside agencies for services provided.

GENERAL CAPITAL PROJECTS FUND The General Capital Project Fund (Fund 013) accounts for the capital projects for general government functions which are financed under the County's Pay-As-You-Go Capital Program. The program areas include local parks and recreation, transportation, community conservation, government facilities, and regional contributions. General Fund support of $9,000,000 has been proposed for FY 2004.

UTILITIES CAPITAL PROJECTS FUND The Utilities Capital Projects Fund (Fund 019) accounts for capital projects for the sanitary sewer system, water distribution system, and wastewater treatment plant. The projects are funded through interest earnings from fund balance, hook-up charges paid by developers for connection into the County water distribution and sanitary sewer systems, and transfers from the Utilities Operating Fund. Sewage treatment charges are revenues received from neighboring jurisdictions (Falls Church, Alexandria, and Fairfax County) for reimbursement of a portion of the upgrade costs at the Water Pollution Control Plant.

BALLSTON GARAGE Revenues received from the Ballston Garage Fund (Fund 040) are used to offset costs of operating the garage. Interest accrues from earnings on the fund balance. Parking revenues are payments by the users of the public parking facility, which are collected by the County's contract operators, Standard Parking. The rent payments under the Parking Lease Agreement between Arlington County and May Company, Inc (MCI) ended during FY 2002.

RESIDENTIAL TAXATION AND FEE TRENDS

During each budget cycle, tax and fee rate changes are reviewed in light of the costs of providing services to County residents. The following section is a brief analysis of the residential tax burden in Arlington County and other area jurisdictions. Generally, Arlington's tax rates are the lowest, or are very competitive with other Washington metropolitan area jurisdictions. For example, Arlington does not have a residential utility consumer's tax while all surrounding Northern Virginia jurisdictions levy this tax on electricity, natural gas and telephone usage.

Real estate tax Using the adopted tax rate of $0.993 per $100 of assessed valuation, the real estate tax bill of the average residential family home would increase by $462 to $3,138 for calendar year (CY) 2003 (portion of FY 2003 and FY 2004). The average assessment for a single family home increased by 17% percent from $269,500 to $316,000 for CY 2003.

Personal property tax For residents, vehicles are generally the item for which the personal property tax is paid. The personal property tax rate has been $4.40 per $100 of assessed valuation since 1987. The valuation method uses the average loan value, which is approximately ten percent lower than the trade-in value, and results in an effective personal property tax rate to $3.96.

* Does not reflect state rebates or planned car tax reduction plans whose multi-year phase in started in 1998.

Refuse collection and disposal fees The annual residential charge for refuse collection and disposal increased to $232.60 and includes cardboard recycling. This rate achieves the County's objective of 100 percent recovery of household refuse collection and disposal costs and part of the leaf collection costs. Arlington's rate continues to be competitive in the Washington metropolitan area.

Water/sewer service fees As costs have risen; additional funding is required to sustain the self-supporting Utilities Fund. The water/sewer rate is proposed to increase by $0.60 to $5.30 per thousand gallons in FY 2004. Arlington's rate continues to be competitive in the Washington metropolitan area.

*Per Thousand Gallons; average usage equals 80,000 gallons per year.

Major residential taxes and fees The following chart summarizes the major residential taxes and fees for Arlington County for the average household. The chart uses current and proposed tax, refuse/recycling and water/sewer rates.

The following chart compares the major residential taxes and fees for the Northern Virginia jurisdictions for the average household using Calendar Year 2002 rates and assessments.