Management & Finance
FY 2011 Budget Forecast: Why Do We Have a Gap?
Arlington Projects $80-100 Million Budget Gap for County, Schools
- Lower real estate values mean lower revenues
- Service cuts, tax rate increase likely
- Arlington’s economic outlook remains relatively strong
Declining revenues and rising expenses will produce a projected combined budget gap for Fiscal Year 2011 of $80-$100 million for County Government and Arlington Public Schools, Arlington County Manager Ron Carlee told members of County commissions Saturday, Oct. 3. The gap will have to be closed with a mix of tax increases and service cuts.
Carlee and senior staff reached out early in the process to members of commissions appointed by the County Board, seeking their thoughts on what should be cut and what is an acceptable increase in the property tax rate.
Participants urged the County to look for ways to increase efficiency, streamline operations and reduce expenses, and stressed the need for County government to communicate frequently with the public throughout the budget process.
The County Board will provide budget guidelines at its October Board meeting for the County Manager’s proposed FY 2011 budget. The proposed budget will be presented to the Board in February, and the Board will adopt the budget in April, after extensive public hearings.
Budget gaps for County, Schools roughly equal
The budget gap for FY 2011 is expected to be $45 million for County government and $47 million for Arlington Public Schools. Those estimates are based on preliminary, incomplete figures that County officials caution will change as more data comes in.
The projected budget gap is based on the current tax rate of 87.5 cents per $100 of assessed value and higher operating costs. The projected decline in property values affects both the current FY 2010 budget that began July 1, 2009, and the FY 2011 budget that begins July 1, 2010.
5% to 12% declines expected in real estate assessments
Of particular concern is the lack of commercial credit and its impact on commercial values. Initial indicators point toward overall declines in real estate assessments ranging from 5% to 12%. Commercial real estate assessments are expected to decline between 8% and 17%.
Arlington’s economic outlook remains good, relative to neighboring jurisdictions: for example:
- From 1st quarter 2008 to 1st quarter 2009, Arlington experienced 2.2 % increase in the number of jobs, 1% increase in the number of business establishments and 0.5% increase in average weekly wages.
- Arlington is the only jurisdiction in northern Virginia with an increase in the number of jobs from 1st quarter 2008 to 1st quarter 2009. Arlington’s unemployment rate is the lowest in the Commonwealth. The national unemployment rate is 2.3 times higher than Arlington’s (July 2009).
- A number of major new development projects are under construction: Virginia Tech Research Center (office), Clarendon Center (office and residential), and three new hotels (Shirlington, Potomac Yard/National Gateway). Founder’s Square (office) project will be starting soon.
Cost pressures
In a normal year, the County’s budget can be expected to grow 4% to 6% if there are no new services added, or unexpected costs. This year, the County faces additional costs stemming from a significant increase in enrollment in Arlington Public Schools. A number of local and regional obligations – including funding for Metro – also continue to grow.
At the same time, the County has seen a dramatic cut in funding from the Commonwealth of Virginia, which is coping with its own budget shortfall. Current projections are for costs to increase between 3-4%, due to low inflation.
Budget balancing options
Real estate taxes account for about 64% of locally-generated tax revenue and are one of only a few taxes that local governments control in Virginia. To close the projected FY 2011 budget gap, the County Board can raise the tax rate and/or eliminate or reduce services. For FY 2010, the County Board used a combination of both to balance the budget.
Assuming a residential assessment decline of 5%, closing the projected gap solely by increasing the real estate tax would require a 17.1 cent increase in the current 87.5-cent rate, to $1.046. The average taxpayer’s bill would increase 13.6%, from $4,551 to $5,168 ($51/month). Closing the gap through program cuts alone would require the equivalent of a 13.5% cut across the board to all departmental General Fund operating budgets.
Many marginal cuts were made to balance the FY 2010 budget, such as reducing administrative and management staff. FY 2011 is more challenging because the reductions will be in addition to the $21 million in reductions this year.
The Arlington County Board will be considering budget guidelines at its October meeting.
FY 2011 QUICK LINKS