The following letter was sent to members of the County Board, ARLnow.com and other community organizations by Bluemont resident and local activist Suzanne Smith Sundburg, who says the proposed tax rate hike is regressive and unnecessary. Arlington County is in the midst of its annual budget process.
Dear Chair Fisette and members of the Arlington County Board,
Meaningful discussion of revenue (the real estate tax rate) without any discussion of expenditures (the budget) makes little sense, as these two items are inextricably linked.
For FY18, the effective advertised real estate tax-rate (assessment increase + 2-cent rate increase) is equivalent to a 4-cent hike in the real estate tax rate. Over the past decade, Arlington County homeowners, commercial property owners, and renters have been asked to shoulder ongoing increases in the tax and fee burden.
With a 2-cent increase, the average homeowner would see the tax and fee burden rise from $8,305 in calendar year (CY) 2016 to $8,613 in CY 2017 — a 4% increase, or about $492 — and will have absorbed a cumulative, 5-year increase of $1,613 in additional taxes and fees (CY 2013-CY 2017).
Commercial property owners (and the businesses that rent from them) face an even greater burden with the 12.5-cent transportation surcharge and (where applicable) BID assessment.
At a March 9 budget work session with the commissions, the manager agreed that real estate tax increases are passed through to commercial office tenants and that taxes are one driver of the county’s stubbornly high vacancy rate. However, he could point to no specific data or recent analysis predicting the impact of a 4-cent (or lesser) effective tax-rate increase on Arlington’s vacancy rate.
Likewise, in answer to another question on March 9, the manager also agreed that raising the real estate tax rate would increase the cost of housing for the county’s affordable housing community — even as the county is simultaneously subsidizing this cost. Increases in Arlington’s tax and fee burden makes housing less affordable for all Arlingtonians, and this burden disproportionately affects those living on lower and fixed incomes, including elderly and disabled residents.
Given the large amount of cash on hand, as outlined below, it would seem highly likely that the manager could (with Board concurrence) cover all new proposed spending by reallocating a small portion of these funds to cover limited-duration and nonrecurring expenditures in the general fund budget rather than raising the tax rate for FY2018.
Using cash already on hand, the manager’s proposed budget could be funded without any spending cuts or a tax-rate increase. I therefore urge the Board not to increase the tax rate and to ask the manager to identify expenditures that are appropriate for alternative cash funding and to trim any unnecessary spending, using public money efficiently and effectively to minimize the need for future tax increases (or spending cuts). Below the list of several sources of cash on hand, I have identified a few cost savings and efficiencies as well.
CASH ON HAND
- $191.2 million — Fund Balance. (See Exhibit 3, FY16 CAFR.) I am not asking the board to tap the county’s 5% operating reserve of $58 million or similar required reserves. There is a great deal of money in the fund balance beyond required reserves. Since FY09, the county has been carrying an unspent fund balance of at least $100 million. (See Exhibit 5, FY09-FY16 CAFRs.) Since FY06, the fund balance has generated a net positive surplus, even at the height of the real estate crash when revenues were $72 million less than expenditures.
Thus, over the last decade the county historically and consistently has taken in more money than it has spent. FY18 will likely continue this trend as the manager has presented a “balanced budget that continues the current level of service within existing tax rate” of $0.991 per $100 of assessed value.
- $77.7 million — APS reserves. APS has its own $77.7 million cash reserves (on top of county reserves), which are defined/described in the superintendent’s FY18 proposed budget. The superintendent has set aside approximately $24 million in cash for “future budget years,” $19 million of which is unallocated and presumably will be carried over into FY19.
- $157 million — Transportation Capital Fund. (See Exhibit X, FY16 CAFR.) The TCF is expected to generate another +/-$26 million in revenue in FY18. On March 9, the manager confirmed to me that at least some of the 1-cent proposed increase for Metro could alternately be funded by TCF dollars. When we know that borrowing costs are likely to rise, why would we want to float more new bonds than strictly necessary, particularly when we have so much unspent money in the TCF?
Surely out of a $1.24 billion budget, the county can find $14.8 million in limited-duration and nonrecurring expenditures that could be otherwise funded from cash already on hand. If it’s a choice between making cuts and finding expenditures that qualify for an alternative funding source(s), my guess is that the county’s departments will be able to provide a list of items that would qualify.
COST SAVINGS & EFFICIENCIES
FTEs — Save $266,000 annually by forgoing just 2 highly questionable additions to staff
Because salary and benefits consume roughly 80% of general fund expenditures, it is the most obvious place to look for ways to conserve resources.
The manager’s proposed budget recommends adding almost 50 new FTEs in FY18. This addition to staff seems particularly excessive in view of the fact that the county has added just 117 FTEs, total, over the last 9 years (FY09-FY17), or an average of 13 FTEs per year.
At any given time, the county has many vacant positions (over 160) advertised on its own website.
Some positions remain vacant for a long period of time, but this information is apparently missing from the budget discussions on adding new FTEs (full-time equivalent positions). And there is little or no supporting analysis contained in the budget to justify many of the requests for adding FTEs.
I strongly suggest that the manager and board members take a closer look at the proposed additions to staff. Upon my cursory review of just one request for additional FTEs, I found the following:
Example: Transportation Capital Fund — eliminate 2 transportation engineer FTEs at a savings of $266,000 annually
DES is asking for 4 additional FTEs that are assigned to the Transportation Capital Fund (FY18 budget web p. 844). Of those 4, 2 are requests for more engineers to serve the new Neighborhood Complete Streets Program, which at present is yet to be funded and has no projects. One position is to be assigned to the DES Transportation Engineering and Operations Bureau, the other to the DES Engineering Bureau.
Using the search term “transportation” on the county’s employment opportunities web page, I found 4 existing vacant DES positions for engineers — 2 positions for the Transportation Engineering and Operations Bureau and 2 for the Engineering Bureau. Two of the 4 vacant positions are listed as “continuous,” meaning that the county has a continuous need for these positions and cannot keep them filled.
Why would DES want to add 2 more transportation engineering FTEs when it clearly cannot fill its existing vacant transportation engineering slots? If those 4 existing, unfilled engineering slots were to be filled, would DES still truly need the 2 additional transportation engineering FTEs proposed in the FY2018 budget? Adding slots isn’t the same as adding bodies; empty slots don’t accomplish any work.
The transportation capital performance measures (FY18 budget web p. 449) do not show a huge increase in the number of new projects. In fact, there are fewer new projects initiated both in FY2017 (15) and in FY2018 (20) than in FY2013 (21). Likewise, in FY2013, DES completed 18 projects; in FY2017 and in FY2018, DES will complete 11 and 20 projects, respectively.
DES appears to have completed more transportation capital projects more efficiently in FY2013 — when it had a smaller total workforce of 395.7 FTEs — than in recent years with a larger workforce. The current request would push DES’s total FTEs to 407 in FY2018. (See FY18 budget web p. 489 for FTE totals.) However, there is no breakdown in the budget showing the number of FTEs in DES’s Engineering Bureau and Transportation Engineering and Operations Bureau for this period, so precise bureau staffing levels between FY2013 and FY2018 are unknown.
What is known is that there has been a slowdown in transportation capital project completion over this period — the estimated backlog of 76 ongoing projects for FY2018 is roughly 57% higher than the backlog of ongoing projects (46) in FY2013 (web p. 449). And this increased backlog occurred despite cancellation of the Columbia Pike Streetcar project in Nov. 2014, which should have reduced the DES transportation capital workload significantly.
Increase Retirement System Employee Contributions 1% — a savings of up to $2 million
In FY2004, the “general” county employees’ (Group A’s) retirement plan contribution was reduced from 5% down to 4%. Reversing the 1% reduction in Group A contributions to the county’s retirement system could reduce the employer’s/county’s contribution by as much as $2 million annually. It’s worth noting that the county’s contribution to the retirement system has grown from $24.5 million in FY07 to $54.5 million in FY2016 (web p. 94).
An increase in retirement system contributions takes no money away from employees; it simply redirects a small portion to fund their retirement. And a 5% employee contribution is the median percentage of employee contributions, according to NASRA, though that median has been climbing in recent years.
In the manager’s “Balanced budget that continues the current level of service within existing tax rate,” he has found sufficient funds to provide a “merit-based compensation increases for eligible employees of approximately 3.25 percent.”
This already-funded 3.25% merit-based raise in FY 18 follows a 1.75% increase added to the maximum of each grade/range in FY17. Also in FY17, the lowest base pay rate was increased from $13.13/hour to $14.50/hour for all permanent employees. Thus, most, if not all, Group A employees should have received sufficient salary increases in recent years to offset the redirected 1% of pay for retirement.
APS — Find additional efficiencies in telecommunications and printing
The APS Superintendent has identified potential cuts to his budget in case he should not get the additional money he has requested. I agree that the APS annual cost per student — that is again approaching $20,000 per child — is unsustainable given the ongoing increases in enrollment. Even with Arlington’s prodigious tax base, we simply cannot sustain the types of tax increases (even if we had more land on which to build schools) that would be necessary to continue spending at this level as enrollment continues to swell.
I compare the APS budget to a family’s budget. A family cannot afford to spend the same amount per child on 4 children that it may have spent on just 2. Income doesn’t rise to match the number of children in a family.
I have heard two promising suggestions on cost-savings that could be achieved through elimination of duplication. The first suggestion is for the school system and county to merge their individual phone systems into one. The second suggestion comes from the superintendent himself — he has proposed shuttering the APS print shop. Perhaps cost savings could be achieved by merging the county’s print shop with the one operated by APS? It seems like an idea worth considering.
Summary
As taxes and housing costs have increased, we have seen Arlington become, on average, wealthier and less diverse. This should be a big red flag to a community that prides itself on maintaining diversity and preaching inclusiveness. If Arlington continues jacking up the tax rates and assessments without considering the unintended consequences, Arlington will become a place where only the super wealthy and those qualifying for subsidies can remain.
We all know that the law of diminishing returns exists. And we will reach a point where we have hit diminishing marginal returns in raising the tax rate — if we are not already there. It works similarly to budget cuts — which often end up costing more in the long term than the money being “saved” in the short term. Careful thought supported by proper review and analysis can improve the outcomes of the difficult decisions you face.
I thank board members and the manager in advance for your kind attention and for your hard work on the budget for fiscal year 2018.
Sincerely,
Suzanne Smith Sundburg
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