Peter’s Take: Budgeting for Arlington’s Sustainable Future

Peter’s Take is a weekly opinion column. The views and opinions expressed in this column are those of the author and do not necessarily reflect the views of ARLnow.com.

If the County Manager follows recent practice, he soon will propose how to spend any budget surplus remaining after closing out Arlington’s budget for fiscal year (FY) 2019, which ended June 30.

What percentage of this “close-out surplus” will the Manager propose to spend immediately?

What’s been happening

Typically, 47% of surplus dollars are automatically allocated to APS under a revenue-sharing agreement. Most of the remaining surplus is often allocated to “commitments already made by the Board.” Missing is a clear, written statement explaining how, when and why such “commitments” were made. Also missing is a written, publicly available policy clearly defining a “one-time” expenditure, and why “one-time” surplus funds are frequently spent on recurring needs.

Recently, the County Manager has reduced the close-out-surplus amount somewhat from previous years — when annual close-out surpluses ran as large as $36 million. But neither the Manager nor the County Board has fully adopted a key reform proposal recommended by the Arlington County Civic Federation (Civ Fed):

In 2016, Civ Fed passed a resolution urging “the Arlington County Board to annually consider setting aside a fair and reasonable amount of any surplus for the reduction of real estate taxes.”

Because the Board has allowed the Manager to allocate, or spend, almost all surplus cash at closeout without waiting until the following Spring when needs or shortfalls in the coming fiscal year are known with greater certainty, decisions on how millions of dollars are spent remain largely beyond taxpayers’ scrutiny.

Beyond the “close-out surplus”

What the Manager and the public generally call the “close-out surplus” reflects only a small part of the County’s overall surplus cash on hand. Once allocated, surplus funds end up in what is called the County’s “Fund Balance,” similar to what we would think of as a savings account. With these huge cash surpluses accruing year after year (some of which remain allocated but unspent for long periods of time), the size of Arlington’s Fund Balance has grown very large.

For example, as of June 30, 2018, the County reported combined fund cash balances of $634.8 million.

Do you know if, when, where, and how Arlington plans to spend the current Fund Balance?

What experts say

At a 2017 County Board work session, Public Financial Management, Inc. (PFM) described how other jurisdictions manage their Fund Balance accounts.

PFM noted that Fairfax, Loudoun and Prince William counties have a 10% unallocated operating/contingency reserve, twice Arlington’s reserve level. Arlington has no unallocated funds in its Fund Balance beyond its 5% reserves. Every penny is earmarked for spending.

PFM also observed that Arlington’s General Fund reserve policy levels were below the median level and among the lowest in the triple-A group (Arlington’s bond-rating peer group).

More assertive and transparent County Board direction is needed

Too often, committed and allocated funds in our Fund Balance accumulate over time without sufficient monitoring of the reasonableness of these balances. New York State’s Local Government Management Guide on Reserve Funds warns against this:

Reserve funds should not be merely a “parking lot” for excess cash or fund balances.

Our County Board should provide public answers to these questions:

• Has the purpose of all unrestricted, allocated surplus funds sitting in the Fund Balance been identified and published?
• Where can policies governing the management of the Fund Balance be found?
• How frequently does the Board review unrestricted, allocated surplus funds to ensure that the original allocations are still reasonable?

Conclusion

The County Board should look for ways to reduce the generation of large, annual budget surpluses that sit unutilized often for long periods of time. One option to consider is the syncing of the County government’s fiscal and calendar years.

The County Board should draft written policies governing its surpluses — including a definition of “one-time” expenditures as well as how, when and why the County Board commits or allocates surplus funds — and present these policies to the community for public review and comment.

Allocation of a reasonable portion of close-out surplus funds should be deferred until the County Manager’s up-coming-fiscal-year’s operating budget has been proposed, or used to increase the County’s reserves, as appropriate.

Peter Rousselot previously served as Chair of the Fiscal Affairs Advisory Commission (FAAC) to the Arlington County Board and as Co-Chair of the Advisory Council on Instruction (ACI) to the Arlington School Board. He is also a former Chair of the Arlington County Democratic Committee (ACDC) and a former member of the Central Committee of the Democratic Party of Virginia (DPVA). He currently serves as a board member of the Together Virginia PAC-a political action committee dedicated to identifying, helping and advising Democratic candidates in rural Virginia.