Arlington County Civic Federation

The Civic Voice of Arlington

Report on Revenues and Expenditures

As Approved April 5, 2005

1. The Arlington County Civic Federation recommends to the Arlington County Board that it adopt a Fiscal Year 2006 General Fund Budget that is balanced at $767.0 Million [an increase of $48.5 million – 6.75% over the FY’05 Adopted Budget]. This would be accomplished by:

· Beginning with the County Manager’s original revenue and expenditure estimates, but adding his Strategic Options, including Pay-As-You-Go capital and affordable housing, and his capital reserve to the Base Budget;

· Recommending a modest net increase in expenditures and contingents, including a

modified Homeowner’s Grant Program;

· Re-estimating net additional FY’05 revenues of $23.5 Million;

· Re-estimating FY’06 revenues (an increase of $25.2 Million);

· Estimating additional FY’06 miscellaneous fee and other non-tax increases (an increase

of $3.3 Million).

The real estate tax rate, within the advertised rate, would be reduced by 11.1 cents to 84.7 cents per $100 of assessed value. With the recommended rate, the average single-family homeowner’s tax bill would still increase by about $340 – 9.6% (rather than the about $849 –24% originally proposed).

2. Whereas there is concern that even the reduced magnitude of increase recommended above, well above inflation (the Jan’04 to Jan’05 CPI increase was 3.6%) and population growth, has continued for a number of years and is not sustainable for the County’s taxpayers. This concern should influence future budget decisions and presentations. In September 2004, the County Manager agreed and stated: “…they have resulted in General Fund expenditures growing by an average of 7.4% a year. This level of growth is not sustainable for the long-term.”

Whereas there is continued concern that in recent years the County Manager’s proposed budgets have systematically underestimated both rising property assessments and expenditures. This has resulted in revenue collections in each fiscal year well above the budgeted amounts and smaller downward adjustments to property tax rates than would be justified by more accurate projections of the tax rates required to finance the proposed budgets. Citizens should not have to dread rising assessments because they result in substantial increases in taxes. Further, the presented budgets have failed to show the extent of actual spending increases. The low revenue estimates have allowed the county to spend roughly $ 25, $45, $56, and $33 million more than the County Manager’s proposed budgets in the previous 4 fiscal years without subjecting the additional spending to the rigors of the normal budget review process.

Assessment Projection Accuracy: Percentage Changes from Prior Year

Calendar Year	2002	2003	2004
Co. Manager estimate	4.0%	4.0%	6.0%
CivFed Estimate	8.0%	9.0%	16.3%
Actual	11.5%	18.1%	18.3%

Expenditure Accuracy (millions of dollars per year)

Fiscal Year	2001	2002	2003	2004	2005
CM Proposed	639.8	685.7	737.9	800.9	859.2
Adopted	659.5	710.4	754.5	805.3	870.6
Actual	664.9	730.6	793.9	834.4	---
Actual vs CM	25.1	44.9	56.0	33.5

Whereas the Committee is concerned that the Manager’s Proposed Budget contains very limited information on trends in employee compensation, the largest functional category in the budget, including important fringe benefits such the employer’s contribution to pension plan and healthcare plans. The few pie charts on compensation provide little basis for systematic long-term review.

Therefore, the Federation recommends to the Arlington County Board a number of procedural improvements in budget presentation and in program operation. The Federation also expresses its thanks to the Board and staff for adoption of a number of past Federation recommendations, such as summary presentations for program areas crossing departmental boundaries.

3. The Federation recommends to the Arlington County Board that: 1) it direct the County Manager to issue the Mid-Year Review and recommendations on the use of proposed budget contingents as early as possible in the public review process of future budgets, and 2) it direct the County Manager, through the budget guidelines for FY’07, to prepare a base budget proposal which provides a continuing level of services regardless of real estate assessments as well as readopt, beginning in FY’07, the Greenrod procedure whereby budget proposals would periodically identify for specific public scrutiny, agency by agency, programs where recent levels of staffing and funding may no longer be required to provide reasonable levels of service.

4. The President of the Federation is authorized to transmit approved motions and supporting information, including macro-economic calculations and comparisons, to the County Board, the School Board, the media, and other interested parties and to offer to make Federation Committee members available to explain the motions, recommendations for procedural improvements, and supporting text.

Table of Contents Page:

Overview...............................…..………….2

Summary of Recommendations.............…..4

Explanation of Recommendations........…...4

Procedural Improvements..................……13

Report of the Schools Committee……..…15

OVERVIEW

On February 15, 2005, the County Manager presented the County Board with a proposed FY 2006 budget. It followed earlier County Board guidance.

Proposed revenues at current rates of $783.9 Million (+9.1%)

[includes $1.3 million prior fund balances]

Proposed expenditures $745.0 Million (+3.7%)

[includes a compensation contingent of $10.9 million,

but eliminates Pay-As-You-Go Capital]

Leaving an FY’06 Budget Contingent and Reserve for Tax

Relief/Affordable Housing/Reserve Fund of $ 38.9 Million

Overall expenditures for basic County services were presented as receiving a 1.5% increase (more accurately 5.3% with the addition of the expected capital outlays or 5.6% if the budget contingent were also added). On March 15, 2005, the County Board voted to advertise the real estate rate at the reduced rate of 90.8 cents per $100 of assessed valuation. At this reduced rate, using the Manager’s unrealistic estimate of a 6% rise in assessments, the tax bill of the average single family home would have increased by 17.5% -- an average of about $620.

The Manager identified five CRITICAL DECISION AREAS: Tax Relief and Reserve Fund, Increased Support for Affordable Housing, Sustaining Base Operating Budget, Strategic Options, and Providing for Long-Term Economic Sustainability.

Major Factors:

Expenditures:

· METRO operations were projected to increase by 10.2%.

· Pay-As-You-Go capital outlays were omitted.

· County Debt Service was projected to increase by 17.4% mostly to cover the voter

approved 2004 bond issues.

Revenues: Based upon very pessimistic assumptions, the Manager projected increases as follows:

· Because of increased assessments and new construction, real estate tax collections would increase by 18.1%. Personal property tax collections would fall by 8.1%. Overall, local taxes were projected to increase by 12.5%. Revenues from the Commonwealth were to increase by 6.2% and those from the Federal Government to decrease by 2.2%.

· Water and sewer fees were scheduled to increase by 15 percent.

· Tax and fees options for $3.5 million were presented

Distributable Contingents:

· $10.9 million was set aside for a Compensation Contingent to cover COLA and other items, such as retirement system solvency, to be explained by the manager at a later date.

· $1.4 million was available for Strategic Options.

COMMITTEE REVIEW PROCESS:

The Revenues and Expenditures Committee again agreed at the start of its examination of the budget that our review would be conducted on the following terms:

o Base budget programs would be examined for excesses (including duplication) or under-funding;

o Normal inflation allowances (including step increases) would be expected;

o Changes in Commonwealth or Federal funds would be adjusted with local funding where necessary;

o The Schools funding level would follow the newly revised Revenue Sharing Agreement between the County Manager and the School Superintendent;

o Some modest increases would be considered for priority new initiatives, particularly in public safety. The Committee included all changes, either increase or reductions, required to be consistent with Federation approved motions;

o Some early decisions were to be made tentatively; subject to review after County staff responses to Committee questions were received and reviewed. Compared to FY’05, many more responses were received;

o A realistic estimate of carryover funds from FY’05 would be developed without reference to the County Manager’s unwillingness to incorporate an estimate in his budget; and

o The Committee would then recommend a real estate tax rate and/or other rate changes that would balance the resulting budget. This is our standard procedure whatever the changes in assessments have been over the past year, with the focus always on taxing the exact amount required to fund County operations, regardless of changes in real estate assessments.

o In its deliberations, the Committee decided to follow Federation member recommendations after the discussion of our last Legislative Package and facilitate separate Federation member votes on areas where the Committee had very split views on recommendations.

Using these procedures and goal, the Revenues and Expenditures Committee makes the following recommendations:

SUMMARY OF RECOMMENDATIONS

(in millions of dollars with rounding)

REVENUES:

A. County Manager’s BASE BUDGET…………………………………………$783.9

B. FY’05 Carryover…………………………………………………….………...+23.5

C. FY’05 Capital Reserve………………………………………………………….+2.8

D. FY’06 Revenue Re-estimations………………………………………..……...+25.2

E. Manager’s change to Real Estate Tax Relief…………………………………...- 0.2

F. FY’06 Net Fee Changes………………………………………………………..+ 3.3

TOTAL..………$838.5

EXPENDITURES:

1. County Manager’s BASE BUDGET

(including compensation contingent)………………….………………………..$745.0

2. Transfer to the Schools………………………………………...………………….+1.7

3. General Government………………………………………………………………+0.1

4. Courts and Constitutional Officers………………………………………………..+0.4

5. Public Safety………………………………………………………………………+1.0

6. Environmental Services……………………………………………….………….+.0.4

7. Human Services…………………………………………………………………...+1.0

8. Libraries………………………………….……..…………………………………..0.0

9. Economic Development…………………...………………………………………..0.0

10. Community Planning, Housing & Development………………………………….. 0.0

11. Parks, Recreation, & Community Resources……………………………………...+0.3

12. Non-Departmental & Debt Service………………………………………………..+1.5

13. Regionals/Contributions & METRO………………………………………………. 0.0

14. Pay-as-You-Go Capital………………………………………………………..…+12.3

15. General Capital Fund……………………………………………………..……….+1.0

16. Other (incl. Homeowner’s Grant Program)..………………..…………………….+2.3

TOTAL…………$767.0

Surplus of Revenues over Expenditures………………………………………………… +$71.5

17. NET Committee Balancing Recommendations………………………………………-$71.5

When comparing FY’05 adopted budgets and the Federation’s recommendations for FY’06, the results are as follows: Schools – 5.6% increase and County (General Fund after Schools transfers and debt service) – 6.5% increase.

EXPLANATIONS OF RECOMMENDED CHANGES

M =’s millions K =’s thousands of dollars

REVENUES:

(A) County Manager’s BASE BUDGET ($0.0M):

The Committee found that the presentation of this Fiscal Year’s Base Budget did not measure up well to the County’s usual standards. It made no provision for any Pay-as-You-Go Capital program; this is a dramatic departure from long standing policy regarding the proper mix of bonds and Pay-as-You-Go for major capital projects.

In addition, items such as operating costs, even basic janitorial services, for new County facilities and renovated facilities were not a part of the Base Budget. Rather, they were to be covered within a Budget Contingent for Strategic Options. The only apparent benefit of this was to keep $1.4 million in normal, expected expenditures out of the Base Budget and year-to-year growth calculations for that budget.

The Committee reviewed these eleven Strategic Option items. It supported nine of the items; and they appear in the proper Departmental categories below as increased expenditures. For one, the Committee recommended an increase in funding as shown below and consistent with a prior Federation approved motion. For the final item, a position fully supported by increased user fees, the Committee accepted a County staff decision to withdraw the proposal.

The Manager has proposed a new reserve fund this year called the "Revenue Stabilization Reserve" that is intended to set aside $9.7 million in excess funds for whatever purpose the County decides to use it eventually with minimal public notice and input. The apparent reason that a reserve of this nature could be proposed is that the Manager is not adjusting the tax rate to produce only the funds needed to run Arlington's government. There appears to be the assumption that the rising home assessments entitle the County Government to tax revenues that rise faster than inflation as well. The Committee emphatically rejects this proposal. However, the Committee does support the Manager’s proposal to increase the General Fund Operating Reserve by $1 million to maintain its ratio to overall budget; see (15) below.

The Commonwealth increased the recordation tax during FY’05 after the FY’05 County budget was approved. The County collects the same tax, indexed to the state rate. “As directed by the County Board, the total amount of the incremental recordation tax revenue from the higher rate for both FY 2005 and FY 2006 has been proposed for Affordable Housing initiatives.” This County Board “direction”, as interpreted by the Manager, has the effect of removing the Recordation Tax increase from the pool of local taxes subject to the revenue sharing agreement with the Schools. The Manager estimates $1,848K for FY’05 [included by the Committee in (B) below] and $2,612K for FY’06 already included in the Manager’s Base Budget revenues. The amounts recommended by the Committee for expenditures for these purposes are shown below in appropriate Departments.

(B) FY’05 Carryover (+$23.5M):

In his proposed budget, the County Manager presented a table showing that for Total General Fund Revenues for FY’05, the Adopted Budget amount would be exceeded by the Estimated amount by $23,735,167. However, he showed only $1.3 million of this amount in his overall tables. The Committee accepts the Manager’s initial additional estimate of $22.4 million (the bulk of which came from real estate collections higher than Approved Budget amounts). On March 24, the County’s belated Mid-Year Review recognized $21.9 million in additional revenues. With rounding, this equals the Committee’s additional $22.435 million minus the $573K additional expenditures noted below.

The Committee is not the only entity concerned about County budget estimates. The County’s Comprehensive Annual Financial Report for FY’04 (audit) noted under Legal Compliance (bolding added): “Expenditures exceeded the level of control in FY 2004 for the following departments: the County Board Office, the County Manager’s Office, the Human Resources Department, the County Attorney’s Office, the Treasurer’s Office, the Electoral Board Office and the Sheriff’s Office. The County Board will re-appropriate funds to increase these budgets in the annual closeout package in November of FY 2004. Management will ensure these departments develop better budget estimates in future years.”

In view of the history of significant divergences between budgeted revenues and expenditures, the practice of withholding distribution of the most recent Comprehensive Annual Financial Report until mid-November raises serious questions about governance.

Based upon the actual changes in recent fiscal years calculable 9 months into the fiscal year – both net reduced expenditures and net increased revenues – the Committee very conservatively estimates that no less than an additional $1.75 million will be available after the fiscal year is closed out. [$992K in local taxes and $753K in other.] The Committee currently projects that the actual will exceed $4 Million, but conservatively will allow for unexpected events in the next three months. For instance, savings from less than anticipated snow removal will be netted out by higher fuel costs while employee turnover lapse savings will exceed projections and higher than currently projected State and Federal contributions will be recognized. The Committee projection reduces, but does not eliminate, customary variability in revenues.

On March 15, the County Board approved, as a part of its Consent Agenda, $673K in “emergency” funding for Culpepper Gardens: $573K in FY’05 funds which will reduce possible carryover and committed $100K in FY’06 funds shown in (15) below. These actions were a part of the Manager’s proposed Policy Priority for Affordable Housing.

(C) FY’05 Capital Reserve (+$2.8M):

In November 2004, the County Board appropriated $3.3 million as a reserve for capital improvements (after amending the FY’04 Schools appropriation as per the Revenue Sharing Agreement) without a specified period for its use. Of this amount, according to a staff report to the Fiscal Affairs Advisory Commission in March 2005, $2.8 million is yet to be allocated. The Committee uses this amount to partially fund FY’06 capital improvements.

(D) FY’06 Revenue Re-estimations (+$25.2M):

Real Estate:

The Manager proposes only a growth in real estate assessments of 6% as of January 1, 2006 compared to the 18.1% experienced as of January 1, 2005. Such growth is measured basically by the changes in assessments through the prior June 30. We are already 3/4ths through the data collection period for the next calculation – growth rates in residential assessments have not abated and new construction has increased. Again, a growth rate of 18.1% is likely. However, to be very guarded in estimating future revenues, the Committee will calculate only 90% of that annual growth – accepting the possibility of a 40% slackening in growth for the remainder of the calculation period. This leads us to estimate an additional $21.9 million above the Manager’s proposal. As the Manager himself stated in his September 2004 budget guidance: “This year Arlington's housing market has continued to be very hot. Average residential real estate assessment growth is approaching 20% for the fourth year in a row.”

While reviewing projected recent fiscal year revenues, the Committee concluded that a systematic problem existed in Arlington budgeting. The use of a calendar year basis for real estate assessments versus a fiscal year basis for revenues creates unnecessary confusion and uncertainty. The Committee will prepare and send to the Federation’s Legislation Committee a request for Arlington to seek Commonwealth authority to adopt a real estate assessment period consistent with the County’s fiscal year – e.g. when the County adopts a tax rate it would begin only in the period of the budget adopted at that same time.

Other:

In anticipation of the Manager’s Third Quarter Review, the Committee has included a minimal estimate of $1.1 million in additional increases above the Manager’s projections for other local revenue sources in the proposed budget for the coming fiscal year as well as a minimal estimate of $2.2 million for additional net State and Federal funds (making the FY’06 projected revenues equal the FY’04 actual.) Of the local tax increase, $500K is increased BPOL collections attributable to initial BPOL program enhancements in the Office of the Commissioner of Revenue that are expected to further increase in the future.

(E) Manager’s Change to Real Estate Tax Relief (-$0.2M):

During the 2004 session, the General Assembly increased the income and asset maximums, which pertain to Arlington County, for this program. The County has historically adopted all State changes. These changes would reduce revenues by a currently estimated $200.5K at current tax rates (was only $100K in Manager’s budget message).

The Committee joins County staff in recommending increasing the income and asset limits to provide additional relief to low- and moderate-income elderly or disabled homeowners who are disproportionately impacted by rapidly rising real estate assessments.

(F) Miscellaneous FY’06 Fee Increases (+$3.3M):

As per the above discussion, the Committee accepts the Manager’s estimate of additional fee revenues ($85.8K) associated with additional traffic fines resulting from the addition of one uniformed Police Officer.

The Manager’s options to raise parking meter fees by $0.7 million and parking fines by $0.4 million were eliminated when the County Board voted not to advertise these increases on March 15.

The Committee accepts the Manager’s option to raise ambulance fees, which have not been increased in a number of years, and raise $0.4 million in additional revenue. The majority of these fees are reimbursable by insurance carriers and the raise is consistent with prior Federation efforts to achieve full cost recovery for appropriate County services and with the charges of other regional jurisdictions.

The Committee supports the Manager’s option of raising the Commercial Utility Tax (CUT) by 30% for increased revenues of $2.0 million This rate increase partially reduces the growing discrepancy between residential and commercial real estate revenues and burden.

Consistent with prior Federation recommendations, making the ASAP program fully cost reimbursable would result in $102.6K in additional fees; see (4) below.

The full costs of the emergency siren and voice alert system recommended in (5) below are assumed to be available from available Federal homeland Security grant programs; thus, additional revenues of $200K.

The costs of equipment (e.g. vehicles and bullet-proof vests) associated with the recommendation in (5) below for additional police officers can and should be funded by ‘seized asset funds’ available to the County, but not now a part of the budget. This would provide approximately $94K in additional revenues.

For the Department of Human Services, the Committee believes that projected fee revenues were underestimated in the Manager’s proposed budget by at least $237K. This includes underestimations associated with, for instance: Unicare and AmeriGroup Medicaid managed care plans, ACCSB client copays, Medicaid State waiver plans, and reduced income eligibility associated with the new Medicare prescription drug program. In addition, the Committee believes that the new case management software earlier invested in will improve both the accuracy and timeliness of eligibility certification and re-certification for a variety of programs for net additional revenues of $73.6K from other sources including Medicare, Medicaid and client copays. For DHS, the total of these two additional revenue estimations will account for an increase of about 0.8% of total non-tax revenues.

The Committee recognizes an additional $90K in homeland security grant funds secured by the addition of the grant specialist noted in (5) below.

EXPENDITURES:

(1) County Manager’s BASE BUDGET ($0.0M):

See comments in (A) above.

(2) Transfer to the Schools ($1.7M):

See the Report of the Schools Committee beginning on page 15.

That Committee begins by accepting the County Manager’s proposed transfer to the Schools including: Operations, Comprehensive Services Act, Capital, Debt Service, Community Activities Fund, and Other of $288.8 million – an increase of 5% over the current fiscal year.

The Superintendent’s proposed budget for FY 2006 states: “APS agreed to develop the FY 2006 budget within the context of a cap on revenue growth of 6%. In this scenario, all revenues beyond the 6% cap are available for tax relief. (The combination of the cap on revenue growth and the change in the School’s percentage share of locally generated revenue results in an increase of 5% in the county transfer to Schools from FY 2005 to FY 2006.)” The County Manager’s transfer number, restated above, does provide that 5% increase. The additional amount reflects the Schools share of estimated revenue growth over 6% -- funds which would have been available under the Revenue Sharing Agreement had the Manager appropriately estimated FY’05 carryover.

The Committees are concerned regarding the lack of detail in the Manager’s proposal regarding the transfer to the Schools. The single, unexplained, line item does not adequately explain to the public either the requirements of the Revenue Sharing Agreement or how it was calculated for the coming fiscal year.

(3) General Government (+$ 0.1M):

The Committee supports the Manager’s Policy Priority to expend $100K for program performance reviews (a function analogous to work done by the Government Accountability Office in the Federal Government). However, the Committee believes that all written reports must be made publicly available rather than “shared with appropriate audiences” as the Manager proposes and that the contractor conducting the reviews should not be the County’s independent financial auditor or its financial consultant – independence is essential.

(4) Courts and Constitutional Officers (+$372.9K):

The loss of a Federal grant of long standing has placed an important Court’s program in danger of closing resulting in “the loss of the only long-term residential alternative for many court-involved girls.”. The Committee accepts the Manager’s Policy Priority of “restoration of funding for Aurora House Girl’s Group Home” at a cost of $372.9K.

In FY’06, the County jail is projected to serve 31% more inmates than its State “rated capacity” and the jail population is projected to continue to grow at a rate of 4.7% per year. The Committee recommends that the next CIP include an explicit, short-term plan to build-out the shell space in the current building to humanely house those incarcerated and consequently reduce the risks for County staff. For the Sheriff’s Office, future fiscal year budget planning should assume a percentage increase in per capita inmate medical care costs no less than that for medical costs for County employees; e.g. in the range of 12% per year.

The ASAP (Alcohol Safety Action Program) is a court-mandated program for DUI offenders and first time drug offenders; it shows yet another year of increasing net tax support. As in previous years, the Committee recommends that the program be fully cost reimbursable. For FY’06, this would result in increased fees of $102.6K [see (E) above].

The Future Budget Considerations section for the Electoral Board includes: “The purchase of electronic pollbooks for each precinct and the purchase of additional voting machines for the next Presidential election.” The Committee recommends that the estimated $830K necessary to meet this demand should be included in the next CIP; where feasible Federal funding should be sought for this.

The Committee views the larger than County average expenditure projections for FY’06 in the Office of Commissioner of Revenue as an investment which will provide both enhanced service and revenues in the future. The Committee supports the Commissioner’s request for funding for AI (artificial intelligence) software to enable the office to non-manually compare State and County databases to enhance collection effectiveness.

The Committee joins the Fiscal Affairs Advisory Commission in being concerned about the new office of the Public Defender. One of the most daunting problems is the hiring of quality staff for the amount of salary allocated by the Commonwealth. Based upon current enabling legislation, localities cannot supplement the pay of the staff of this office. The County’s next legislative package should address this issue even if it would lead to future additional local costs.

(5) Public Safety (+$986K):

In 2005, the Federation approved a resolution requesting the County Manager to add 6 additional police officers every fiscal year until the County determines the optimum number of officers needed. We have included an increase of $536K for this purpose. In addition, the Federation earlier passed a resolution calling for the County to install an emergency siren and voice alert system. We have included an increase of $200K to fund that system.

The Fire Department continues to purchase larger fire trucks and then staff complain that traffic calming measures are not compatible with their vehicles. Costs for future truck replacements and maintenance costs can, perhaps, be reduced if the Department instead purchases trucks that are compliant with traffic-calmed streets.

For the Fire Department, the Committee recommends the addition of one non-uniformed FTE in the Emergency Preparedness Program for the purposes of CERT administration, CCC support, and the provision of community disaster education. (Cost: $100K). And, consistent with its FY’05 recommendation, the Committee recommends one additional FTE administrative assistant for the Office of Emergency Management at a cost of $60K.

For the Emergency Communications Center, immediate procedural recommendations (without a specific budgetary impact) include: 1) The County should ensure that ECC is staffed with a Fire Department officer, either permanently or rotationally through assignment of those on light duty. This will greatly enhance the ability to screen calls requiring medical attention; and, 2) The County is encouraged to have a well-established career ladder/banding approach to employee retention in place by end of FY’06.

For FY’07, the Committee believes that the Manager should review the overhead staffing levels in the Office of Emergency Management and Police and Fire Departments (especially the administration/staff ratio) to determine deficiencies to be addressed in future budgets. The ongoing information technology changes in these departments must be fully staffed to promote the public safety.

The Committee joins the Fiscal Affairs Advisory Commission in believing that the County can and should do a better job of seeking and obtaining available Homeland Security funds. The nature and complexity of this grants process is daunting. The Committee recommends an expenditure of $90K for an FTE grants specialist for this area; see (F) above for the anticipated first year in grants equivalent to this expenditure.

(6) Environmental Services (+$0.4M):

The Committee accepts the Manager’s Policy Priority for the Shirlington Bus Transfer Station at a cost of $52.9K. This is for the costs of opening a new facility; again, an expenditure that the Committee believes should have been in the Department’s Base Budget.

The Committee accepts the Manager’s Policy Priority for Barcroft Park Maintenance at a cost of $109.4K. This would cover increased maintenance costs for the Park at the completion of renovations in the May 2005.

The Committee notes that the budgeted amounts for street maintenance have not kept pace with rising materials costs (especially with the record petroleum prices) and that as a result the conditions of many county streets have deteriorated significantly. The Committee recommends that an additional

$250K in FY’06 be expended for street maintenance, roughly enough to fund about 5 additional lane miles of slurry coating and 5 lane miles of resurfacing. We also recommend that the County undertake some analysis of the appropriate cycle of maintenance for different types of streets (i.e., similar to the every 6 year maintenance cycle for sidewalks). This could be undertaken in conjunction with the preparation of the Master Transportation Plan update. We note that the county funded 36 miles of slurry and 36 miles of resurfacing in fiscal 2003, which would imply a cycle of 12 years or longer for the 950 lane miles of county streets and question whether this is adequate.

In the Manager’s proposal, the total water/sewer rate would increase 15% or $0.93 to a total of $7.13 per thousand gallons. The Committee joins the Fiscal Affairs Advisory Commission in recommending that the part of that increase contributing to the new reserve fund be reduced. The proposed tripling of the contribution would be excessive. This change would reduce the increase of the water/sewer rate to only $0.80 (13%).

It is recommended that future proposed budgets include cost analyses for the waste-to-energy program and for the solid waste recycling programs. No opinion is offered on the usefulness of continuing the solid waste franchising study at this time. It appears that the contracting-out of the last of the refuse routes has resulted in an increase in total costs of more than $200,000 for solid waste disposal. In view of this, the Proposed Budget should have explained the purpose of this action.

A “new trades worker pay pilot” in the Water, Sewer and Streets Bureau was mentioned and should have been explained in the Proposed Budget as a test of the Manager’s new compensation concept; see also (12) below.

(7) Human Services (+$1.0M):

Affordable Housing:

The Committee accepts the Manager’s set of options of adding $545.1K to the housing grants program. The amount meets the Committee’s goal of preventing any loss of grants to current recipients and emergency new cases as well as allowing a modest expansion of the components of the program.

As per last year’s report, these additional amounts are supported only under the following conditions: new applicants must meet the guidelines for the program previously established by the County’s housing task force, the minimum age for new elderly applicants be raised to 65 (to match the County’s real estate tax exemption/deferral program), new applicants must be Arlington residents for a minimum of six months and be able to prove lawful residency, and existing grant recipients must be able to prove lawful U.S. residency. The County must ensure that requirements will be strictly enforced and that monitoring mechanisms are in place to avoid any future overspending for this program

The Committee also accepts the Manager’s Policy Option for Affordable Housing to provide an additional $175K for residential providers of housing for County clients with mental retardation/developmental disabilities. These funds will increase the rate for each provider by an average of $8 per day per resident.

Public Health:

The Manager’s proposal admits that: “There is still a need for two additional food inspectors in order to meet state and federal recommended activity levels in food establishments.” Some food establishments have not been inspected in the last two years, but the Manager provides no additional funding. The Committee recommends one additional inspector in each of the next two fiscal years at a cost of $78K in FY 2006. This builds upon earlier Federation efforts over many years to ensure appropriate staffing for this activity.

In FY 2004, citizen complaints about rats increased by 28% according to the proposed budget; even more according to the experience of individual Committee members. The Manager’s proposal stated: “Two additional field staff are needed to adequately respond to citizen complaints and prevent rat activities throughout the community.” but provided no additional funding. The Committee recommends either one additional inspector in each of the next two fiscal years at a cost of $65K in FY 2006 or the equivalent amount in contracted services. Further, the Committee recommends additional customer satisfaction measures for the work of this program.

At a time when immigrants, many previously exposed to tuberculosis, continue as an increasing share of Arlington’s population, DHS faces the end of a federal Public Health demonstration grant to deal with this illness. According to Virginia Department of Health data, Arlington has the highest incidence of TB of any jurisdiction in the Commonwealth. The Committee recommends that an additional $61K be allocated for an FTE to meet this grant loss.

Other:

The Committee accepts the Manager’s Policy Priority for a Mental Retardation/Developmental Disabilities Case Manager at a cost of $61.9K. The additional FTE is needed to meet increases in State-required documentation as the result of newly required licensure.

(8) Libraries (+$39.4K):

The Committee accepts the Manager’s Policy Priority for Community-based Library Programs at the Shirlington Library at a cost of $39.4K. This funding is for staffing necessary to manage the about to open new facility. Again, the Committee believes that this is a clearly required expenditure that should have been in the Department’s Base Budget.

While Arlington’s libraries and information centers are among the most popular and best used of the services and facilities provided by the County, the County apparently does not have clearly enunciated goals for the delivery of these services and information. The County should develop a cost-effective strategy for the provision of information and a/v services that are needed by residents rather than the current emphasis on a facilities-based bricks-and-mortar approach. These services and materials should not materially overlap or compete with commercial services that are reasonably available.

(9) Economic Development (+$0.0K):

Under Future Budget Considerations, this Department notes: “…funding may be needed to open and operate the Conference Center.” The Committee believes that the long proposed Conference Center should be self-sufficient financially and NOT receive any net tax support – as it has been advertised to gain public support. It is not clear that there is anything resembling a shortage of convention facilities in the metropolitan area, so that this project has the potential to become a burden on County taxpayers and operators of existing convention facilities. There is also concern that putting a convention center on one prospective site that has been mentioned could result in the elimination of the only large-scale discount retail store in the County with a loss in tax revenues.

(10) Community Planning, Housing, and Development (+$150K):

The Committee accepts the Manager’s Policy Priority of Affordable Housing for Condo Conversion/Tenant Outreach at a cost of $150K. This one staff position would help ensure the retention of affordable housing as these units transition from rental to homeownership and there is related tenant outreach.

(11) Parks, Recreation, and Community Development (+$0.3M):

The Committee accepts the Manager’s Policy Priority for the Walter Reed Center at a cost of $99.2K. These funds are needed to staff an about to open new facility.

The Committee accepts the Manager’s Policy Priority for Barcroft Park Maintenance at a cost of $109.4K. This would cover increased maintenance costs for the Park at the completion of renovations in the May 2005.

The Committee accepts the Manager’s Policy Priority for Operations and Maintenance of the Barcroft Recreation Center Parking Garage at a cost of $100.9K for a contractor.

(12) Non-Departmental/Debt Service (+$1.5M):

Debt Service: The County has historically issued bonds and therefore begun debt repayments AFTER the dates used for budget planning and at a lower interest rate; thus a reduction of $217K is reasonable based upon the accuracy of past Federation projections.

Affordable Housing Investment Fund Contingent: Unlike four of the last five years, the Committee recommends no change in the Manager’s recommended level of funding.

Compensation Contingent: The Committee: 1) supports continued funding of the Manager’s “living wage” program, and 2) accepts the need to replenish the retirement fund based on lower investment earnings to maintain actuarial soundness.

However, the proposed increase between fiscal years of $8.8 to $10.9 million is not supported. Rather the Committee supports a 7% increase in this Contingent to $9.4 million; for a savings in this cost category of $1.5 million.

In his March 24, 2005 belated compensation recommendations, the Manager proposes that the County will continue to fund 80% of the costs for its healthcare plan at an additional cost of at least $1.5 million. The region’s largest employer -the Federal Government- contributes 72%. The Manager also proposes a “$4 million additional retirement contribution” that is “the equivalent of an across the board pay increase of just under 2%” which is needed to cover the FY’04 20% reduction in employee contributions to that system. He proposes to fully fund step increases at a cost of $4.4 million and a “1% performance Pay or Bonus” already built into the base budget AND make a 2% “market payline adjustment”. Thus, he proposes an increase of almost 6% in average salary in a single year, without bonus, when the last January-to-January CPI (consumer price index) was 3.6%. Either making the employee contribution to healthcare comparable to the Federal rate or reducing an average salary increase of nearly 6%, or parts of both would meet the Committee’s expectation to save $1.5 million in FY’06

Additional Reserves: The Manager notes that use of variable rate bonds will require that additional reserves be set aside for the possibility of rising interest rates. We urge that careful analysis be presented in the next budget to justify any additional reserves for this purpose. We also question the advisability of issuing variable rate bonds at this point in the interest rate cycle.

The Committee accepts the Manager’s Policy Priority for Additional Operating Funds for New Facilities at a cost of $291.3K. Since the four new facilities were split among three Departments without a cost breakout, the additional costs are added here for simplicity of accounting. Again, these were expenditures that clearly belonged in the Base Budgets of the affected Departments.

The Committee accepts the Manager’s Policy Priority for Affordable Housing for an additional contribution to the Affordable Housing Investment Fund (AHIF) at a cost of $2,917K.

(13) Regionals/Contributions and METRO ($0.0K):

Many previous Federation recommendations have been acted upon and cost savings achieved. However, modest long-term savings are possible for the County by: better management of regional agency reserve funds, better monitoring of comparative use rates, and constant updating of population-based assessments because Arlington's share of the regional population is declining.

(14) Pay-As-You-Go Capital Budget (+$12,343K):

The Committee accepts the need for all three tiers of options for capital improvements suggested by the Manager at a cost of $12,343K.

The Committee strongly recommends that capital improvements be a part of the regular Base Budget and not be funded separately during the fiscal year by the use of carryover funds or other gimmicks such as unadvertised revenue re-estimations. At a minimum, CAPP (Capital Asset Preservation Program) funds must be in the base budget. The Committee acknowledges some flexibility is required in paying for new projects.

In addition, the Committee makes the following recommendations to existing entries:

The Capital Asset Preservation Program (CAPP) for Parks and Recreation: This fund provides for one time expenditures to consolidate and upgrade critical maintenance of park facilities. The Federation feels that such expenditures belong in the Parks and Recreation operating budget rather than as a catch up effort. We recommend that the CAPP funding be included in the DPRCR operating budget.

Neighborhood Conservation. The original 500K PAYGO amount used in FY03 funded the initial expansion of this program. Since then, the DES has transferred a substantial number of project types to this fund. The Committee recommends ending this funding practice after this fiscal year and increasing the CIP bond funding for Neighborhood Conservation by $1M (a biannual amount), and adding to the CIP bond funding an amount equal to the additional capital costs transferred from DES general operations (to be decremented from appropriate DES bond funding).

The CAPP program can be seen as a reaction to a procedural improvement suggestion made by the Federation for a number of years that the County undertake an inventory of all County property and facilities so that an overall repair and renovation schedule could be created.

(15) General Capital Fund (+$1.0M):

$1 million was recommended for an increase in the County’s General Fund Operating Reserve; keeping the Reserve at a steady percentage of the general fund budget as is recommended by bond rating authorities. The Committee accepts this recommendation.

(16) Other (+$2.3M):

On March 15, the County Board approved, as a part of its Consent Agenda, $673K in “emergency” funding for Culpepper Gardens: $573K in FY’05 funds which will reduce possible carryover funds [shown in (B) above] and committed $100K in FY’06 funds. These actions were a part of the Manager’s Policy Priority for Affordable Housing. The Committee will not seek to undo an action already taken.

Also in March 2005 for Culpepper Gardens, the County Board voted to “Allocate $200,000 of one-time unspent FY 2004 LPACAP funds in the Department of Human Services (001.425) to be kept in a contingency reserve fund and authorize the County Manager to provide additional assistance out of this funding to ARHC if needed.” It was not specified that the contingency reserve fund be a part of the FY 2005 or 2006 general fund budgets, thus the Committee has not added them as either revenues or expenditures even though they are expected to be spent.

Homeowner’s Grant Program (+$2,164K): There was no Committee support for the initial County Manager proposal for this program, in part because the maximum income level was set too high at $72,000. However, the Committee proposed for Federation discussion two options for which the County Board and its appointed Review Panel were seeking input – a modified program and no such program. A modified program, as described below, passed by a margin of 29 to 28 with 3 abstentions.

Conditions/Reasons for Supporting a Modified Program:

· A lower maximum income level for participation. Initially, a maximum of $45K per annum is suggested; although more detailed staff research should be conducted.

· A lower maximum asset level for participation. Initially, a maximum of $160K is suggested. Again, further staff research on the implications of maximum assets is needed; in particular, which items are included and excluded from the calculation of such assets (for instance, IRA’s and reverse mortgages).

· A more substantial grant level: $1,000 is suggested. Even at this level, it would be the equivalent of only about one-quarter of the real estate taxes on the average priced single family home in Arlington in the first year of program operation.

· Support is contingent on the expenditures being excluded from the ‘local tax’ revenue base for the County Board/Schools Revenue Sharing Agreement.

· The program must be widely advertised to the targeted population.

The Federation’s narrow support for this Option assumes the expenditures would be taken from the County’s reserved funding available for affordable housing (not subject to the revised Revenue Sharing Agreement).

HOUSING SUMMARY:

The recommended additions for affordable housing priorities contained in (1) through (16) above ADD $7.2 million to the Manager’s Base Budget amount for housing of $31.5 million. This is a 22.9% increase and a larger increase over the FY’05 Adopted Budget. At this level, County housing expenditures exceed the budgets of either the Police or Parks Departments. As recommended, housing would constitute 8.1% of the non-Schools transfer General Fund for the County (and 8.9% when also excluding County debt service). Thus, for FY 2006 from all sources of funds, the equivalent of 9 cents on the real estate tax rate will be devoted to housing.

(17) Net Committee Balancing Recommendations (-$71.5 M):

The County estimates that each one cent reduction in the real estate tax rate will have a revenue impact of approximately $6.4 million (over three payments). The Committee recommends a reduction of 11.1 cents after allowing for rounding. The amount of any surplus, after allowing for rounding, should be added to the County’s General Contingency Fund.

Five cents of this reduction is already assured. That reduction is included in the maximum rate allowed under the County Board’s advertised rate.

PROCEDURAL IMPROVEMENTS

The Committee recommends (not in priority sequence) that:

General Fund Budget Presentation:

1. Whenever a new spending proposal is presented which will require expenditures in more than one fiscal year, it should be accompanied by: a) a "fiscal impact" analysis for future fiscal years, and b) an itemization of performance/workload measures which will be used to evaluate it if it is accepted.

2. A new table should be added to the proposed budget to highlight changes between the adopted and revised versions of the current fiscal year budget [analogous to the existing overview table in Tab A page 5 of the FY’06 Manager’s proposed budget]

3. The County should include reasonable estimates of carryover when projecting revenues for future fiscal years.

4. Even if no proposals are made for changes in operating reserves and contingent funds (including LPACAP [local public assistance cost allocation program] funds), their current status should be shown in proposed budgets.

5. There should be consistency in how the Schools and the County handle capital investment, capital asset repairs/renovation expenses, and carryover.

6. While the Committee generally found the proposed budget well organized and presented, there are a number of specific problems that will be identified in writing to the Department of Management and Finance. In particular, the Federation urges consistent budget presentations including use of the current budget year's Adopted Budget and Revised Budget.

Budget Management:

7. The County Board should direct the County Manager to change the County's external auditor and the County’s financial advisor at least every five years to ensure impartiality.

8. The County Board, through an entity such as the Environmental and Energy Conservation Commission, should conduct a study for volume/weight based charging for solid waste pickup as well as reviewing the current efficacy of special pickup charges as it considers the legal status of private waste haulers in the County.

9. The County Board should issue bonds only on terms related to the depreciation schedule of the assets purchased, and specifically not issue bonds for a term exceeding twenty years and not issue variable rate bonds for any assets which do not have revenue streams projected to be in excess of reasonable interest rate projections.

Capital Budgets:

10. Prior to the next County bond referendum: a) a revised 'Master Debt Plan' should be developed, with full public participation, and published with projections of debt service, including variable rate debt service, incorporated into the budget, and b) a consistent County policy should be developed, with full public participation, on the criteria for the use of bond proceeds to fund any County operating staff and on the manner in which bonds costs are to be presented to the voters. This Plan should include all “bond-like” instruments including, but not limited to, bond anticipation notes, short-term bank loans in anticipation of bond issuance, long-term leases, and lease-purchase agreements.

11. Routine maintenance and operating costs for all new County facilities and major capital equipment purchases must be shown in the fiscal impact statements when these facilities and purchases are approved by the County Board and/or the voters of Arlington.

12. As a part of its Capital Improvement Program, the County Board should create a five year plan to fully fund all improvements in County, including Schools, facilities necessary to achieve full compliance with the access requirements of the Americans With Disabilities Act as if they were new facilities.

Other:

13. The Department of Human Services should initiate a study to determine which components of its day care licensing, training, and inspection services are suitable for full recovery of costs through fees.

14. Since an important part of the budget process is to determine how well individual programs are serving the community, the County Board should create a policy statement itemizing guidelines for determining measures of user satisfaction and when levels of satisfaction are to be collected by County operating units. Performance measures are needed whenever a County service, such as a solid waste collection route or preparation of ‘Master Plans’ for parks or sectors, is contracted out. Where possible, performance measures should reflect objective rather than subjective observations that can be made independently of the facility or service user.

For example, when assessing the performance of programs intended to improve water quality, actual water quality measures should be presented alongside measures of bureaucratic activity (inspections performed, forms filed). In addition, it is recommended that Proposed Budgets add a pothole-related performance measure, e.g., the proportion of potholes fixed within 72 (or other) hours of notification

15. The County should add a Citizens Fund for Arlington mechanism where taxpayers could contribute for either the general fund or for specific funding needs such as schools, traffic calming, libraries, affordable housing, parks, the arts, the Columbia Pike initiative, enhanced e‑government or other purposes as has been done in Fairfax County since 2003.

16. Create a comprehensive plan using outside consultants with: expected expenditures, funding streams, staffing needs, and future operating budget projects for the long proposed Emergency Communications Center’s 911 computer system for the County including the capacity to locate all wireless and VOIP (voice over Internet protocol) calls.

17. Whenever the County creates “entitlement” programs, such as the tax exemption/deferral for aged and/or disabled residents or homeowner’s grants, the maximum usage effect on revenues and expenditures should be provided as well as projected effects.

18. Whereas the majority of DHS’s School Health Program is a Schools rather than a Public Health function, the County Manager and School Superintendent should meet to discuss an equitable School’s share (such as a capitation fee) of funding for those activities in future fiscal year budgets.

REPORT OF CIVIC FEDERATION SCHOOLS COMMITTEE ON THE

ARLINGTON PUBLIC SCHOOLS PROPOSED FY 2006 BUDGET

The Federation’s Schools Committee has reviewed the Superintendent’s Arlington Public Schools (APS) FY2006 proposed budget for new initiatives. The Superintendent structured his initiatives in four tiers to indicate his priorities if full funding did not occur. Only the Tier 1 and 2 initiatives were included in his proposed budget. His budget assumed a $0.05 real estate tax rate reduction in FY 2006. The Revenue & Expenditures Committee has proposed a $0.114 cent tax rate reduction, and also identified additional County revenue, the net of which is that it estimates APS will receive $1.7 million more than the originally proposed County transfer. This would change the Superintendent’s original estimate of the County transfer to the schools from $293.1 million to $ 290.5 million (see below and pages 7 and 8 of the above Revenue & Expenditures Committee report.)

288.8 million Proposed County Transfer

4.3 million Re-estimated FY2005 local revenues

293.1 million Total revenue originally proposed by County Mgr, APS Supt

293.1 million Total revenue originally proposed by County Mgr, APS Supt

- 4.3 million Re-estimated revenue used for tax relief

+ 1.7 million R & E estimated additional revenue

290.5 million Total County transfer to schools, based on R &E estimates & tax proposal

The Schools Committee’s recommended budget calls for spending of $288.2 million from the County Transfer. We recommend that the remaining $1.7 million anticipated in the R & E Committee’s report, and any other new County revenue that APS receives in FY ’06, be allocated to the APS Capital Projects budget.

INITIATIVES RECOMMENDED TO BE UP-GRADED TO TIER 1

1. Funding for K-12 mathematics textbooks was in Tier 2 and we recommend moving it to Tier 1. Recent national and international studies have highlighted deficiencies in the teaching of math and science throughout the US. Our recommendation demonstrates our commitment to addressing this need. More important, the schools committee feels strongly that textbooks generally should be part of the operating budget, as they are purchased annually on a rotating schedule. Therefore, they should not be included in new initiatives. We understand that, for the last several years, they have been made a special initiative because they fit the definition of a one-time purchase and, as such, can be purchased with re-estimated money under the Revenue Sharing agreement. However, textbooks are replaced on a regular six year cycle and they should be part of the regular operating budget.

TIER 1 INITIATIVES REDUCED OR MOVED TO LOWER TIERS

1. Pre-K Education Initiatives The Superintendent proposed $ 525,000 in four initiatives to: 1) add three new pre-k classes ($265,600); 2) offer extended day pre-k services to three new locations ($60,600); 3) provide six additional bus attendants ($95,000); and, 4) add an amount to the “planning factors” for pre-k services ($104,000). In principle, the School’s committee accepts all of the Superintendent’s proposed initiatives. However, the Committee recommends that the amount for the “pre-k planning factor” be reduced from the proposed $104,000 to $52,000, as the Superintendent has not made clear the justification for his proposed amount.

The Schools Committee supports strongly the expansion of the preschool program by three new classes targeted to low-income and at-risk children ($265,600). We also support providing extended day pre-k services for four-year-olds ($60,563). We believe those projects are effective long-range tools for decreasing the achievement gaps between white and Hispanic students and between white and black students.

2. Teacher Pay Adjustment Was Reduced by $713,062

The Schools Committee does not support the Superintendent's proposed 8.1% across- the-board pay raise for teachers. We support a 3% cost of living adjustment, for an estimated saving of $713,062. The timing is wrong for a large pay increase, as APS is continuing to look at ways to change teacher compensation based on a new evaluation system that is expected to include a pay-for-performance component. This year, it is estimated that the system will need about 50 fewer teachers than last year. This makes the Committee more comfortable with being somewhat less financially competitive with other local jurisdictions this year. APS still offers relatively high pay, smaller classes, a compressed pay schedule, and planning time. These factors should, in part, compensate for slightly lower pay in some categories.

3. Boundary Change Transportation Reduced by $189,000

The transportation allocation for boundary changes was cut in half. The Committee was not convinced that enough students would want to attend Barrett to require three buses.

4. Phase II Mac to PC Transition Reduced by $189,000

The Superintendent recommended $378,000 for this initiative. We recommend slowing the acquisition of personal computers to replace Macs in the classrooms by cutting the funding in half. We do not see this initiative as pressing with the same urgency as other initiatives.

ITEMS MOVED FROM TIER 1 TO TIER 4

1. Increased Frequency of Citizen Newsletter ($12,000). Additional issues of the newsletter do not seem necessary.

2. Customer Satisfaction Survey ($55,000). The Committee does not feel that conducting this activity every two years is necessary, as the findings do not appear to be used as an evaluative tool to improve the quality of the schools.

CAPITAL PROJECTS.

The Superintendent’s budget shows that the Capital Projects proposed budget was reduced 80% from FY 2005 levels. The Committee recommends that any additional County transfer of FY 2006 funds, in addition to the $1.7 million estimated by the Revenue & Expenditures Committee, be placed in the Capital Projects fund.

POLICY RECOMMENDATIONS

1. Televise School Board Budget Work Sessions like Regular School Board Sessions. The Committee feels that this is an important method to add transparency and to enhance community engagement in furtherance of the School Board’s strategic goal in this respect.

2. Math Endorsements for Elementary School Teachers Who Teach Math. A recent APS report found that, of the observed elementary school classes, in more than 50% of mistakes in mathematics and its instruction were seen. Accordingly, the Committee recommends that all elementary school teachers who teach math should have a “mathematics endorsement.” A preference should be given to new hires who have this endorsement; and for incumbent teachers, this should be part of their evaluation process.

3. Construction Priorities. Because construction costs have escalated rapidly, we recommend the school system review its construction and renovation priorities to see if some projects could be delayed until prices stabilize.

4. Consolidation of Administrative Services Enabled by New Software. Because both APS and the County are moving to Oracle’s E-Business suite of computer software, the Committee recommends that APS and the County meet and discuss the feasibility of consolidating payroll, accounts payable, and other functions that will efficiently utilize the new business software that is being jointly purchased.