Report Designed to Confuse Citizens and Sow Distrust of Staff?
An Agenda or Inept Reporting?
By Council Member Ira Kaylin
The Falls Church News Press reported that revenue generated in fiscal year 2013 was $2.8 million greater than originally projected. After subtracting expenditures net operating revenue in excess of projections was actually $2.2 million. The remainder of the article claiming that the amount was a “surplus” and that raising the real estate tax rate from $1.27 to $1.30½ cent increase was entirely unnecessary–is totally erroneous.
[pullquote]Claiming that the City tax increase was not necessary is not only factually incorrect but unnecessarily damages citizen confidence in its government.[/pullquote]
The $2.2 million surplus was used to cover capital expenditures and included over a $1 million in restricted grants and encumbrances that are targeted for specific capital expenses; $900,000 that was used to cover storm water fees, and about $600,000 for capital “pay go” expenses.
Fiscally Skinny: Dip into the Reserve
In fact not only did we not run a surplus but we had a “deficit” of over $300,000 which was covered by reducing our Fund Balance.
Accordingly, there are two seminal issues: 1) the technical errors fabricated by the FCNP which need to be explained, and 2) the propaganda like effort to cast the City’s financial management as inept and bad intentioned. In other words the article appears to be an effort to sow popular distrust for purposes particular to the FCNP.
Please bear with me, the detailed factual explanation that follows is not easy to follow:
For some municipalities, including Falls Church, there are really two tax rates for one fiscal year. Here is where the FCNP went off the rails.
Here is how it works:
- In February 2013 new real estate tax assessments were calculated.
- In April of 2013 the City Council approves the FY 2014 budget. The budget year begins in July 1, 2014.
- In June of 2013 the first tax payment for fiscal year 2014 is collected. That payment included, among other things, revenues generated by the real estate tax rate increase (which incorporated changes in real estate assessments). The increase amounted to $1.7 million of the approximately $2.2 in net operating surplus.
- Thus during the twelve month period in FY 2013, June to June, there are two different real estate tax rates. The second June billing includes revenues explicitly intended to be used in the following fiscal year.
- Unless the year on year budgets are projected to be the same the June billing has to generate a surplus if a budget increase is expected. We knew that the FY 14 budget would have to grow to cover over 3% for City expenses and the 14% increase in school costs. Thus the 3 ½ cent tax increase was needed.
- Nonetheless the increase in revenues is reported as a 2013 event because the tax was collected in FY 2013.
- This convoluted and difficult to understand approach was designed years ago and permitted by the state of Virginia to allow municipalities to claim that they had balanced budgets when in fact it was an accounting gimmick. In other words it was designed to hide the actual fiscal situation of a municipality.
- The budget surplus reported in the FCNP lasted one day, from June 31, 2013 (FY 2013) to July 1, 2013 (FY 2014).
An example may help to explain it: Let’s say that our salaries are paid the last day of the month but our mortgage payments are required the next day; that is the first day of the next month. If we only looked our checking account balance as of the last day of the month our balance might look quite robust. However one day later our checking account might look much more constrained. Thus we know we have to have a substantial balance to cover necessary upcoming expenses.
This is analogous to the budget situation in the City.
Going Up the Down Staircase
The bottom line is this: the FCNP report is backwards, either unintentionally or intentionally. Not only did the City not run a surplus it ran a “deficit”.
Claiming that the City tax increase was not necessary is not only factually incorrect but unnecessarily damages citizen confidence in its government.
Ira Kaylin is currently a member of the City Council and, among other responsibilities is the Chair person for the Economic Development Committee, is a member of the City’s Budget and Finance Committee and is the Council’s representative to the the City’s Retirement Board.
Mr. Kaylin was the Chief Financial Risk Officer for the Inter American Development Bank (IDB) in charge of Asset/Liability Management, Financial Planning and Financial Policy Currently he is a member of the IDB’s Pension Investment Committee which is responsible for asset selection and monitoring of the IDB’s Retirement and Post Retirement Fund which is currently valued at $5.7 billion.