Establishing a Fluctuation Reserve for Fairfax County


 

 

 

Joint Board Matter: Chairman Bulova with Supervisor Cook

Establishing a Fluctuation Reserve for Fairfax County

 

Madame Chairman:

As we continue to grapple with the County budget and the need to reduce substantially some County programs, some citizens rightly ask, “how can we make sure this doesn’t happen again?”  Property values have always undergone normal cyclical ups and downs. While we can’t completely plan for the length or depth of the “down” cycles, we may want to consider ways to provide a mechanism which could cushion the effects of falling property values as future market adjustments occur. 

During the past year or so, Madam Chairman,  some consideration has been given to the creation of  a sort of “fluctuation reserve,” which could serve as sort of a “savings account” or “cushion”  for the County. Money could be paid into this account during the “good” years, and could be drawn on in the “down” years. 

We understand the pressure creating such a reserve could present. Traditionally, during periods of growth, the County invests in capital projects and community needs. Objection could also be raised to the practice of “banking” some of the growth in revenue instead of returning it to taxpayers in tax cuts. We believe however, that especially during this severe economic downturn, our culture is rediscovering the value and importance of saving. A year ago the national savings rate was zero. Last year, it was eight percent. Now may be the time to seriously consider whether the County government should follow the lead of our citizens, with the creation of a “savings account” to level out, to some degree, the variances in annual budgets caused by economic fluctuations.

Several years ago the Board correctly established a revenue stabilization fund (sometimes called the “rainy day” fund). This fund is available when unexpected changes occur within a single budget year, after the tax rate has already been set and a budget adopted, creating the prospect of an illegal deficit. The rainy day fund helps us to avoid large cuts within a year to close such a gap. A fluctuation reserve would be different as it would hold money across budget years as a hedge against a serious, multi-year economic downturn.  There is no better time than the present, when we are very mindful of the consequences of not having such a fund, to pursue steps toward establishing a fund now that would start to be funded when our economy rebounds.    

I realize a “fluctuation” reserve would not be without potential drawbacks. The criteria for how it would be funded, at what level, and when and how funding could be applied during the “down” years would need to be carefully considered. We want to avoid causing taxpayers to be paying unnecessarily high taxes. We also don’t want our citizens to be denied an adequate return on their tax dollars in services and facilities. There are investment and financial implications that should be considered as well. These should be carefully considered with the advice of the experts on our staff.  

Therefore Madame Chairman, I ask that the Board direct the County Executive to study the advisability of our establishing a type of fluctuation reserve fund as described above, and to report back to the Board so that this proposal could be discussed and considered as part of our budget process this year. 


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