Fairfax County Needs a New Savings Account
As we grapple with the worst County budget picture in decades, some
residents rightly ask, “Is there anything we can do to help cushion this
kind of blow in the future?” The answer is yes. Fairfax County needs a
savings account; in this case something called a fluctuation reserve. In
bad years, the County could draw on this fund, just like a family who
sets money aside in good times, to be used in tough times.
Several years ago, the Board correctly established a revenue stabilization fund (“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 a deficit. The County also has a Managed Reserve, but this can only be touched in the case of a catastrophic event. These two reserves account for only five percent of revenue, a small figure for a budget our size, and one of the lowest reserve levels amongst jurisdictions with AAA bond ratings.
A fluctuation reserve would offer us greater flexibility, and as a hedge against a serious, multi-year economic downturn, it would strengthen our financial position. Last month Chairman Bulova joined me in proposing that we study whether to establish such a fund, and the Board directed that the County Executive come before the Board later this Spring with a report and recommendation.
A fluctuation reserve would not be without drawbacks. The criteria for how it would be funded, at what level and when and how funding could be applied during the down years must be carefully considered.
All across our country people are rediscovering the concept of saving. Data from May showed the household savings rate rose to 6.9 percent, the highest since December 1993. The rate in April 2008 was zero. Over the last decade, we developed a culture committed to the credit card, spending now and pushing the bill to the future. Now, we are becoming more frugal. It is time for our government to follow suit and consider the creation of a savings account.