Initial Budget Forecast Shows Need for Continued Spending Reductions

Fairfax County is not out of the fiscal woods yet. That was the message made clear from the initial budget forecast presented to the Board of Supervisors by senior County staff on October 24. As it stands today, Fairfax County faces a $55 million shortfall in the coming year, rising to $120 million if property tax payments are kept at their present level. By law, the budget must be balanced when passed next April.

This preliminary forecast is provided each year as a starting point for budget discussions. In it, the property tax rate is kept even, all discretionary spending is held steady and no pay increase for County or school staff is included. However, increased fix costs - retirement, health insurance, workers’ compensation premiums, debt service - and last year’s use of almost $68 million in one-time money, outpace the limited revenue growth expected for FY2012, resulting in the projected shortfall. Unlike the last several years, residential property values are projected to increase, meaning if the tax rate is held at the FY 2011 level of $1.09, the average homeowner, with a home valued assessed at $432,439, will pay $156.96 more than last year. If the rate is dropped to $1.05, then tax payments would remain the same, but the shortfall would grow from $55 million to $120 million. For scale, in each of the last two years, the Board reduced spending by about $90 million each year.

There are additional pressures on this year’s budget from the school side. The School Board has called for increasing compensation for all School Board employees, including teachers. Such an increase, along with the expiration of federal stimulus funds and other factors, would require the County to increase its transfer by $65 million over last year. There is some discussion on the Board of Supervisors about compensation increases for County staff, although the County Executive has recommended one more year of pay freezes.

At $55 million dollars, the currently anticipated shortfall for FY12 is smaller than FY10 and FY11 - which had initial projected shortfalls of $648 million and $490 million respectively - but balancing this budget will still be a challenge. During the past two fiscal years, the County kept operating expenses roughly at the FY 2009 level. The transfer to the schools was held steady at about 53 percent of the total budget, 481 net positions were eliminated, compensation to employees was held flat, all agency spending was reduced, some facilities were closed and some programs were discontinued in order to balance the budget.

Balancing budgets over the next several years will become no easier either as this multi-year down turn is not expected to abate. Incredibly modest gains are predicted in the real estate market through FY14. Though there was an increase in home prices over the course of the last calendar year, suggesting perhaps better times lay ahead, it is assumed that this is little more than a blip, as the growth rate is expected to slow the following year.

Compounding matters is the high level of uncertainty in both the local and national economy. Nationwide, eight million jobs have been lost during the recession, consumer confidence remains dismal and economic growth remains slight – the economy expanded only 1.7 percent in the second quarter of 2010. Here in Fairfax, foreclosures are up: from a low of 705 in March 2010, they have increased by 168, totaling 873 in September. More troubling, serious delinquencies – home owners whose home payments are 90+ days past due – are on the rise.

Despite the significant programmatic budget cuts over the last two years, the increase each year in the fixed costs set forth above means that this year’s projected spending is only 1.3 percent less than two years ago. If the Board maintains the $1.09 rate property tax for FY12, payments would be about $400 higher than in FY06, when home values were about what they are now. Given those dynamics, further spending reductions are necessary. Responsible budgeting now will build a sound foundation for the future.

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