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November 16, 2007

County staff briefs Supervisors on five-year financial forecast

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While exact figures for next year's Albemarle County budget are not yet finalized, it is certain that staff and the Board of Supervisors will be using a new way to analyze the numbers. The County is moving to a five-year financial plan which proponents say will help officials better understand how financial decisions made today will affect the budget in years to come.

The Board first learned how a five-year plan would work at its strategic plan retreat in September, but heard more specific details at a work session on November 14, 2007 where they heard staff's recommendations for how the County's general fund budget could be balanced over the period. Based on feedback received, the Board will follow-up with a second work session on the topic in December.

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The five year plan will be updated on an annual basis, according to County Executive Bob Tucker. His deputy county executive, Tom Foley, called the plan “a financial forecast and a planning exercise” built on a series of assumptions.

“The real focus is to assure a focus on policy and long-term thinking with the board,” Foley said. He added that the goal is to align the County's strategic plan with the annual budgeting process.

Foley went on to say that the five-year process will better reflect the financial impact of strategic priorities, such as a Board commitment to hiring new police officers. The revised process will allow the Board to better evaluate if programs and initiatives are affordable, and Foley said that the idea is to give staff clearer direction.

“Board priorities not put into financial terms sometimes cannot be achieved,” he told the Board. The five-year forecast as presented to the Board assumes that the County will pay for additional public safety employees. The five-year plan lists all of the financial obligations the County is responsible for paying, as well as any anticipated revenues. And, it has to be balanced.

In order to do that, Foley offered several steps to reduce spending. For instance, the County will need to freeze between 15 and 20 positions over the course of the five-year plan. Another position has been eliminated. Funding for new full-time employees to staff County ambulances has also been removed. No new funding will be available for new initiatives. Raises for County staff are based on a projected market increase of 3.35%*, and department operational budgets will be limited to 2%. The amount of money transferred from the general fund to the capital improvement program will be reduced by 1 cent. A tax increase of 1 cent is expected in FY11 if County revenues do not rebound from the current slowdown.

Foley said the school budget was a separate document not contained within the five-year plan.

Foley also briefed Supervisors on a comprehensive review of programs and services that's being conducted with an idea of reducing spending by ten percent over the five-year period. Programs will be evaluated on whether they provide “core” or “enhanced” services. An initial assessment of possible savings is reflected in the plan as part of a “Form 4” process, named after the form given to department heads to itemize possible reductions.

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A slide listing revenue assumptions made by County staff in putting together their five-year forecast (Source: Albemarle County)

During the work session, County Budget Analyst Laura Vinzant went into much more detail into the various assumptions that went into forming the plan. The plan assumes maintaining the tax rate at 68 cents through 2011, with a one cent increase that year. The plan also projects the growth in real estate assessments returning to 4% by 2013. Next year, however, the plan assumes a decline by 1 percent. Revenues from construction of new houses are projected to increase to 3% by 2013.

Beginning in FY09, the County will begin receiving money from the EMS Revenue Recovery which Vinzant said will eventually amount to $1.6 million a year. A flat sales tax is projected for FY09, and then back to 4 to 5 percent in subsequent years. State and federal revenues are also projects to remain flat.

Vinzant also took the Supervisors through the various obligations and commitments the County must pay. Perhaps chief among these is the revenue sharing the County must pay to the City. A major increase in revenue sharing is expected in FY2010, when the formula is recalculated to reflect the County's 2007 assessment.

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A slide listing obligations and commitments made by County staff in putting together their five-year forecast (Source: Albemarle County)

Other obligations include 12 percent increases in funding for the regional jail, increases in funding for mental health services mandated by the state and federal governments, as well as a mandated accounting changes which requires County governments to list the amount of money they will spend on retirement benefits. Funding for the Emergency Communications Center is also projected to increase by 4 to 5 percent each year.

Where the plan really comes into effect is when the Board's general policies and previous goals are put into the matrix.

One Board priority is to fund four new police officers each year, to bring the ratio of citizens to offer closer to 1.5 officers per 1,000 residents. The Board has also called for 12 full-time firefighters to be stationed at Pantops beginning in April 2009, as well as another 12 for the East Ivy station the following year. A Public Safety Training Facility will begin impacting the budget with FY10.

Vinzant said hiring the four new police officers each year would cost $482,000 annually. Each set of a dozen firefighters is budgeted at $1.2 million for the first year, and $860,000 in ongoing costs each year. The Board spent several minutes discussing whether more can be done to bring these numbers down by recruiting more volunteers.

Vinzant also listed other big-ticket expenditures expected in the next few years include funding for the Crozet Library and continued operation of recycling centers. Financial impacts for the proposed Northern library have now been placed outside of the five-year plan.

Vinzant said the 16 positions selected by staff to be frozen were chosen because they are currently vacant. She suggested that the exact positions would swap over time as new vacancies occur. However, the position of housing coordinator has been suggested for elimination.

The County will also save about $600,000 a year when a contract with the City of Charlottesville to provide fire service is allowed to lapse. Other attempts at savings will be reached by replacing fewer county vehicles, as well as the Form 4 program and service review. Staff is recommending no new funding for new initiatives, except for the additional public safety officers.

BOARD DISCUSSION

Foley said the work session had been intended to get Board direction on a limited number of issues, but at times, Supervisors preferred to delve into other detailed financial matters. That meant there was not much time for the Board to answer staff's specific questions. However, each supervisor did weigh in with some direction.

Supervisor David Wyant (White Hall) suggested putting more flexibility into the five-year plan to reflect the uncertainty of budgeting for the future.

Supervisor Sally Thomas (Samuel Miller) expressed concern that one of the frozen positions is for an agricultural support staff member. She said she would like to figure out some way to shift some of the least the functions of that position to some other department or agency. “We can't wait six years to have those functions performed, even if we don't have the exact position,” Thomas said.

Supervisor David Slutzky (Rio) raised the concern that the five-year plan was too limiting, and he recommended that staff come back with a series of scenarios, rather than making assumptions such as freezing sixteen staff positions.

Slutzky also cautioned staff to make sure that the assumptions used to make the five-year plan are valid, otherwise the whole exercise is pointless. “Saying we're going to assume a two percent increase in operating budgets for departments, when based on fuel and other considerations we know that's significantly out of whack with what we're going to experience, we need to acknowledge that in the assumptions and say we're making a draconian decision because we need to have a balanced budget or whatever.”

Foley said that the two percent figures would require budgets to cut travel expenses and other costs in order to come below the target. But Foley acknowledged Slutzky's point. Slutzky later asked if departments were restricted to 2 percent increases last year, and Vinzant said that they were. Slutzky said if fuel costs go up by 30 percent, that will mean drastically cutting services just to keep budgets balanced.

Slutzky added that he wanted to see the five-year plan have more options for what would happen if the tax rate were to be raised. He suggested that staff put together a second model on a 74 cent tax rate, to see how that would affect the assumption. He also suggested modeling for lower tax rates as well.

Supervisor Sally Thomas (Samuel Miller) said she wanted more discussion on the reduction of the transfer to the capital budget in part because of the potential need for major infrastructure upgrades. Supervisor Dennis Rooker (Jack Jouett) said he did not support reducing the amount for capital transfer.

“The cost of infrastructure is not going down,” he said, mentioning several projects such as the expansion of Albemarle High School and the Crozet library. “The amount of money we have in the [Capital Improvement Project] affects the amount of cash we have to put in versus the debt we have to take on to fund those projects.” Thomas and Slutzky agreed.

Thomas also cautioned against limiting the definition of “core” services, and Slutzky agreed that different Supervisors likely had different ideas about what “core” means.

Supervisor Ken Boyd (Rivanna) said he had no problem with using staff's assumptions as a baseline, but thought many of his colleagues were not looking at the big picture, but concentrating on little details.

“I think for us to micromanage that today by saying put this feature back in, or that feature back in, I think is wrong because the implications of it across the board is large,” Boyd said. He said the model will change as the Board goes through the actual budget process.

Slutzky countered that the tax rate was only dropped last year to counter-balance the effects of large increases in property tax assessments. “Now that we're not even close to that same scenario, I'm suggesting that a revisiting of the tax rate is going to be inevitable in the spring,” Slutzky said.

The discussion during the work session ran over, and Boyd suggested a second session be held in December to continue the conversation.

Sean Tubbs

* UPDATE 11/19/07: This sentence has been corrected from the original post which had stated that local government salary increases "will be limited to 2%."

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