“Blue Skying” Financial Policy–The Good, the Bad and the Ugly–With a Helping of “Fake News”

Draft Policy Based on No Revenue or Expenditure Projections

Council’s First Responsibility is Candid Assessment of City Finances

“Fake News” Included in City Affordability Analysis

 

By Ira Kaylin

Kaylin is a Former Member of the City Council and Chair of the Budget and Finance Committee

On December 12, the City Council will consider a change in the City’s current Financial Policies. It is a mixed bag. Some of the recommended changes are truly positive while others lack important analytical data on which to base an opinion. In addition there are other major financial impacts that are outside the realm of the document but are important to the long run financial viability of the City. Thus the title which refers to a well known “Spaghetti” western called “The Good, the Bad, and the Ugly”.

The Good: The proposed changes in Financial Policies is forward looking and comprehensive; it has identified those areas that are vulnerable to poor planning and/or chronic underfunding e.g. the absence of “pay go” capital funding.

The upcoming GHMS Campus Bond Referendum will put unprecedented stress on the City’s financial soundness especially the funding of those activities that are City wide. In that regard the recommended establishment, and quantification, of capital reserves is essential. Since the capital reserve is expected to fund known expenditures it is essential that they be funded on a timely basis and not subject to yearly budget vagaries.

The document should be commended for explicitly requesting an increase in the Fund Balance to reflect the expected sharp in City indebtedness. This increase is analogous to a mortgage that requires, for example, a 20% down payment; if the mortgage is $500,000 then the down payment is $100,000, if the mortgage is for $1 million then the cost is $200,000. The percent of the down payment remains constant though the down payment has doubled.

The Bad: The Bad is very bad. The proposed increase in the Fund Balance by $6 million is very troubling. There is absolutely no information, not even a footnote, as to how the $6 million was calculated. It is, however, the same estimate provided by the City for the annual debt service of $100 million based on a 30 year bond, mortgage style level payment at current interest rates. That approach will cost the City approximately $30 million over a 20 year bond using a level principal payment approach. All of our surrounding jurisdictions use the 20 year level principal payment structure. It is hoped that the use of the implied use of a 30 year debt is not an effort to hide the actual cost of the debt and thus mislead the citizens of Falls Church. Mistrust of government is already at an all time high.

Next Article: The Ugly

1 Comment on "“Blue Skying” Financial Policy–The Good, the Bad and the Ugly–With a Helping of “Fake News”"

  1. Glad to see you back Ira. Keep up the good work. I hope the numbers I heard at the joint session are just a working example to show we *could* borrow 145mil if all the stars align not that we *will* do that.
    The most unrealistic premise I heard in the financial/budget update was that operational expenses would be projected to stay even with growth. Ha! The schools are already paving the way for a big increase request so that one goes right out the window.

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