Continuation of Tuesday’s Article
Financial Projections Manipulated to Understate Future Capital and Operating Costs
By Ira Kaylin
Ira Kaylin is a former Council Member. He served as the Chair of the Economic Development Committee, Co-Chair of the Budget and Finance Committee and had served as Chief Financial Risk Officer of the Inter American Development Bank
In spite of ample empirical data that would help citizens understand the future financial burdens that are likely to be shouldered by taxpayers the City relies on “simplifying assumptions” that require a more than passing knowledge of the City’s budget structure to interpret their meaning.
The Referendum language resembles an advocacy piece rather than provide information that allows voters to make an informed decision.
Operating Cost Assumptions
The School Board has routinely ignored Council requests that School Budget growth match the expected revenue growth. Nonetheless the City Referendum language, in spite empirical evidence to the contrary, and without a hint of analytical basis, assumes that City revenue and School expenditure growth are the same at 2.5% annually.
According to the City Manager, revenue growth has been close to 2.5% per year over the last 10 years. However, using Adopted Budget numbers (only transfer amounts) indicate that from 2007 to 2017 the school Budget grew at around 3.5% or about 40% more than that of the City estimates. However, from 2007 to 2011 there was virtually no growth while from 2012 to 2017 it grew by an average of 7.2%
More importantly there is readily accessible data that would permit the calculation of an average rate of the growth of the School Division budget. Simplifications can be useful, over simplifications, on the other hand can end up hiding information rather than aiding our understanding..
The calculation of the average of the last ten years is not a difficult calculation.
It appears that the new GMHS will have a capacity of up to 1,500 students, which represents an almost doubling of the student population at the end of the projection period (around 15 years). How can the City possibly claim that operating costs, which are primarily driven by the number teachers and their salaries, will grow at an annual rate of 2.5%? (Please see Post article link for complete explanation of the Operating Cost calculation.)
At best the School Budget assumptions question the intelligence of Falls Church residents, at worst it an active effort at deception. Neither is acceptable.
The City projections are asymmetrical. School costs and City revenue grow at the same rate yet there is no estimate of the City’s expenditure growth. Pension and Medical Insurance expenses alone guarantee that there will be expenditure growth. This is an example of one too many simplifying assumptions.
If we assume, for illustrative purposes, that School Operating and capital costs increase by a net of $20 million at the end of the projection period (which is a conservative estimate) it would add (based on today’s budget) 50 cents to the tax rate.
The Referendum, as presented, is a straight up, in your face, advocacy piece populated by wholly unsupported and easily refuted assumptions. It does not provide city residents unbiased, accurate information on which they can make an informed decision. The draft resolution must be rewritten.
The City Council, in order to fulfill its obligation that all citizens be provided unbiased, accurate information must require the City Manager to redo the draft Resolution.
Post Script 1
It is clear that the lynch pin of those to claim that the financial burden of capital and operating costs can be accommodated is the belief that “economic development” will provide the needed added revenue . Based on that assertion it was, therefore suggested that:
Specifically, three scenarios should be prepared:
1) how many additional apartments/Condos would it take to generate $20 million,
2) how much additional square feet of commercial space would be needed to generate $20 million and
3) how many additional mixed use developments would be needed to generate needed revenue?
The most important question is “what would the City look like in 15 years?” The citizens should know what the future may look like before the Referendum vote. It could be presented at a future Town Hall.
If the City truly believes in “Full Disclosure” the above information can readily be provided.
Post Script 2
At the June 19 Work Session the City Manager has indicated that, in order to smooth out debt repayments and resulting tax rate increases the CIP could, among other things, delay certain projects:
1) all of the remaining Water Sale Proceeds, $10 million, would be redirected from general City Capital projects and will now be used to buy down School Division generated debt service,
2) the recently approved Library Referendum will not be funded until 2025 effectively voiding the already approved Referendum. A Referendum is valid for eight years and projected added cost of delaying the project, will likely necessitate a new Referendum..
3) TJ expansion would be postponed until 2025. It is unlikely, based on prior experience, that the School Division would actually wait that long before seeking funding.
4) the City Bond issue, by using a 30 flat mortgage debt structure instead of a 20 year flat principal payment structure will end up costing $30 million more. All of the surrounding districts use the 20 year flat principal payment type bonds to fund school construction.
The City Manger simply refused to discuss Operating Costs when asked by a City Council member.
If one were to use analogy it might be “daylight is to Vampires what mentioning Operating Costs is to the City Manager.”