Retreat finds council deep in dollar talks

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Policy or politics, the Alexandria City Council is now wrestling with how to solve a budget deficit without raising taxes.

For the past three years, Council has used its retreat as the beginning of the city budget process. This year was no exception. City Manager Jim Hartmann told Council that, real estate tax revenues are continuing to decline and the cost of government is continuing to grow. It is up to you to decide how to deal with those difficult issues.

Revenue forecasts
In FY 2009, real estate tax revenue is projected to grow by only 3.1 percent. That is not as bad as it seems if you look at the trends over time, said Cindy Smith Page, director of real estate for the city. While the real estate market is certainly in a downturn, the market here is sable.

Bruce Johnson, director of budget, presented a chart that showed real estate market trends for the past 30 years. If you look at 30-year averages, growth here has been about 6 percent. We saw a real estate boom in the 1980s and a decline in the 1990s. In the past 10 years, we have seen double-digit growth. The market is cyclical and this is really typical of what we could expect to happen, Johnson said.

While revenue from commercial and residential real estate will grow in FY 2009 by 3.1 percent, intergovernmental revenues from the state and federal governments will be relatively flat, projected to grow by about 0.4 percent.
And you can maybe expect that to decline because of what is happening at the state and federal levels, said Councilman Rob Krupicka.

In the end analysis, It is difficult for us to predict exactly what is going to happen in January, but this is our best estimate, Johnson said.

The cost of government services
As revenues have declined, costs have risen. The cost of energy has increased, as has the cost of many of the materials we need for construction projects, Hartmann said. Also, personnel costs are increasing, including the cost of health care and other benefits.

Next year, the cost of maintaining city services at their current level will increase by 5.7 percent. If we provide a 2-percent Market Rate Adjustment (Cost of Living Adjustment), the cost will increase by 7.1 percent, Johnson said.

That means that, without a Market Rate Adjustment, the city will begin budget discussions with a budget deficit of $11.6 million dollars in FY 2009. If Council gives an MRA of 2 percent to city and school employees, that deficit increases to $19.6 million.

Then, there is the Capital Improvement Program. We have been talking a lot about the amount of unfunded of projects over the next two years, Johnson said. Council must decide whether to defer projects or cancel projects or borrow additional money to pay for them, Johnson said.

Over the next two years, Council must find funding for $85 million in capital projects, including construction of a new police station, extensive renovations at Chinquapin Recreation Center, numerous sewer projects and an all-city sports facility.

Wheres the money?
New revenue can come from a number of sources. We have the option to raise the commercial real estate tax rate as Arlington and Fairfax counties have done. We were given that authority by the General Assembly in the regional transportation package, Hartmann said. That will allow us to pay for transportation operating and capital projects whose costs have increased this year, and that is money that we will not have to find out of the general fund.

The regional transportation package also authorizes the city to impose a number of other fees and taxes. It is important to remember that this money is supposed to pay for additional programs and not to replace city funds, Mayor Bill Euille said. We must be very careful as we look at these new fees.

Budget targets
Two years ago, Council set very high budget targets and when the city manager met them, Council cut the budget. Last year, Council set very low budget targets and when Hartmann met them, Council increased spending.

Hartmann and city staff presented eight different budget scenarios, many of which require raising the real estate tax rate. Council has asked Hartmann to bring recommendations to the first November meeting, on Nov. 19.

 

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