City manager restructures budget in response to COVID-19

City manager restructures budget in response to COVID-19
Alexandria City Hall. (Photo/Missy Schrott)

By Cody Mello-Klein |

City Manager Mark Jinks released the details for the city’s significantly revised – and reduced – fiscal year 2021 budget on Tuesday evening.

Jinks’ revised budget proposal for FY2021 comes in at $753.3 million, down 5.8 percent from the $799.9 million budget he proposed on Feb. 18. The changes are largely due to the coronavirus’ impact on the economy. As planned, city council is set to adopt the budget for FY2021 and the 10-year capital improvement projects budget on April 29.

When Jinks originally proposed his $799.9 million FY2021 budget to city council on Feb. 18, revenues were growing and prospects for capital projects were looking good, but over the course of the last month, the public health crisis caused by the spread of the coronavirus has caused “one of the biggest sudden economic downturns we’ve ever seen,” Jinks said.

“The budget situation, in short, it’s cataclysmic,” Mayor Justin Wilson said.

Between now and the end of FY2020 on June 30, the city expects a revenue shortfall of $35.8 million, and FY2021 revenues are projected to be down $56.4 million.

“We were projected, before this all happened, to finish the year with about a $5 to $10 million surplus, so that’s about a $45 million swing. That’s huge,” Wilson said. “And then next year’s budget, the FY21 budget is about a $56 million hole. And those are humungous holes and are going to force the community to have a very significant reckoning about what the essential roles of government are and what they are not.”

Jinks’ proposed budget “version 2.0” for FY2021 attempts to fill that hole by deferring specific capital projects and reducing expenditures in key areas. The revised FY2021 budget is $753,276,147.

The most significant change to the city’s revenue plan is its approach to the real estate tax. In February, Jinks proposed a 2-cent increase to the real estate tax rate, which would have produced $12.8 million in revenue for the city. In response to the COVID-19 crisis, Jinks and city staff proposed removing the tax rate increase from the FY2021 budget.

“The thinking behind that is that an increase in the tax rate adds an additional burden to homeowners and to other property owners and that raising tax rates at this time, I think you’ll see the rest of Northern Virginia largely follow suit on not raising tax rates that were proposed,” Jinks said.

The proposed increase in storm sewer fees would also be cancelled in the new budget; however, the increase in the solid waste refuse collection fee would remain.

The revenues gained through the 2-cent increase would have funded several long-term capital projects. As a result, the city manager also proposed deferring some of those projects.

A total of $24 million and $140.6 million in capital projects are proposed to be deferred from FY2020 and FY2021 respectively. The most significant projects deferred from the next fiscal year would be $30.5 million in funding for the first phase of the Waterfront Park flood mitigation plan and $103.7 million in funding for the T.C. Williams High School Minnie Howard campus project.

Both projects would be deferred to FY2023; however, enough funding remains for planning to continue in FY2021.

By deferring these projects, others, such as the Douglas MacArthur Elementary School rebuild, will be able to take higher priority. The MacArthur rebuild is still in the proposed FY2021- 2030 CIP budget, Jinks said.

The projected $56.4 million drop in revenues for FY2021 means the city has to cut expense areas significantly to produce a balanced budget.

Salaries, wages and benefits for city employees make up the majority of expenditures in any given year. Jinks proposed freezing compensation improvements for city employees in FY2021, which would eliminate the 1.5 percent pay increase for all city employees and merit increases for qualified employees that he originally proposed.

The city adopted a hiring freeze in March with “selective exceptions,” Jinks said. One of those exceptions is additional firefighter positions to ensure minimum staffing standards – four firefighters to a truck. The city is hoping to get federal funding to support this through the Coronavirus Aid, Relief and Economic Security Act, Jinks said.

To increase the city’s response to the coronavirus outbreak, Jinks proposed set- ting aside $1 million in federal funds, which would be matched by the state, to hire additional epidemiology staff for the Alexandria Health Department.

Combined, the employee pay freeze and hiring freeze account for about $12 million in expenditure reductions.

The city manager also proposed a $7.4 million reduction in the school operating fund transfer, equivalent to Alexandria City Public Schools’ compensation improvement plan. The city is not proposing the school board specifically cut the money from the compensation improvement plan, only that an equivalent amount be cut from the budget, Jinks said.

In addition to deferring flood mitigation construction and the Minnie Howard project, Jinks proposed pushing back several other small capital projects, including planning for capacity improvements to the city’s train station and space planning for the Torpedo Factory.

The city manager also proposed that the city use $8 million from two “rainy day funds” that were specifically intended for use during an economic downturn and natural disasters or emergencies.

“Although the sun’s out at the moment, a few minutes ago it was raining, and I think economically it’s going to keep raining for the next 15 months,” Jinks said.

Plugging up the $35.8 million budget gap in FY2020 is even more of a challenge, given the fiscal year is almost over. The hiring freeze and money saved from the city’s fourth quarter Metro bill go a long way toward achieving a balanced budget, Jinks said.

Other reductions include reducing open space funding by $2.5 million, deferring fueling station funds by $2 million and cancelling the $6.1 million renovation of the AHD building at 4480 King St. AHD is set to move into the IDA Building at Mark Center.

Jinks will present the updated budget proposal to council on April 14 and a budget public hearing will take place on April 18 ahead of council’s budget adoption on April 29.

Given the heavily-altered budget and constantly changing situation, council may have to adopt the budget with contingencies, Wilson said.

“We are probably going to adopt the budget with a series of reductions to be named later,” Wilson said. “So, we will specify the revenue levels, we’ll adopt the tax rates and all that stuff and adopt the overall budget number, but we’re going to have to come back in the May and June time frame, engage with the community – as we can with social distancing rules – and determine what those additional reductions will be.”

The COVID-19 public health crisis has completely changed most residents’ way of life, including city employees. As a result, the budget restructuring process has been done largely via remote work, which has provided challenges for Jinks and city staff.

“We’re in a crisis mode locally, regionally, nationally, but we all have to step up our game and get done what we’re called upon to do,” Jinks said.