Arlington County Fund Balance and Reserves Discussion April 2017 - - PowerPoint PPT Presentation

Arlington County Fund Balance and Reserves Discussion

April 2017

Prudent Financial Management is Important

• Sound financial management ensures:

– High credit ratings – Market access for: capital financing, key economic development, or

• ther high priority initiatives
• For Rating Agencies, County financial strengths are:

– Sound reserve levels – Fully funded pension plan – Funding plans in place for retiree health care – Conservative financial forecasting – Moderate debt levels – Adoption of structurally balanced budgets – Formal adoption & adherence to written financial policies

• Triple – Aaa Ratings

– All three agencies have given County the highest rating possible

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Fund Balances and Reserves

• Typically, fund balances and reserves are generated from:

– Positive or surplus annual operating results of entity

• Results can be undesignated, or available, as a resource

for the next fiscal year

• Results can also be:
• Legislatively appropriated for specific expenditures in the next fiscal year,

which reflects prior legislative decisions (committed), or

• Designated as a resource for future expenditures in subsequent fiscal years

(assigned or “reserved”) by policy on annual basis, or

• Unallocated for unexpected expenditures or revenue declines in the

immediately succeeding fiscal year (e.g., contingent or stabilization reserves),

• r
• Unallocated and unavailable for future use except under extreme duress or

hardship to address unexpected challenges (e.g., operating reserves)

• Rating agencies’ criteria identify operating results of 5% or

better as AAA quality

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Other Reserves

• Governments also designate contingent reserves for:

– Unforeseen extraordinary program expenditures, like snow removal, storm mitigation, or unexpected infrastructure failures – Surprise declines in revenues during the fiscal year due to economic events or changes, like the recent financial crisis – Unanticipated service delivery costs, like program expansion, maintenance costs, or land purchases – For self-insurance to pay claims against the entity since traditional insurance policies may be unavailable or prohibitively expensive

• Such reserves provide for funding unanticipated expenses
• r revenue drops without relying on the general operating

reserve

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Fund Balances and Reserves

• Arlington County uses close-out process in October to:

– Commit, assign, and designate operating results and prior unexpended commitments, assignments or reserves – Re-commit unallocated reserves equal to 5% of County General Fund

• County Fund Balances are:

– Committed to future expenditures for APS, AHIF, Capital, AIRE Program and others – Assigned to future expenditures for APS, AHIF, Capital, AIRE Program and others – Designated for Stabilization, Self-Insurance, and General Operating Reserves

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GF Revenues Performed Above Budget Since 2012

• Five year average tax revenues have been 2.9% above

budget

– Regional economy remains strong – Higher real estate assessments, budget / tax rate decisions – Non-tax revenues performed 2.2% better than budget

• FY 2017 - Higher than budgeted BPOL, personal property

tax revenues

– BPOL growth resulted in $4.5 million of additional revenues through 3rd quarter – Personal property ($1.9M) and other taxes ($1.1M), provided additional $3.0 million – Net total of $3.8 million (after schools share) in additional funding identified through 3rd Quarter FY 2017

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Sources of General Fund Expenditure Savings

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FY 2012 – 2016 General Fund Savings Net of Unspent AHIF Funds

43.4 19.8 30.0 25.6 16.5 13.2 25.3 22.7 21.1 13.2 6.8 7.8 11.2 9.8 10.6 3.8 8.3 8.7 3.7 3.6 6.3 6.7 5.9 8.5 5.9

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Schools County Operations Debt & Capital Unspent Contingents Studies, Planning & Misc.

$ Millions

$68.7 $67.9 $78.6 $73.5 $49.8

Sources of General Fund Savings FY2012 – FY2016

• Schools ($16.6 million – $43.4 million)

– Savings driven by personnel, health care, debt service, utilities, etc. – Savings are directed by School Board to budget and / or enrollment contingents and one-time expenditures like capital projects or technology

• Contingents ($3.6 million - $8.7 million)

– Using one-time $, County has funded variety of budget stabilization and compensation contingents – Contingency for BPOL released in FY 2016

• Debt & Capital ($6.8 million - $11.2 million)

– Refunding of bonds – driven by low interest rate environment – Multi-year capital projects – primarily technology

• Studies, Planning & Miscellaneous ($5.9 million - $8.5 million)

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GF County Operations Savings Sources

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FY 2012 – 2016 General Fund Savings County Operations Only

$5.3 $8.0 $6.0 $6.9 $6.7 $7.9 $17.3 $16.7 $14.2 $6.5 $0 $5 $10 $15 $20 $25 $30 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 County Operations Only Personnel vs Non-Personnel Personnel Non-Personnel

$ Millions

$25.3 $13.2 $21.1 $22.7 $13.1

County Fund Balances FY2013-FY2016

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$467 $536 $560 $550 $420 $440 $460 $480 $500 $520 $540 $560 $580 2013 2014 2015 2016

Millions

Fund Balance - Total Governmental Funds

$200 $233 $200 $191 $150 $160 $170 $180 $190 $200 $210 $220 $230 $240 2013 2014 2015 2016

Millions

Fund Balance - General Fund

Fund Balance - Total Governmental Funds as of June 30, 2016

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Self insurance reserve 1% Subsequent years' County budgets 2% Capital projects and Subsequent years' capital projects 64% Operating reserve 11% Economic & revenue stabilization / BPOL contingent / Economic Stabilization Reserve 1% Incomplete projects 1% Affordable Housing Investment Fund 11% Subsequent years' Schools budget 5% FreshAIRE program 0% Seized Assets 0% Debt Service 4% Grants 0% Prepaid Expenses 0%

Total Fund Balance Assigned and Committed

Total Governmental Fund Balance - $549.8 Million

All Sources Fund Balance: Capital

• Capital projects typically extend beyond one fiscal year

– Depending on type of project, can be 2-5 years in length

• Majority of capital funds are legally restricted in use
• Transportation Capital - $158 million

– NVTA local (“30%”) funds – 12.5 cent dedicated commercial real estate “C&I” tax – Must maintain maximum C&I tax rate or NVTA 30% & 70% regional funding is reduced

• Stormwater - $22 million
• Crystal City and Columbia Pike TIFs - $13 million
• Other restricted bond funds - $78 million
• General capital projects (bonds & PAYG) - $88 million
• General fund - $19 million

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Fund Balance – General Fund as of June 30, 2016

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General Fund Balance - $191.2 Million All general fund dollars are allocated to County Board-approved projects, services or by policy

Self insurance reserve 2% Subsequent years' County budgets 13% Capital projects and Subsequent years' capital projects 10% Operating reserve 28% Economic & revenue stabilization / BPOL contingent / Economic Stabilization Reserve 4% Incomplete projects 3% Affordable Housing Investment Fund 26% Subsequent years' Schools budget 13% FreshAIRE program 1%

Fun Fund Bal alance Ass Assigned an and Com

• mmit

itted

County Commits and Assigns GF Fund Balance

• Board has committed

funding to:

– Schools – AHIF – Capital projects – Economic and Revenue Stabilization – Subsequent year’s county budget – Self-insurance reserve – Incomplete projects – Operating Reserve

• Board has assigned funding

to:

– Schools – AHIF – Capital projects – Economic and Revenue Stabilization – Subsequent year’s county budget – FreshAIRE – Incomplete projects – Increases to the General Fund Operating Reserve to maintain it at 5% of the total General Fund; this supports the County’s triple- AAA rating

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GF Fund Balance Components

• Schools - $25 million

– Capital projects given enrollment growth and operating reserves / future budget allocations

• AHIF - $61 million – intentional build-up of funds to

address future projects

• Future years’ County capital and operating budget

allocations - $32 million

• Unallocated Reserves - $68 million

– Per Board policy and critical to maintaining Triple-AAA ratings – Operating reserve - $60 million – Economic & stabilization contingent - $3 million – Self insurance reserve - $5 million

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Summary

• Year-end available savings come from many sources

and can be difficult to predict

• County’s historical budget practices are intentionally

conservative

• Budget & close-out processes are intended to be fully

transparent with Board approval of all dollars

• AAA ratings & related considerations

– Conservative forecasting is considered a credit and management strength – Using one-time funds for one-time expenditures is considered sound financial practice – avoids structural imbalance

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