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 other 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 2

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 ), or • 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 3

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 or revenue drops without relying on the general operating reserve 4

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 5

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 3 rd 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 3 rd Quarter FY 2017 6

Sources of General Fund Expenditure Savings FY 2012 – 2016 General Fund Savings Net of Unspent AHIF Funds $90 $78.6 $80 $73.5 5.9 $67.9 $68.7 $70 6.3 8.7 3.8 6.7 8.5 $60 6.8 11.2 3.7 8.3 $49.8 $ Millions 9.8 $50 13.2 7.8 5.9 3.6 22.7 $40 21.1 10.6 25.3 $30 13.2 43.4 $20 30.0 25.6 $10 19.8 16.5 $0 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Schools County Operations Debt & Capital Unspent Contingents Studies, Planning & Misc. 7

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) 8

GF County Operations Savings Sources FY 2012 – 2016 General Fund Savings County Operations Only County Operations Only Personnel vs Non-Personnel $30 $25.3 $25 $22.7 $21.1 $20 $ Millions $17.3 $13.1 $13.2 $15 $16.7 $14.2 $10 $6.5 $7.9 $5 $8.0 $6.9 $6.7 $6.0 $5.3 $0 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Personnel Non-Personnel 9

County Fund Balances FY2013-FY2016 Fund Balance - General Fund Fund Balance - Total Governmental Funds $240 $580 Millions $233 Millions $560 $230 $560 $550 $220 $536 $540 $210 $520 $200 $200 $200 $500 $191 $190 $480 $467 $180 $460 $170 $440 $160 $420 $150 2013 2014 2015 2016 2013 2014 2015 2016 10

Total Governmental Fund Balance - $549.8 Million Fund Balance - Total Governmental Funds as of June 30, Total Fund Balance Assigned and Committed 2016 Capital projects and Subsequent years' capital projects 64% Operating reserve 11% Subsequent years' County Economic & revenue budgets Self insurance stabilization / BPOL 2% reserve Incomplete projects contingent / Economic Debt Service 1% 1% Stabilization Reserve 4% Subsequent years' Schools 1% Prepaid Expenses Seized Assets budget Grants 0% 0% 5% Affordable Housing Investment FreshAIRE program 0% Fund 0% 11% 11

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 12

Fund Balance – General Fund as of June 30, 2016 All general fund dollars are allocated to County Board-approved projects, services or by policy Fun Fund Bal alance Ass Assigned an and Com ommit itted Capital projects and Subsequent years' capital projects Operating reserve 10% 28% Subsequent years' County budgets 13% Self insurance reserve 2% FreshAIRE program 1% Subsequent years' Schools budget 13% Economic & revenue stabilization / BPOL contingent / Economic Stabilization Reserve Incomplete projects 4% 3% Affordable Housing Investment Fund 26% General Fund Balance - $191.2 Million 13

County Commits and Assigns GF Fund Balance • Board has assigned funding • Board has committed to: funding to: – Schools – Schools – AHIF – AHIF – Capital projects – Capital projects – Economic and Revenue – Economic and Revenue Stabilization Stabilization – Subsequent year’s county budget – Subsequent year’s county budget – FreshAIRE – Self-insurance reserve – Incomplete projects – Incomplete projects – Increases to the General Fund – Operating Reserve Operating Reserve to maintain it at 5% of the total General Fund; this supports the County’s triple - AAA rating 14

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 15

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 16