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Sep 18

The FY2014 Financial Year-End Report: Where Are We Now and Where Are We Going?

Posted on September 18, 2014 at 11:33 AM by Susan Finarelli

By City of Falls Church Office of Communications

At the Council Work Session on September 15, 2014, Chief Financial Officer Richard La Condré and City Manager Wyatt Shields presented the Fiscal Year 2014 (FY2014) Year End Financial Report. The key takeaways from the presentation are described below; the presentation materials and video can be viewed here (agenda item #3).


Presentation Purpose
The presentation provides a snapshot of the City’s financial condition as of June 30, 2014. The report gives Council a base of information for when FY2016 budget discussions start in November. When forming the coming fiscal year’s budget, it is common practice to evaluate the immediate past fiscal year—in this case, FY2014—and trends from previous fiscal years. The numbers presented are as of June 30, 2014.


A Quick Note about Fiscal Years and Debt Service
The City’s fiscal year starts on July 1 and ends on June 30:
  • Fiscal Year 2014 – July 1, 2013 through June 30, 2014
  • Fiscal Year 2015 – July 1, 2014 through June 30, 2015
Debt service is the annual payment needed to pay obligations of principle and interest on long term bonds issued for capital projects.


TAKEAWAY #1: For FY2014, revenue was $1.9 million ahead of the budget and managers spent $1.1 million less than budgeted.



The increase in revenue was expected as of the spring of 2014 and worked into the FY2015 budget to pay for pay-as-you-go (a.k.a. PAUG) capital and to reduce the required tax rate for operating budgets. The underspending will allow the City to fund capital needs in FY2016.

Much of the surplus ($870,000) is from real estate tax revenue, due to assessments for the June billing being higher than forecast. The City Council took action in January to align the real estate tax year with the City’s fiscal year, which means that for all future budgets, real estate revenues will be known at budget time, which will minimize surpluses or deficits.


TAKEAWAY #2: To meet FY2015 revenue projections, the economy must grow 4%.



City staff will continue to watch revenue projections and trends, keeping in mind federal and state budget cuts, and their impact on the local economy.


TAKEAWAY #3: The trends for the past three years of City expenses and revenues, plus new debt service required for capital projects, point to deficits in the future.



Even with positive revenue impacts from new economic development, deficits are possible. Initial projections show a $1.3 million deficit for FY2016 for two main reasons:
  1. FY2015 budget was balanced using one-time available funds to minimize tax rate increases, and
  2. New debt service coming online for FY2016.
The presentation provided three illustrations (slides 17-19) for closing the gap. These are intended as illustrations only , and not meant to be taken as scenarios that Council should adopt.


Illustration 1 (below) shows a $0 deficit up through FY2020 if expenses for schools, general government and debt service are kept at the same rate as economic growth. Growth for Schools and City Government expenses would need to hold to 3% growth in FY16, and to the percentages shown in the out years.




Illustration 2 (below) provides for a continuation of the three year trends for expense growth, plus debt service growth, and shows the potential real estate tax rates required to pay for it. The purpose of this illustration is to show how the past three year trends in expenses, plus debt service, compared to three year trends in revenue growth result in deficits if they continue in the future.




Illustration 3 (below) shows the impact on the tax rate if the gap between projected expenditure growth and projected organic revenue growth is closed 50% through spending reductions and 50% through higher RE taxes. The result is a combination of reduced spending and smaller tax rate increases as compared to Illustration 2.




Summary
FY2014 year-end results show the surplus that was anticipated last spring and which has been programmed into the current FY2015 budget. Additional cost savings realized in FY2014 can be used to meet capital needs. The three year trends for revenues and expenditures point to future potential deficits, particularly in FY2016. In the medium term future, the economic development that is underway in the City will help to mitigate projected deficits in FY2017.


Future Financial Planning and Budget Development for FY2016
The City and Schools will begin FY2016 Budget planning and development in the coming months. If you have comments or questions about the above information, please email the City Clerk's office, cityclerk@fallschurchva.gov.

Tag(s): finance, budget