Budget, Capital Improvement Program (CIP) and Debt Overview · the proposed Strategic Plan priority...

Budget, Capital Improvement Program (CIP)and Debt Overview

Joseph Mondoro, Chief Financial OfficerChristina Jackson, Director, Department of Management and Budget

January 7, 2020

Board of Supervisors Retreat

Budget Overview

2Budget, CIP and Debt Overview - Board of Supervisors Retreat

Budget Development Timeline

3

Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun

Agencies prepare and submit

annual budget requests

DMB (Dept. of

Management and

Budget) reviews

requests

County Executive

reviews DMB

recommendations

County

Executive

submits

Advertised

Budget to

Board

Public

Hearings on

Advertised

Budget

Board approves

Tax Rates and

Adopted

Budget Plan by

May 15 after

Budget Chair

incorporates

input from

Community and

Board

Community Engagement

on Advertised Budget

DMB

prepares

and County

Executive

submits

Carryover

Review to

Board

Board

approves

Carryover

Review

DMB prepares and

County Executive

submits Third

Quarter Review to

Board

Board

approves

Third

Quarter

Review

Future Fiscal Year Budget Development

Current Fiscal Year Budget Adjustments

Budget, CIP and Debt Overview - Board of Supervisors Retreat

CY 2020 County Budget DatesFebruary 25 County Executive presents FY 2021 Advertised Budget and FY 2021-2025 Capital Improvement Program (CIP)

February 28 Joint County/Schools Budget Committee Meeting

March 10 Board advertises FY 2021 tax rates

March 17 Budget Committee Meeting

March 24 Board authorizes advertisement of FY 2020 Third Quarter Review

March 31 Budget Committee Meeting

April 14-16 Board holds public hearings on FY 2021 Budget, FY 2021-2025 CIP, and FY 2020 Third Quarter Review

April 24 Budget Committee Meeting (Pre-Mark-up)

April 28 Board marks up FY 2021 Budget, approves FY 2021-2025 CIP and FY 2020 Third Quarter Review

May 5 Board adopts FY 2021 Adopted Budget

July 1 FY 2021 Budget Year begins

July 28 Board authorizes advertisement of FY 2020 Carryover Review

September 22 Board approves FY 2020 Carryover Review

Budget, CIP and Debt Overview - Board of Supervisors Retreat 4

FY 2021 Consolidated Budget TimelineCOUNTY DATES SCHOOLS DATES STATE DATES

Governor presents amendments to 2020-2022 budget December 17, 2019

Superintendent releases FY 2021 Proposed Budget January 9, 2020

School Board holds public hearings on budget January 27-29, 2020

School Board adopts FY 2021 Advertised Budget February 6, 2020

State money committees to complete action on budget bill February 16, 2020

County Executive presents FY 2021 Advertised Budget February 25, 2020

Last day to act on state budget bills and appoint budget conferees February 26, 2020

Joint County/Schools Budget Committee Meeting February 28, 2020 February 28, 2020

General Assembly Session adjourns sine die March 7, 2020

Board of Supervisors advertises FY 2021 tax rates March 10, 2020

Last Day for Governor’s action on legislation by midnight April 6, 2020

Board of Supervisors holds public hearings on FY 2021 Budget April 14-16, 2020

Board of Supervisors marks up FY 2021 Budget April 28, 2020

Board of Supervisors adopts FY 2021 Adopted Budget May 5, 2020

School Board holds public hearings on budget May 11-13, 2020

School Board adopts FY 2021 Approved Budget May 21, 2020

FY 2021 Budget Year begins July 1, 2020 July 1, 2020 July 1, 2020


General Fund Revenue Sources

Real Estate Taxes

$2,890.6

65%Personal

Property Taxes

$640.5

14%

Fines & Forfeitures

$12.6

0%

Permit, Fees &

Regulatory Licenses

$53.6

1% Charges for Services

$83.3

2%

Rev. from the

Commonwealth

$100.7

2% Rev. from the

Federal Govt.

$39.4

1%

General Other

Local Taxes

$537.4

12%

Other Revenue

$16.9

1%

Revenue from

the Use of Money

& Property

$82.3

2%

FY 2020 Adopted Budget (in millions)• FY 2020 budgeted General Fund

revenues total $4.46 billion

• Real Estate Taxes make up 65% of all General Fund Revenue

• This has increased from 58% in FY 1992 primarily because adjustments to the Real Estate Tax rate remain the primary option to generate significant revenue

• Revenue in all funds totals $8.87 billion as of the Adopted Budget

6

$211.3 million reimbursed by the Commonwealth as a result of the Personal Property Tax Relief Act of 1998 are included in the Personal Property category


Revenue Trends

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

$11

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*

Rev

enu

e (i

n b

illio

ns)

General Fund and All Funds Actual Revenue – FY 1992-2020

General Fund Revenue Other Funds Revenue

*As Projected in Revised Budget


Real Estate Assessments• Annual Real Estate Assessment changes are driven by a combination of

Equalization changes and Growth• Equalization changes are market driven value increases or declines• Growth is generated by structural changes such as new construction, remodeling, and

rezonings• In FY 2020, of the 3.6% increase in assessed value, Equalization contributed 2.45%

while Growth contributed 1.15%

• Real estate assessments are required to represent fair market value, which is generally determined differently for residential and commercial properties

• For most residential properties, fair market value is best determined from comparable sales data

• For most commercial properties, fair market value is best determined by capitalizing the ability of the property to earn income through rents, accounting for operating expenses and allowing for vacancy and collection losses

• In FY 2020, Commercial/Industrial properties made up 19.66% of the Real Estate Tax base


Real Estate Property Taxes

• Real estate property tax revenues are computed by applying the tax rate set by the Board of Supervisors ($1.15 in FY 2020) to every $100 of assessed value of taxable real estate

• In FY 2020, the Main Assessment Book Value was $255.2 billion

• For FY 2020, one penny on the tax rate equaled approximately $25.5 million

• In FY 2020, the mean assessed value of all residential properties in the County was $562,601

• With a tax rate of $1.15 per $100, the average residential tax bill was $6,469.91

• Based on the mean assessed value, a penny change to the tax rate would have changed the average residential tax bill by $56.26


General Fund Revenue Trends

$0.80

$0.85

$0.90

$0.95

$1.00

$1.05

$1.10

$1.15

$1.20

$1.25

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

Tax Rate p

er $1

00

of A

ssessed V

aluePe

rcen

tage

Ch

ange

in R

even

ue

Revenue Growth and Real Estate Tax Rate – FY 1992-2021

Real Estate Tax Rate % Change in General Fund Revenue*Projected


Impact of Real Estate Tax Rate Adjustments

0%

1%

2%

3%

4%

5%

6%

7%

2013 2014 2015 2016 2017 2018 2019 2020*

Perc

enta

ge C

han

ge in

Rev

enu

e

General Fund Revenue Growth – FY 2013-2020

% Change in General Fund Revenue % Change in Revenue with no change to RE Tax Rate

*Projected

Range from 1.9% to 3.9% over past 8 years

0.5 cent Increase

1.0 cent Increase

0.5 cent Increase

4.0 cent Increase

2.0 cent Increase


General Fund Disbursements

Schools

$2,347.1

53%

County Debt

$131.8

3%

Health & Welfare

$507.5

11%

Judicial Administration

$42.5

1%Public Works

$79.0

2%

Contributories/Grants

$18.8

1%

Public Safety

$535.6

12%

Parks and Libraries

$58.0

1%

Community Development

& Transportation

$142.8

3%

Legislative-Executive

$33.5

1%

Central Services

$118.1

3%

Capital

$18.1

0%

Nondepartmental

(Fringe Benefits)

$416.6

9%

FY 2020 Adopted Budget (in millions)

• FY 2020 budgeted General Fund disbursements total $4.45 billion

• Schools, Public Safety and Health & Welfare disbursements make up over 76% of all General Fund spending

• Since 1992:• School transfers have increased from

49.7% to 52.8%• Nondepartmental (primarily Fringe

Benefit) expenses have increased from 6.2% to 9.1%

• County Debt Service expenses have decreased from 5.1% to 3.0%

• Expenditures in all funds totals $8.41 billion as of the Adopted Budget

12

Categorizations have been revised from the “Where it Goes” pie chart included in the FY 2020 Adopted Budget Plan.


County Spending over past 12 years

13

Growth in Adopted Disbursements FY 2009-2020 (in millions)


SCHOOLS

$612.6

54%

COUNTY

$519.4

46%

Pay/Benefits

$493.1

County Operations/

Reserves

$6.0

Human Services, $110.1

Trans./Comm. Dev., $62.3

Public Safety, $81.8

Capital Paydown

($7.0)

County Debt Service

$18.4

Reductions

($245.3)

($300)

($200)

($100)

$0

$100

$200

$300

$400

$500

$600

$700

$800

Alignment with the Strategic Plan

• For the FY 2021 budget:• Spending adjustments will be categorized in the Advertised presentation by

the proposed Strategic Plan priority outcome areas

• For the FY 2022 budget:• Funding recommendations for the Advertised will be focused on those

adjustments which will allow the County to make progress on the Strategic Plan priorities as adopted by the Board of Supervisors and as outlined in the FY 2022 budget guidance

• Budget documents will be updated with a focus on the priority outcome areas and the guiding principles


Ten Principles of Sound Financial Management


Overview

• Statement of Board’s commitment to the County’s financial policies• Adopted in 1975, last amended in 2018

• Essential for maintaining the Triple A credit rating

• Principles are updated when applicable depending on the changing nature of market conditions and other factors (e.g. regulations, Bond Rating Agencies)


Recent Amendments

• Reaffirmed and amended in 2015 with revised reserve targets• Managed Reserve increased from 2% to 4%• Revenue Stabilization Fund increased from 3% to 5%• Creation of Economic Opportunity Reserve equal to 1% of General Fund

Disbursements• As part of budget development, 10% of increased General Fund

disbursements are set aside in reserve

• Amended in 2018 with revised General Obligation bond sale limits• Increase from $275 million to $300 million per year;

• Schools from $155 million to $180 million; County $120 million (average)

• Increase from $1.375 billion to $1.5 billion over five years


Debt Management

• Establishes limits to borrowing and debt ratios• Annual debt service expenditures not to exceed 10% of total disbursements• Net outstanding debt not to exceed 3% of total assessed value

• All other debt related to but not directly supported by the General Fund shall be closely controlled/monitored to the extent possible

• Revenue Bonds of agencies supported by the General Fund (Park Authority Bonds)

• Debt of component units of government (Sewer Revenue Bonds)• Special tax districts (Reston and McLean Community Center Districts)• Other debt-financed projects (Dulles Rail Tax Districts, Route 28, Mosaic)• Source of Debt Service payment is NOT the County’s General Fund• Above examples do NOT all necessarily carry Triple-A Bond Ratings


Capital Improvement Program (CIP) Overview


CIP Process• The CIP is the County’s planning document for creating, maintaining and funding

present and future infrastructure requirements

• The CIP is a key element in planning and controlling future debt service requirements

• In general, the first year of the CIP reflects annual project funding levels. Future year estimates are included but do not receive expenditure authority until they are approved by the Board of Supervisors

• The CIP is advertised concurrently with the Budget

• The Planning Commission conducts a workshop, public hearing and committee meetings, then forwards CIP recommendations to the Board of Supervisors

• The Board can change the CIP and/or the proposed capital budget at any time during their budget deliberation process or by introducing additional CIP motions

• The Board approves the CIP at Budget Mark-up


CIP Project Approvals• The General Fund Capital Program is developed as part of the Annual Budget and

specific projects are included in the CIP

• The General Obligation Bond Referendum Plan is developed as part of the CIP and is based on priority projects and adherence to the Ten Principles of Sound Financial Management

• Details the long-range facility plan, outlining specific projects and schedules• Includes County/FCPS bond referenda in alternate years• Ensures that future plans are affordable and adhere to the Ten Principles • Gives staff authorization to develop a Bond Resolution prior to the up-coming fall referendum• The Board reviews and approves a citizen informational pamphlet on the proposed bond

referendum projects • After voter approval of the referendum, funding for each bond project is fully appropriated

• Rates for self-supporting funds are developed (Stormwater, Wastewater, Solid Waste, Housing) as part of the Annual Budget and support projects in the CIP


CIP Project Approvals (continued)• Economic Development Authority financed projects

• Some capital projects are supported by EDA bonds• Provides opportunities for the County to leverage public and private sector funds to advance

major capital investments in infrastructure• These projects are proposed annually in the CIP, discussed in budget committee meetings and

in individual Board member briefings. A formal plan of finance is then formally approved by the Board of Supervisors via an Action item.

• The Capital Sinking Fund is approved as part of the Carryover Review by committing 20 percent of Carryover balances not needed for critical requirements. The Sinking Fund supports prioritized critical infrastructure replacement and upgrades projects throughout the County and is reflected in the CIP annually.

• All CIP project funding and schedules are adjusted annually based on the most current information; however, changes in appropriation levels are approved by the Board at quarterly reviews or as part of the annual budget process.


Debt Overview


Options to Finance Capital Projects

• Paydown/Pay-As-You-Go (PAYGO) • Cash provided to fund select projects

• No debt incurred on a project

• Issuing Bonds• A form of borrowing commonly used by municipal and state governments and

large corporations

• A series of low face value promissory notes, usually of 1 to 30-year duration, at a fixed interest rate

• Interest on municipal and state bonds may be tax-exempt from federal and state taxes

• Spreads the cost over multiple generations


Role of County Staff

• Department of Management and Budget• Establish debt policies, debt service budgeting, forecasting and debt capacity

analysis, bond sale preparation and planning

• Department of Finance• Annual debt service payments, continuing disclosure, post issue compliance,

investment of bond proceeds

• Office of the County Attorney & Bond Counsel (Norton Rose Fulbright)• Review and draft all legal documents for bond sales

• Financial Advisor (PFM)• Liaison with bond rating agencies, credit strategies, rating agency preparation

and presentation materials, transaction management, bond pricing/structure


Role of Board of Supervisors

• Receive and provide feedback on capital project and debt financing updates at Committee meetings and as part of the annual budget process

• Review follow-on updates for capital projects and debt financing details provided via Not in Package (NIP) memoranda

• Meet with staff on respective district capital projects and debt financings

• Consider staff recommendations for revisions to the County’s Ten Principles of Sound Financial Management

• Review of Action Items at Board meetings for proposed County and School bond referenda

• Review of Action Items at Board meetings for all proposed bond deals


Overview of General Obligation Bonds

• Resolutions approved by School Board and Board of Supervisors (Spring)

• Contingent upon voter approval at Referendum (November)• Voter approval averaged 73% since 1999

• Sunset Rule • Referenda expire eight years from date of voter approval• Two-year extension permitted upon petition to Circuit Court

• General Obligation Bond Sale• Issued annually (January/February) on cash basis only• Sell for County and Schools• Bond sale of $339.4 million scheduled for January 28th to include new money

for projects and refinancing prior issued debt


Bond Referenda Chart

Date Category Description Amount

Fall 2019 SchoolsCapacity Enhancement, Renovation, Infrastructure Management

$360 million

(Approved 11/5/2019)

Fall 2020 County Libraries, Parks, Human Services, WMATA (Metro) $397 million


$360 million

Fall 2022 County Public Safety $80 million


$360 million

Fall 2024 County Parks, Human Services, WMATA (Metro) $293 million


$360 million

28

Source: FY 2020 – FY 2024 Adopted Capital Improvement Program


County’s Triple-A Bond Rating and Importance• Ratings History

• Aaa from Moody’s Investor Services since 1975• AAA from Standard & Poor’s Corporation (S&P) since 1978• AAA from Fitch Ratings since 1997

• Elite Category that consists of the following as of December 2019• 13 out of 50 States• 48 out of 3,069 Counties • 34 out of 35,000+ Cities and Towns

• Benchmark Rate Comparison – Bond Buyer Index (BBI) • Estimate of past and projected trends in municipal bond rates• 30-year differential between County bonds and BBI averaged 0.79%

• County monitors refinancing opportunities of outstanding debt• County savings from Triple A rating estimated at $879.34 million (through

December 2019)


County Debt Financial Modeling

• Analysis of debt capacity and policy limits per the Ten Principles of Sound Financial Management

• Adhere to annual General Obligation Bond Sale limit

• Review opportunities of EDA bonds

• Forecast debt capacity against out-year disbursement & revenue growth

• Adjust bond sales/CIP as necessary annually to remain below the 10% limit of general fund disbursements

• Debt Context: Capacity and Affordability


Capacity:Annual Debt Service Expenditures to Total General Fund Disbursements

31

7.86% 8.06% 8.23% 8.38% 8.54% 8.43% 8.20% 8.12%8.42% 8.39%

7.82%8.20% 8.03% 8.04% 8.22%

8.51%8.79% 8.90%

0%

2%

4%

6%

8%

10%

12%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Projected

2021Projected

2022Projected

2023Projected

2024Projected

Deb

t Se

rvic

e Ex

pen

d. a

s %

of

GF

Dis

bu

rse.

Fiscal YearSource: CAFR from FY 2007 to FY 2019; FY 2020 – FY 2024 per Adopted Capital Improvement Program; Assumes 2% annual revenue growth.

10% Limit


Capacity:Net Outstanding Debt To Total Assessed Value

32

0.87% 0.86% 0.87%1.04%

1.25% 1.30%1.19% 1.26% 1.19% 1.18% 1.15% 1.14% 1.09% 1.14% 1.13% 1.18% 1.23% 1.27%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Projected

2021Projected

2022Projected

2023Projected

2024Projected

Net

Ou

tsta

nd

ing

Deb

t as

% o

f To

tal A

sses

sed

Val

ue

Fiscal Year

Source: CAFR from FY 2007 to FY 2019; FY 2020 – FY 2024 per Adopted Capital Improvement Program; Assumes 2% annual revenue growth.

3% Limit


Affordability:Projected Increased Debt Service Payments

33

$20.5 mil$22.4 mil

$14.5 mil$20.0 mil $8.0 mil $6.9 mil $2.3 mil $4.9 mil $6.4 mil

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

2022 2023 2024 2025 2026 2027 2028 2029 2030

Deb

t Se

rvic

e Pa

ymen

ts (

in m

illio

ns)

Fiscal Year

Prior Year Base Increase over Prior Year


Affordability:$25 million General Obligation Bond Sale Impact

Fiscal Year Total

2021 $25,000,000

2022 2,250,000 $25,000,000 $2,250,000

2023 2,200,000 2,250,000 $25,000,000 $4,450,000

2024 2,150,000 2,200,000 2,250,000 $25,000,000 $6,600,000

2025 2,100,000 2,150,000 2,200,000 2,250,000 $8,700,000

Debt Service $8,700,000 $6,600,000 $4,450,000 $2,250,000 $22,000,000

34

• The following chart assumes a $25 million General Obligation Bond Sale (Highlighted) beginning in FY 2021 and annually thereafter

• Debt service payments (italicized) begin fiscal year following each bond sale• Initial year of debt service is $2.25 million and cumulative fiscal impact of

$22 million through FY 2025.


Rating Agency Feedback – County Debt

35

“The county remains well below its debt guidelines to limit the amount of tax-supported debt to 3% of total full value, and total debt service payments at 8.5% are comfortably under the county's maximum of 10% of General Fund disbursements. Although the county has a sizable capital improvement plan, we believe that the county's active debt management and continued modest growth in assessed values will ensure the debt burden remains manageable.”

- Moody’s (January 2019)

“In our opinion, net direct debt is likely to modestly rise given the county's current debt plans. Fairfax has a five- and 10-year capital improvement policy, with bond issuances scheduled annually. Nevertheless, given the county's large market value and above-average amortization, we expect net debt will remain manageable and relatively close to current levels. We understand that the county expects slight upticks in its debt-to-general revenues ratio as well as its debt-to-AV ratio but that these measures will remain well within policy limits.”

- S&P (January 2019)


Discussion


Budget, Capital Improvement Program (CIP) and Debt Overview · the proposed Strategic Plan priority...

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