|
The FY11 budget process is in full swing, with some positive news for Loudoun taxpayers, so far! Stay tuned for weekly updates. Be sure to email your supervisors at
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
to show your support for the straw vote budget cuts they have made!
March 27th Update
The Board of Supervisors held another budget worksession on March 22. County staff indicated that LCPS had calculated new numbers for Commonwealth aid. The original estimate of a $25.4 increase in revenue was lowered to $21 million, but the VRS deferral savings was raised from $20 million to $29 million – essentially netting a combined gain of $4.6 million of more available funding.
The Board voted to trim the $30 million budget reduction from the last budget worksession to just $25.6 to reflect the extra $4.6 million. It will not have an effect on the tax rate.
The controversy continued over the $20 million fund balance carryover allocation in the FY11 budget. Dr. Hatrick originally said the money was designated for one-time purchases of “things”, which could be deferred, if necessary. Now he has contradicted that statement, saying there was a “misunderstanding”. Now he says the loss of that funding will result in the tier 1 reduction options being implemented, which includes eliminating 293 jobs and a big increase in student user fees. Huh?
The public - as well as many supervisors - is confused by all theses contradicting stories from school officials. One thing is clear – the schools fund balance has been growing because of huge operating budget surpluses every year since FY01.
LCPS budget surpluses: A result of diligent savings or overbudgeting?
The school operating fund balance has grown from $8 million at the end of FY01 to a whopping $56 million at the close of FY09 (see table in March 20th update for details) and that is after county officials transferred $27 million from various school funds to cover a projected revenue shortfall in the county general fund! Expenditures are always lower than what was estimated in the appropriated budget and in most years, revenue has been higher than estimated.
While much of the budget expenditures are known in advance, many are simply estimates and could vary, more or less, from appropriated budget estimates. Health insurance premiums, utilities, VRS contribution rates, salaries for new hires, fuel, etc. are largely unknown when the budget is adopted. The goal is to estimate as accurately as possible. When there is a large surplus every year, it strongly suggests that the budget is being padded.
The following table shows how the FY09 final expenditures varied so much from both the proposed and appropriated budget, and is broken out by expenditure category to show where the surpluses were realized.
A whopping $801 million was originally requested by LCPS Superintendent Edgar Hatrick! That was $110 million, or 16%, more than FY08 for an approved enrollment growth of only 6%. The BOS reduced that to $745 million, which was still enough to cover enrollment growth and inflation. Then LCPS only spent $716 million, which was actually $35 million more than was spent in FY08.
The table indicates that nearly $23 million of the surplus came from the salaries and benefits categories and only $4 million came from the “things” categories of materials, supplies and equipment, and capital outlays. This personnel categories have been consistently overfunded for years now, but $23 million was even more than usual (FY08 was overfunded $10.7 million) in part because LCPS decided not to fill some of the 375 new positions that were deemed "non-critical". We have not heard of any negative impacts those vacancies caused.
The FY10 appropriated budget was reduced to $732 million, with a budgeted $20 million fund balance carryover allocation, which the School Board now says has been “saved” and is available to carry over into FY11.
If the fund balance carryover is never used, then why allocate it? It appears to only serve the purpose of maintaining a budget cushion, which has the effect of keeping the tax rate about 4 cents higher than it needs to be. Keep in mind that the School Board is only suppose to ask for what they need for the current fiscal year. It is not their job to generate a surplus and set it aside for a rainy day.
There is also no need to allocate the fund balance carryover as a contingency fund. There is a $56 million undesignated fund balance that can be used to cover any shortfalls at year end. In addition, there is a fiscal reserve fund balance (also referred to as the “rainy day fund”) in the county general fund equal to 10% of operating expenditures, or about $100 million, to cover shortfalls or unexpected expenditures.
The Board of Supervisors is making a sound fiscal decision by removing the $20 million fund balance carryover allocation from the FY11 budget. It should lead to more accurate budgeting and hopefully end the practice of hoarding taxpayer money. $27 million of the excessive $56 million school fund balance should be used to pay for the new elementary school that has been appropriated in the FY11 budget.
March 20th Update
New commonwealth biennium budget provides more funding for Loudoun!
One of the biggest unknowns up until last weekend was the amount of schools funding the commonwealth would provide. The Virginia General Assembly (GA) approved a budget which will give Loudoun $25.4 million in additional annual funding, largely due to a lower Local Composite Index, than anticipated and an annual reduction of $20-27 million in Virginia Retirement System (VRS) expenses! The VRS reduction is actually a deferment of payment until FY13, but Loudoun now has a means of repaying the money because the GA also granted localities the option of requiring employees to contribute up to 5% of their salaries/wages toward VRS costs. Details on this later in the article.
Supervisors reduce schools funding request
During their meeting on 03/16/10, the Board of Supervisors conducted several votes to reduce the schools funding. The first vote reduced the schools fund appropriation (includes operating budget and bus leases) by the $20 million in VRS savings – from $772,889,662 to $752,889,662. It also reduces the local tax transfer by $20 million. There is some uncertainty as to the exact amount of the VRS savings, which could be up to $27 million, but the exact amount will be known soon. The Board should also apply any further savings to reducing the appropriation.
The second vote reduced the amount of local tax transfer to the schools fund by the $25.4 million in extra state revenue – from $507,731,173 to $482,331,173.
The third vote reduced the schools fund appropriation by $5.5 million, which is the amount it would have cost to give school employees a 1% pay raise. It was a fairness issue because county employees will not be getting a raise in the general county budget this year.
The fourth vote reduced the schools fund appropriation by $657,000 for the triennial census that was funded, but will no longer be conducted by LCPS.
The fifth vote eliminated the $20 million allocation of carryover funds from previous fiscal years. This was the most controversial of the votes and elicited objections from Dr. Hatrick and several School Board members. Supervisor Kurtz, who made the motion, argued that it is not good budget practice, especially in dire economic times. After examining the history of the school board fund balance usage, as shown in the following table, this was a good decision.
Every year there has been carryover funding allocated (indicated by a negative value in the Final Amended Budget Balance column) in the adopted budget, but the only time any of it was actually used was in FY01. The Actual Budget Balance column shows the balance after the books were closed at the end of the year. There have been surpluses every year since FY01, which has resulted in a rapidly increasing fund balance. For example, in FY08 it was estimated that expenditures would exceed revenues by $14,459,276 in the final amended budget, so that amount of carryover funding was needed to close the gap. However, revenues ended up exceeding expenditures by $8,378,072 at book close time. This is largely because expenditures have been overestimated to provide a cushion. That is what the $20 million allocation is for this year, but the historical trend suggests that not a dime of it will be used and there will be another surplus.
The School Board needs to ask for only what they really need and end this practice of hoarding taxpayer money. The FY09 Comprehensive Annual Financial Report shows a fund balance of $56,739,373 and that is after county staff transferred nearly $27 million to the general fund! $49,519,955 of the fund balance is not earmarked for any future expenditure and essentially amounts to a contingency fund. One school board member is now requesting a contingency fund appropriation to replace the loss of the $20 million carryover allocation, but they already have one in this fund balance.
The sixth vote essentially transferred $3.8 million from the schools fund over to the general county fund to restore cuts to libraries and other services that residents of the county value just as much as the school system. The original budget proposal called for millions in cuts in the county operating budget, while increasing the LCPS operating budget by $32 million! Supervisor Lori Waters (R-Broad Run) led the charge on this, arguing that the current 70/30 schools to county funding ratio favors the schools too much and has forced too many cuts in general county services over the past few years. She pointed out that LCPS spends $15.2 million on their libraries just to serve public school children, while the public libraries budget is only $11.4 million and serves all school children – public, private, home-schooled – as well as every other Loudoun citizen! Libraries also provide award-winning education programs for preschool children. Contrary to what the education lobby contends, people move to Loudoun County for many other reasons than just a decent school system.
VRS cost containment
As previously mentioned, Loudoun now has the authority to require employees to contribute up 5% of salaries/wages towards their VRS retirement benefit. This is a major victory for Loudoun taxpayers who currently pick up the tab for 100% of VRS contributions to the tune of approximately $100 million a year! VRS rates have been steadily rising for the past 10 years as the cost of providing such a generous benefit rises dramatically. The cost has been exacerbated by higher employee staffing ratios and generous pay raises. The following table shows the rate history and estimated costs.
County staff indicated that each percentage point of the VRS rate costs the county $5 million for school employees and $1.8 million for county employees. Since salary and wage expenditure history is not available, the total VRS cost is computed assuming salaries and wages make up 65% of the operating budget.
The Virginia Retirement System offers a generous defined-benefit pension considered the 4th best of any state in the country. It is one of the few that does not require an employee contribution. In comparison, both Maryland and North Carolina require their employees to contribute 5%.
The defined-benefit pension has all but disappeared outside of state and local governments and has been replaced by 401k plans where many employers offer a matching contribution. Asking employees to contribute is no different than what the average taxpayer does. Loudoun County should start phasing in the employee contribution by 1% a year until it reaches the maximum of 5%, beginning in FY13 when the current deferment will have to be repaid.
VRS deferred contribution repayment options
Some supervisors have suggested not using the full $20 million in VRS savings to lower the tax rate, since it will have to paid back over 10 years, with interest, starting in FY13. They have suggested creating a new interest-bearing fund with $10 million of the savings. This is not a good idea and likely was not the intent of the General Assembly for the money to be hoarded. Hello, the tax rate is already too high and Loudoun taxpayers need maximum tax relief in this economic downturn!
All the savings need to be applied toward a lowered tax rate and should be repaid through newly implemented employee VRS contributions beginning in FY13.
**************************************
|
