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Peter’s Take: Allocating Arlington’s Surplus Close-Out Funds

Peter RousselotPeter’s Take is a weekly opinion column. The views and opinions expressed in this column are those of the author and do not necessarily reflect the views of ARLnow.com.

Arlington County seeks public input on the Manager’s recommended allocation of $17.8 million in surplus “one-time” close-out funds (from FY2016) and on the Board’s proposed budget guidance to the Manager for FY 2018.

The Board will vote on both matters in November.

Discussion

Kudos to the Board and Manager for embracing reform in choosing to discuss the surplus close-out funds’ allocation and the Board’s budget guidance in October and wait to adopt them in November. This gives the public more time to weigh in before decisions are made.

Submit public comments on both matters here.

Arlington should follow certain principles to guide its decisions in allocating the close-out surplus.

  1. As a matter of prudent financial management, a fair and reasonable percentage (i.e., a % higher than 0%) of any close-out surplus always should be allocated to moderate the tax rate and/or reduce bonded indebtedness.

Adopting this principle would mean only that a fair and reasonable percentage of the FY2016 close-out surplus would be earmarked for property tax rate moderation in calendar-year 2017. Adopting this principle would NOT necessarily mean that the calendar-year 2017 property tax rate would fall, rise or remain the same. A final decision on that would be made next year.

What is “fair and reasonable?” That should depend upon the close-out surplus amount in any given year and careful consideration of public input. But the fair and reasonable percentage should be multiplied against the entire surplus, and set aside for consideration next year before any final decisions are made regarding how to allocate the remaining surplus.

Similarly, we should consider using some percentage of the close-out surplus for early debt retirement when that makes financial sense. The County’s bond capacity is limited, and retiring debt early will help free up more capacity in addition to reducing interest expense.

  1. The remainder of the close-out surplus (after setting aside a % for tax rate moderation and any debt reduction) should next be considered to address any emergency that requires funding before final adoption of the FY2018 operating budget.

An “emergency” expenditure is one that simply cannot be deferred until the FY2018 general fund (operating) budget is approved in April 2017. Reasons for not waiting until April 2017 might include the complete loss of a current vital opportunity or the strong likelihood of sharply escalating costs to meet a core government function.

However, the County should first determine whether it already has an appropriate reserve fund set aside to cover an emergency before tapping surplus close-out funds.

  1. All other proposed uses of the close-out surplus automatically should be deferred, and the remaining funds’ allocation should be decided in conjunction with the FY2018 budget process.

County Board action on all other proposed uses of close-out surplus funds should be automatically deferred until more is known about the County’s financial position in the coming calendar year. Close-out surpluses are “one-time” funds rather than ongoing revenue. They exist solely because the County collected more tax revenue than required to meet its budgeted commitments. Therefore, these funds should be used for nonrecurring expenditures (e.g., replacing a bridge, acquiring land, etc.) rather than for supplementing the County’s ongoing operating expenses.

Conclusion

The County Board should direct the Manager to reconsider his current recommendations by applying the guiding principles discussed above.

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