Budget Cuts on the Table as County Works to Overcome Fiscal Gap

Arlington doesn’t have it as bad as other communities, but the pandemic is causing a drop in tax revenue that is likely to result in some budget cuts.

That’s the message from County Manager Mark Schwartz, who presented an update on the county’s finances at last night’s County Board meeting.

The main highlight from Schwartz was the county budget closeout — the allocation of funds leftover from the previous fiscal year’s budget, which closed on June 30. There was $22.4 million left over from the 2019-2020 budget, most of which Schwartz recommended using to boost the current Fiscal Year 2021 budget.

“As proposed, $13.4 million would be used for the FY 2021 budget, $2 million would be put into the County Manager contingency fund, $2 million would support an employee separation contingent, and $5 million would be set aside to address COVID-related expenses in the FY 2022 budget,” said a county press release, below.

The Board is scheduled to vote next month on Schwartz’s recommendations, after receiving public feedback.

While a number of local advocacy groups have traditionally used the budget close-out process to secure additional funding for various initiatives, that is likely to be curtailed this year. Schwartz reiterated his previous warning that the county and Arlington Public Schools are together facing a $56 million budget gap for FY 2021.

“Usually we would already be thinking about our next budget, but instead we must figure out how we will provide the services and programs in the FY 2021 budget and fulfill our primary obligations to Arlington residents,” Schwartz said.

On the table for closing the gap, caused by a revenue shortfall and unexpected pandemic-related costs, is a reduction in county services. Schwartz’s presentation said that the county hopes to save $6.1 million by reducing some services and by not filling some vacant positions.

While holding out hope of saving money with a hiring freeze and preserving currently filled positions, Schwartz recommended that the Board set aside $2 million for “employee separation” costs, potentially including early retirements and buyouts.

From a county staff report:

As we work through development of the FY 2022 budget, we will be considering changes in how we deliver services based on our experience during COVID and due to anticipated revenue declines. This contingent would allow the Manager flexibility in addressing any impacts of these changes. As an example from prior years, we have offered various incentives for early retirement and other buy-out options. It is likely that these options will need to be effective prior to the beginning of FY 2022 (July 2021); thus, funding would be needed in FY 2021.

Other planned sources of savings outlined by Schwartz include debt refinancing ($2.4 million), federal CARES Act funding ($9.3 million) and “operational adjustments” — delayed facility openings ($1.9 million).

More from a county press release, below.

As the economic impacts from the COVID-19 pandemic continue, Arlington County is working to close the budget gap as a result of additional revenue shortfalls for the current fiscal year.

In April, the Arlington County Board adopted a budget for FY 2021 that anticipated a $56 million gap in revenue for the County government and Arlington Public Schools. However, County staff anticipated the County might need to revisit the FY 2021 budget as the economic impacts became more apparent.

Since then, revenues have continued to decrease and costs stemming from the COVID-19 pandemic have increased, leaving the County with an additional $28 to $39 million budget gap to fill.

“The crisis of the COVID-19 pandemic has changed how we must approach our current budget,” said County Manager Mark Schwartz. “Usually we would already be thinking about our next budget, but instead we must figure out how we will provide the services and programs in the FY 2021 budget and fulfill our primary obligations to Arlington residents.”

At the County Board Meeting on Tuesday, Oct. 20, Schwartz laid out a proposal for potential use of the “closeout funds” of $22.4 million in available money from the already completed FY 2020 budget. (Fiscal Year 2020 ended on June 30, 2020).

As proposed, $13.4 million would be used for the FY 2021 budget, $2 million would be put into the County Manager contingency fund, $2 million would support an employee separation contingent, and $5 million would be set aside to address COVID-related expenses in the FY 2022 budget.

To close the remaining FY 2021 budget gap, the County will use $9.3 million of approved federal CARES money for COVID-related staffing costs, $2.4 million in savings resulting from debt refinancing, and $8.0 million from service reductions and delayed facility openings.

“We are still in a tenuous situation,” Schwartz said. “We are already feeling the pain, and these challenges will continue–with the potential for even more adjustments in the current budget. And, as we look at next fiscal year, we will have pressures from increased commercial vacancy rates, lowered tax and fee revenue, and ongoing needs from our vulnerable populations and business community.”

To provide feedback on the proposed use of FY 2020 closeout funds, the community can visit with Board members during Open Door Mondays, email comments to [email protected], or sign up for the public hearing at the County Board’s November meeting.