Fairfax Reserve Funds in Dispute
Friday, March 28, 2008
After the recession of the early 1990s, the Fairfax County Board of Supervisors created a fund to serve as a cushion so that when the next cyclical dip in the economy arrived, the county could avoid raising taxes or cutting services.
Fairfax's "rainy day fund," formally known as the revenue stabilization fund, totals a little more than $100 million. With the county facing at least a $152 million revenue shortfall for the fiscal year that begins July 1, Board Chairman Gerald E. Connolly (D) says that it is time to consider tapping the fund.
"Last time I checked, it was raining," Connolly said.
But under the rules established in September 1999 by the board, on which Connolly served as Providence District supervisor, the money is out of reach. It can be used only to cover revenue shortages in the current fiscal year, not to balance subsequent budgets. And even then, the projected drop must be at least 1.5 percent to permit withdrawals. The latest estimates for the current fiscal year show a decline of less than 1 percent.
With residents calling for additional funding for schools, code enforcement, road projects and other services, Connolly said the bar should be lowered.
"I think the criteria may be so stringent we may never be able to tap it no matter how badly it's raining," he said.
County Executive Anthony H. Griffin has resisted Connolly's calls for using the fund. He is asking the board to consider raising the property tax rate from 89 cents to 92 cents for each $100 of assessed value, which would yield $68 million more for schools, code enforcement and road projects and keep most tax bills flat.
Griffin and Edward L. Long Jr., deputy county executive for finance, have also said that using the fund could jeopardize Fairfax's bond rating, which is Wall Street's appraisal of the county's creditworthiness. Its AAA rating from the three major financial agencies allows it to borrow money for big public works projects at low interest rates. Long estimated last year that the rating has saved the county more than $340 million in interest payments in recent years.
Connolly said that Griffin and Long's reluctance is unreasonable and that Gov. Timothy M. Kaine (D) used about $300 million of the state's $1.2 billion rainy day fund to help bridge a $618 million budget gap. He characterized the county staff's concern about Wall Street as "fearful conjecture."
"Staff clearly does not want us to use the money, and they raise the boogey man of 'Wall Street doesn't like it,' " Connolly said. "I don't understand how it's okay for the state of Virginia to do it and not okay for Fairfax."
Griffin did not return a phone call seeking comment. Long said he was preparing briefing materials to give to the supervisors at a budget workshop scheduled for today and declined to discuss the issue in detail.
Richard J. Marino, a credit analyst with Standard & Poor's, which reaffirmed Fairfax's AAA rating in a January report, said yesterday that using the fund would not necessarily jeopardize the county's standing.
"That's what it's there for," he said, citing the county's deep cash reserves -- a separate fund, containing $67 million, is maintained for severe and unforeseen emergencies -- as evidence of its financial health.
"These are very strong reserve levels," Marino said. "If the county were to use a portion of this fund with a definitive plan for replacing [the money] over time to a level we felt comfortable with, in theory it wouldn't have an impact on the rating."
Supervisor Sharon Bulova (D-Braddock), chairwoman of the board's budget committee, said she was reluctant to change the rules governing the rainy day fund to address the 2009 budget, which the board must adopt by the end of next month. Like Connolly, she was in office when the fund was created.
"I personally feel queasy about doing that," Bulova said, especially after the board spent years building the fund to the balance it originally envisioned: 3 percent of total general fund expenditures. She did say, however, that she would consider loosening the rules for future fiscal years, possibly in tandem with increasing the size of the fund to 5 percent of general fund expenditures.