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
Budget, CIP and Debt Overview - Board of Supervisors Retreat 5
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
Budget, CIP and Debt Overview - Board of Supervisors Retreat
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
Budget, CIP and Debt Overview - Board of Supervisors Retreat 7
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
8Budget, CIP and Debt Overview - Board of Supervisors Retreat
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
9Budget, CIP and Debt Overview - Board of Supervisors Retreat
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
Budget, CIP and Debt Overview - Board of Supervisors Retreat 10
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
Budget, CIP and Debt Overview - Board of Supervisors Retreat 11
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.
Budget, CIP and Debt Overview - Board of Supervisors Retreat
County Spending over past 12 years
13
Growth in Adopted Disbursements FY 2009-2020 (in millions)
Budget, CIP and Debt Overview - Board of Supervisors Retreat
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
14Budget, CIP and Debt Overview - Board of Supervisors Retreat
Ten Principles of Sound Financial Management
15Budget, CIP and Debt Overview - Board of Supervisors Retreat
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)
16Budget, CIP and Debt Overview - Board of Supervisors Retreat
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
17Budget, CIP and Debt Overview - Board of Supervisors Retreat
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
Budget, CIP and Debt Overview - Board of Supervisors Retreat 18
Capital Improvement Program (CIP) Overview
19Budget, CIP and Debt Overview - Board of Supervisors Retreat
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
20Budget, CIP and Debt Overview - Board of Supervisors Retreat
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
21Budget, CIP and Debt Overview - Board of Supervisors Retreat
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.
22Budget, CIP and Debt Overview - Board of Supervisors Retreat
Debt Overview
23Budget, CIP and Debt Overview - Board of Supervisors Retreat
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
Budget, CIP and Debt Overview - Board of Supervisors Retreat 24
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
Budget, CIP and Debt Overview - Board of Supervisors Retreat 25
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
Budget, CIP and Debt Overview - Board of Supervisors Retreat 26
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
Budget, CIP and Debt Overview - Board of Supervisors Retreat 27
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
Fall 2021 SchoolsCapacity Enhancement, Renovation, Infrastructure Management
$360 million
Fall 2022 County Public Safety $80 million
Fall 2023 SchoolsCapacity Enhancement, Renovation, Infrastructure Management
$360 million
Fall 2024 County Parks, Human Services, WMATA (Metro) $293 million
Fall 2025 SchoolsCapacity Enhancement, Renovation, Infrastructure Management
$360 million
28
Source: FY 2020 – FY 2024 Adopted Capital Improvement Program
Budget, CIP and Debt Overview - Board of Supervisors Retreat
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)
Budget, CIP and Debt Overview - Board of Supervisors Retreat 29
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
Budget, CIP and Debt Overview - Board of Supervisors Retreat 30
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
Budget, CIP and Debt Overview - Board of Supervisors Retreat
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
Budget, CIP and Debt Overview - Board of Supervisors Retreat
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
Budget, CIP and Debt Overview - Board of Supervisors Retreat
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.
Budget, CIP and Debt Overview - Board of Supervisors Retreat
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)
Budget, CIP and Debt Overview - Board of Supervisors Retreat
Discussion
36Budget, CIP and Debt Overview - Board of Supervisors Retreat
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