City Council Meeting

Bryan FosterstaffWe want user charges and fees to support the full cost. We want our utility funds that are self-supporting to be self-supporting and not rely on general fund contributions, et cetera. My understanding is that for several years the city has used unassigned fund balance to cover ongoing operational expenses which is not a sound budgetary practice. Since fiscal 17, the amounts have ranged from $600,000 to $5.7 million, depending on the year. And including in this current year's budget, there's $785,000 in the current budget that uses unassigned fund balance in order to balance the budget. This budget proposal that you will get this evening does not use any unassigned fund balance in order to balance it.

The guidance continuing that when we look on the expense side, we want to make sure that we weigh our competing requests for resources on our fiscal constraints. One of the things was if we have any new initiatives, they should be financed with either reallocating existing resources or through new revenue sources. That's one of the things we consider when putting this together. I already mentioned the unassigned fund balance. We have a policy of general fund cash funding a portion of the CIP of at least 5% of expenditures in this budget. We will continue to do that. You will see that our proposal follows all the guidance that was set forth by council back in November. So moving forward to January when I started, I asked you some questions back in January.

In the general fund, our total expenditures proposed for FY26 total $207 million. You can see in this pie chart how that breaks down. Again, education, 37% of that total. Then you can see how it's divided between the other functional areas. Obviously, all the details behind this will be in your budget books that we'll be distributing to you when we transition from this meeting over to the work session. You'll have that take home with you this evening. The major items that are included in the proposed budget are this budget continues all existing services at their current levels. There's no reduction in staff. levels. This budget funds everything that we are currently doing. Likewise, there are

not an additional impact that was within the budget that they submitted. Again, it fully funds the school tuition contract obligation which is $71 million and it allocates $3 million to begin work on the approved $220 million school capital program. So that number was working in conjunction with school superintendent as far as what they identified they needed to get started was $3 million for this upcoming year. And so all of that is included in this budget proposal. so some of the major changes you'll see to our general fund expenses or you see the additional for the school school tuition contract there's also a 6.8 million uh scheduled one-time debt service payment the three million for the multi-year plan for the school school bond

So that's one of the tools that we use to help manage the budget and keep any necessary revenue increases more in check. So we're estimating a $2 million managed vacancy savings, and you'll see that in the budget of the non-departmental expense. The next couple of slides just show some of the expenditure changes and how they shake out from this proposed budget in 26 versus the current budget FY25 that we are currently having right now. And then the next slide, our fund expense activity. Of course, I've been focusing on the general fund to this point, which is our largest fund. We have several other funds, which I'll briefly touch on in just a minute. But you'll see the total budget is actually going to be $306 million when you add all funds together, including our enterprise funds.

we are trying to capture everything as part of this budget. Moving on, here is a chart that sort of shows you the breakdown of our revenues for the general fund. You will see real estate taxes, that's the big blue half. Then the orange on top is all of our other taxes like meals, personal property, etc. Those two account for 75% of the revenues in the general fund. All the other small pie pieces come to another 25%. Whether that's fines, license fees, state aid, those things are only 25% of the budget. So unfortunately, as you all know, Virginia is a Dillon-rule state, so our ability to raise revenue or do most anything is severely limited by what the General Assembly allows the city to do. So Fairfax is not unique.

And seeing a pie chart of this nature where you're seeing a significant reliance on taxes in order to fund essential services. So some of the changes to the general fund revenue for FOI 26, again you'll see these are the changes. So this is the increase, the additional real estate increase, $6 million of which is due to appreciation of assessments. Not all of that's because of the rate. You'll see the increase in meals tax, estate revenue, and use of money, interest income. I do want to explain or point out you'll see $4.1 million of appropriated prior year assigned fund balance. I want to make the distinction for both yourself and the general public that's watching. Assigned fund balance is fund balance or reserves that's for a specific purpose.

that we can then use for next fiscal year. Hopefully I explain that well. Then again you'll see the general fund changes as far as the various revenue sources in the chart on the next slide. So, with the tax rate changes that you'll see, this slide summarizes the changes that we are recommending as well as the other taxes to which no changes are being suggested. One of the reasons there are no changes to several of those tax rates, specifically C&I, plastic bag sales, and hotels are because they are at the max and we have no legal basis which to raise those fees. I would note C&I and plastic bag and sales are state mandated. The hotel tax rate is actually a charter provision. I'm not sure why it's in the charter in that

and a lot of it isn't driven, a lot of the cost increases are driven by regulatory requirements for wastewater treatment in Chesapeake Bay. Our transit fund, of course, is our Q-Bus. As you know, right now there's a zero fare policy that was implemented. This is due to expire. We had received a grant, so after FY26. the proposed budget of FY26. However, looking beyond 26, this could become an issue as far as does council wish to continue in 27 and beyond the zero fair, reinstitute a fair structure. As with a lot of our transportation projects and things are funded, a lot of it comes from gas tax revenue which of course has been declining and so there is it's it may become necessary in the future not in the proposed 26 budget but in the future to have general fund support for

funded. And so the cash transfer to the CIP in the proposed budget is $11.9 million, which represents 5.8% of general fund expenditures. Per council adopted policy, it requires a minimum 5% transfer of cash over to the CIP in order. So it's not all reliant on debt. All of these policies that I keep mentioning tie right back into our ability to have a triple A bond rating. These are all the things that are favorably looked upon by the rating agency so all of this works in concert when we're talking about our ability to borrow and borrow at the most preferred rates. Here's just a brief slide on the adjusted projects and sort of which ones are moving and which year they're moving to. Regarding our funding sources for the CIP, you'll note that only half is derived from