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December 17, 2014 Published in City Hall, Top Stories

City Manager Proposes 12% Annual General Fund Contribution To Capital Budget

By Carla Branch

Alexandria City Manager Rashad Young proposed a 12% annual cap on the general fund contribution to the Capital Improvement Program budget. This policy change would, among other things, decrease the City’s operating budget deficit in fiscal year 2016 from $16 million to $9 million.

“The City has excess borrowing capacity that could be used to fund capital projects and limit reliance on using money from the general fund,” Young told the mayor and members of the Alexandria City Council at a work session on Tuesday, Dec. 9. “As the City diversifies its general fund revenues, the 12% will grow with those revenue increases without increasing the real estate tax rate every year.”

Mayor Bill Euille and Councilman Paul Smedberg asked Young why 12%. “The 12% cap will allow the City to fund the CIP at the FY2015 level,” Young said. “It will require Council to make some decisions about projects in the out years of the 2015-24 CIP and it does not include funding for the Potomac Yard Metro Station or increases in capital projects for the schools.”

According to City staff analysis: Since FY 2011, General Fund support to the CIP has almost doubled (approximately $42 million to $80 million).  Ongoing use of reserves could limit financial flexibility – prior year utilization without replenishment has diminished available fund balance. While funding projects with cash reduces the debt burden, if too much of the CIP is funded with pay-as-go it will result in a higher tax burden than if a portion of the costs are funded with long term debt; having a balance of both is necessary.

Council members were concerned about the policy’s potential impact on Alexandria’s AAA/Aaa bond rating. According to the staff report: Moody’s Investors Service defines the City’s debt issuance guidelines as “very conservative”. An increase of debt, as a result of the purposed 12% cap of General Fund expenditures supporting the Capital Improvement Program, does not in and of itself put the City’s ‘AAA’ bond rating into jeopardy. City should stay within its other debt related financial policies.

Council must make a decision about the proposed policy in early January to give the staff time to recommend ways to reduce the $16 million budget gap. The staff provided Council with a list of pros and cons on the 12% cap:

Predictable General Fund contribution that support planning efforts and financial sustainability
Allows staff to manage within an affordability level for the General Fund
Continues significant investments in existing and new capital infrastructure
Would not impact compliance with existing debt ratios
Allows opportunity to take advantage of favorable interest

May require adjustment in the current CIP (in the out years) to stay within new limits
May slightly increase the issuance of debt supported by the General Fund (in the near term)

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