The most important decision the City Council makes each year is the adoption of the annual operating budget and capital improvement program. The operating budget generally funds the ongoing costs of government (primarily personnel), while the capital budget funds one-time expenditures that provide the community with an asset (new schools, new roads, new playing fields, transit buses, etc). 

This year, the City Manager will present his proposed budgets on Tuesday February 23rd, and the City Council will adopt the budget on Thursday May 5th. 

It has always been my view that the most important part of the budget process is the adoption of our annual budget guidance for the City Manager. In the fall, the City Council adopts a resolution which provides direction to the City Manager as how to prepare that budget. 

The guidance typically provides direction on tax policy, expenditure priorities, debt policy, and other emergent issues. To prepare the Council to provide this direction, a retreat is scheduled.

Just before Thanksgiving, the Council had our annual retreat and received the first glimpse into next year's financial picture. This is the beginning of the Council's process to adopt the Fiscal Year 2017 (July 1, 2016 - June 30, 2017) Operating Budget and the Fiscal Year 2017 - Fiscal Year 2027 Capital Improvement Program. 

The current projections are that next year's revenues will grow at a rate of a little more than 2% overall. If that estimate holds, that would provide the City government with about $14 million of new revenue. 

With real estate taxes generating most of our resources, that growth is driven by an estimated increase of 1.5% - 2% in our real estate tax base. As in the past, larger growth in residential real estate is being offset by continued weakness in commercial real estate.

On the expenditure side, we quickly began to see our challenge. Driven largely by student enrollment growth, the Superintendent has proposed a budget that requires $11.8 million of additional operating funds for the Alexandria City Public Schools. The estimates also include $9.4 million for personnel costs (salary increases and benefit expenses), $4.5 million for non-personnel costs, and $8.4 million of new debt service costs.

All together, that creates an estimated shortfall of $20.1 million, before we start the process. The additional money requested by the School Superintendent's proposed budget would require 84% of the new revenue available to the City Council. Add in the required debt service to support the ACPS Capital Improvement Program, and it would require all of the new revenue available. 

By the time the Council adopts its budget in May, that gap must be addressed by tax increases, expenditure reductions, or some combination of the two. The Council begins to set that direction with the adoption of its budget guidance.

It is always easier to cut the budget in the fall, than it is for the Council to cut the budget in the spring during its budget process. As such, my preference is that the City Manager be directed to present a budget without an increase in the real estate tax rate. 

Last year, I was unsuccessful in my attempt to adopt guidance for the City Manager to not include a tax rate increase, but ultimately the City Manager chose not to propose a rate increase in his budget. 

This year, I made a similar effort, and again was unsuccessful. 

It is far too early to determine whether an increase in the City's real estate tax rate is necessary. Yet, in order to explain the necessity of a potential increase to the taxpayers, we must have the City Manager prepare a budget without such an increase. 

My proposal last year was simply to prevent a tax rate increase from being included in the proposed budget. This year, I proposed restricting growth in the operating budget to the the new revenue that is available (currently estimated to be $12 million), but allowing flexibility for new tax revenue to be utilized to fund the City's Capital Improvement Program. 

While we have made progress over the past three years with new investment in capital infrastructure, I believe we have hardly made a dent in the backlog of under investment over the decades. In this current year's capital budget, we invested $750 per resident in new infrastructure. That's last among our neighboring jurisdictions. Arlington, Loudoun and Fairfax Counties are at or well above $1,000 per resident. That disparity is evident in our schools, our roads, our transportation infrastructure, our recreation facilities, and more. 

There are really only four ways to fix that under investment: raise taxes, shift money from the operating budget, increase debt, or cut other capital programs.

I am still hopeful that the Council will use this budget as an opportunity to make an investment level in our infrastructure that supports our community and economic growth. 

You can watch Council's discussion on the adoption of the budget guidance online.