Arlington County, Virginia. Presentation to the County Board

Transcription

1 Arlington County, Virginia Presentation to the County Board Financial Policy Updates June 3, 2014

2 Overview Financial policy most recently revised in 2008 Major Sections Budgeting, Planning & Reserves Capital Improvement Plan Debt Management Variable Rate Debt Derivatives Special Revenue / Enterprise Funds Periodic review & update a best practice Capture new developments in municipal bond market Reflect changes in credit rating criteria Adapt to County s changing financial scope & concerns 2

3 Proposed Enhancements Affirm Operating Reserve floor at 5% of General Fund Budget Add a replenishment provision to the Operating Reserve Any draw will be replenished within the subsequent three fiscal years Formalize the County s practice of maintaining an Economic & Revenue Stabilization Contingent to address revenue declines and local or regional economic stress Minimum amount of $3 million and revisited annually as part of the budget process Any draw will be replenished within the subsequent two fiscal years Lower debt as % of market value ratio to 3% from 4% More conservative variable rate debt policy Add policies for Tax Increment Financing ( TIF ) districts 3

4 Reserve Policy: Operating Reserves The County s current policy states that the Operating Reserve will be maintained at 3% of the County s General Fund budget, with a goal of increasing the reserve to 5% Recommendation: Maintain Operating Reserve at 5% & add a restoration policy The County s Operating Reserve has been funded at the 5% since FY 2011; therefore, it is no longer a goal and should serve as a floor Adding a restoration policy in the event that the Operating Reserve is drawn upon below the floor is best practice for reserve policies The recommended 5% amount is consistent with other triple-a rated entities, lower in some cases, and offers sufficient flexibility to the County 4

5 Operating Reserve History Reserve Balance (Thousands 000s) 60,000 50,000 40,000 30, % 28, % 30,770 Operating Reserves History 5.3% 5.3% 52,605 50, % 35, % 54, % 5.0% 4.0% 3.0% 20, % 10, % % Operating Reserves Operating Reserves as a % of GF Budget Policy Limit 5% Source: CAFRs. 5

6 Triple-A Reserve Policies Select Triple-A Rated Localties - Fund Balance Policies 18% 16% 15.0% 15.0% 16.0% 14% 14.0% 12% 10% 10.0% 10.0% 10.0% 10.0% 8% 7.0% 7.5% 7.5% 8.0% 6% 5.0% 5.0% 5.5% 4% 2% 0% 1. Locality has both a minimum level and a target level. 2. Commonwealth of VA s Revenue Stabilization Fund policy is not to exceed 15% of the Commonwealth s average annual tax revenues derived from taxes on income and retail sales for the three fiscal years immediately preceding. Source: Various localities FY 2013 CAFRs & Proposed FY 2015 Budgets. 6

7 Triple-A Total General Fund Reserve Levels 40.0% Total General Fund Balance as % of General Fund Revenues 39.5% 35.0% 33.7% FY12 Aaa Median = 34.3% 30.0% 25.0% 24.0% 20.0% 15.0% FY12 FY % 18.0% 18.4% 18.4% 18.5% FY12 Peer Group Median = 18.5% 10.0% 10.4% 5.0% 0.0% Fairfax County, VA Albemarle County, VA Arlington County, VA Loudoun County, VA Prince William County, VA Hanover County, VA Henrico County, VA Chesterfield County. VA Source: Moody s Financial Ratio Analysis database, all data is as of FY

8 Debt Management Policy: Debt to Market Value Ratio Arlington County s current debt management policy states the ratio of net taxsupported debt to full market value ratio should not exceed 4% Recommendation: Reduce net tax-supported debt to market value target to 3% The ratio has been below 2% for the past 10 years, and the County s projections for the next 10 years do not exceed 2% The triple-a median debt to market value ratio is less than 1% using the Moody s Financial Ratio Analysis Database The recommended 3% limit is consistent with other triple-a jurisdiction policies and offers sufficient flexibility to the County 8

9 Triple-A Debt to Assessed Value Policies 9.00% Select Triple-A Rated Localities - Debt to Assessed Value Policies 8.00% 8.0% 8.0% 7.00% 6.00% 5.00% 4.8% 4.00% 3.5% 3.5% 4.0% 3.00% 2.5% 3.0% 3.0% 3.0% 3.0% 2.00% 1.5% 1.5% 1.6% 1.00% 0.00% Henrico County, VA 1 Montgomery County, MD City of Alexandria, VA 1 Hanover County, VA Fairfax County, VA Loudoun County, VA Prince Chesterfield William County, VA County, VA City of Virginia Beach, VA Arlington County, VA Howard City of County, MD Raleigh, NC City of Charlotte, NC 1. Denominator of Debt to Assessed Value calculation only includes Real Property. Source: Various localities FY 2013 CAFRs & Proposed FY 2015 Budgets. New Guideline 9

10 Debt to Assessed Value 3.50% Direct Net Debt as a % of Assessed Value 3.00% Recommended Policy = 3% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Fiscal Year Actual Projected Source: : Arlington Comprehensive Annual Financial Report FY2013, Table I : Arlington CIP FY15-24, Chart C. Ratios of Outstanding Debt to Market Value. 10

11 Debt Management Policy: Variable Rate Debt Exposure The County s current policy sets a limit on unhedged variable rate debt exposure at approximately 20% of total outstanding debt Recommendation: Lower the overall variable rate exposure to approximately 20% of total outstanding debt, hedged and unhedged combined In the wake of the 2008 financial crisis, ratings agencies have taken a more conservative position on variable rate obligations The County s outstanding debt totals approximately $900 million, and 20% equates to $180 million, leaving ample capacity for variable rate debt Currently, the County only has one series of variable rate bonds outstanding for Ballston Public Parking Garage at an amount of $9.4 million, equal to 1.04% of the County s debt 11

12 Tax Increment Financing (TIF) Tax Increment Financing (TIF): Bonds are secured by incremental tax revenue (not an add-on to the tax rate) collected as the value of property increases over a base assessment value within a specified geographic area County Happy City: Total $4.0bln AV: $4.0bln County Total AV: Happy $4.0bln City: $4.0bln County TIF: $400mln $50million increase in assessed value County TIF: $450mln Base Year: If $0.50/$100 tax rate = $2.0 million of revenue $250,000 increment: If $0.50/$100 tax rate = $2.25 million of revenue 12

13 TIF Policy The County s current policy does not address TIF, recommend adding a policy to govern use Arlington s use of TIF is unique & comparable policies are rare County retains control over TIF revenue No statutes in Virginia limiting TIF Key elements proposed TIF policy Assessed value of TIFs should not exceed 25% of total County assessed value Percentage of incremental TIF revenue to be used for TIF purposes should be lesser than or equal to 40% Prudently balance PAYG vs. leveraging If TIF is leveraged, minimum debt service coverage of 2.0 times and establishment of appropriate reserves An operating reserve of 10% of budgeted revenue will be maintained 13

14 Sample TIF Policies GFOA recommends, a TIF policy should be adopted by the local governing body that includes statements regarding whether the TIF district is appropriate, including its relationship to an overall development/redevelopment plan. Austin, TX (Aaa/AAA/AAA) Tax Increment Financing zones should be established where revenues will cover the public cost of debt with adequate safety margin. No more than 5% of the City s tax base will be Tax Increment Financing zones. All TIF proposals, even pay-as-you-go projects, will be evaluated for service impact. Dallas, TX (Aa1/AA+/NR) Tax Increment Financing zones should be established where revenues will recover 1.25 times the public cost of debt in order to provide an adequate safety margin. A Tax Increment Financing Reinvestment Zone may not be created if more than 10 percent of the property in the adopted zone, excluding property dedicated for public use, is used for residential purposes. Portland, OR (Aaa/NR/NR) It is the policy of the City of Portland that an aggregate citywide minimum of 30% of TIF shall be dedicated to the development, preservation and rehabilitation of housing affordable to households with incomes below 100% median family income, in accordance with the Policy Implementation Plan and Income Guidelines.. 14

15 Select State Statute Restrictions on Composition of TIF Districts State Statute Restrictions on Composition of TIF Districts Georgia North Carolina Oregon Texas NTE 10% of total AV NTE 5% of total land area (1) NTE 15% of total AV if population >50,000 and NTE 15% of total land area if population>50,000 (2) NTE 25% of total AV if population <50,000 and NTE 25% of total land area if population<50,000 A municipality may not designate a reinvestment zone if: (1) More than 30% of property in the proposed zone, excluding property that is publicly owned, is used for residential purposes; or (2) Total AV of taxable real property in the proposed zone and in existing reinvestment zones exceeds 25% if population>100,000, 50% if population<100,000 *Source: Various State Statues Public Financial Management, Inc. 15

16 Questions?