Jeff Branscome writes about Spotsylvania County.
County Administrator, Treasurer respond to Thomas/McGuire budget proposal
County Administrator Doug Barnes and County Treasurer Larry Pritchett have responded to the budget proposals two county residents sent to supervisors this month.
You can read the proposal from Steve Thomas and DJ McGuire here.
Two supervisors who got the budget proposals from Thomas and McGuire asked Barnes to see if any of the ideas would work for the fiscal year 2011 budget. Barnes sent his response to supervisors on March 11.
Barnes and other county staff members responded to the proposal and the entire response is below:
RECOMMENDATIONS FOR SPOTSYLVANIA BUDGET SAVINGS
Last month, Spotsylvania County Administrator Doug Barnes presented his recommendations for the Fiscal Year 2011 (FY11) budget to the Board of Supervisors. Mr. Barnes’ budget recommended a property tax rate of 86 cents per $100 valuation, which would be an increase of three centers over the equalization rate of 83 cents per $100. Earlier this month, the Board of Supervisor advertised a rate of 88 cents per $100, or five cents above equalization. However, one Supervisor who voted to advertise the higher rate – Emmitt Marshall of Berkeley District – expressed hope for a lower rate.
This report is meant to be a part of that effort. Amidst the many voices from county officials, politicians, and voters, this report shows the way for the Board of Supervisors to maintain vital services to the county as much as is humanly possible without imposing a tax increase in the property owners of the county.
The voices in favor of setting the tax at the equalized rate of 83 cents will be numerous, but possibly muffled. They will be the voices of homeowners already feeling the strain of plummeting home values the Great Recession. In this environment, many of them are wondering why they are being asked to give more and do with less by their local government in these trying times. Unfortunately, most of them will be constrained by obligations of work and family from making their voices heard.
The voices of some of these most vulnerable homeowners who will be hurt by the proposed tax hike will be among the most important in our community. They will be elderly on fixed incomes forced to decide between food and tax payments. They will be families pushed past the breaking point by the extra $50 a month paid to the county. The last property tax increase in 2008 drove many of them away; it should be no surprise that Spotsylvania proceeded to lead all of Virginia in rate of foreclosure.
Furthermore, a tax increase will greatly damage the business community in the county. Unlike with residential property, commercial property values were almost perfectly stable on average. This means any rate higher than the current 62 cents – even the equalized rate – will be a large increase in cost for both commercial land owners and the businesses who rent from them. A rate of 86 or 88 cents will even more egregiously balance the budget on the backs of our business community.
The business community is one of the key factors to lead localities out of recession, yet businesses will be disproportionately hurt even by an equalized tax rate, let alone a net tax hike. Moreover, while commercial property values have remained steady during the downturn overall, the value of industrial land has actually increased. This means that the very businesses we depend on to keep our citizens employed – and out of foreclosure – will be suffer the most from a property tax hike. Many will move from Spotsylvania or close down, taking their jobs with them; many more simply won’t come here in the first place. The recommendations we present in this report may cost the county government the equivalent of 51 jobs (7 of which are unfilled), but it may well save hundreds, if not thousands, of jobs in the private sector, along with many businesses generating activity – and local revenue. Otherwise, we risk being the only locality in the region to consider a tax hike during the Great Recession, with all the economic damage that comes with such a dubious honor.
We developed this report to prevent this damage. If the recommendations set forth in this report were fully implemented, it would actually lead to a rate below equalization. More likely, they provide the Supervisors with a number of choices from which they can build several budget alternatives at the equalized rate. This will require the Supervisors to make choices and set priorities for the county, but it will also make clear that the county’s elected officials do not intend to exacerbate the economic conditions by forcing homeowners to pay more, and businesses much more, in these trying times.
Steven Thomas D.J. McGuire
Spotsylvania Economic Development Authority Republican Nominee for Lee Hill
Chairman and Member for Livingston District Supervisor – 2009
Staff Response to Introduction
– In paragraph 3, the writers state “In this environment, many [homeowners] are wondering why they are being asked to give more and do with less by their local government in these trying times.” Following are facts about the Recommended Budget:
- § At the recommended $0.86 tax rate, the majority of residential taxpayers will see no change or a decrease in their bills.
- § For the minority of residential taxpayers that will experience an increase in their bills, most will pay between $1 and $100 more than what was paid in 2009. $100 equates to about 27 cents per day.
– In paragraph 4, the writers state “The last property tax increase in 2008 drove many [families] away; it should be no surprise that Spotsylvania proceeded to lead all of Virginia in rate of foreclosure.”
- § While it is true that Spotsylvania did have the highest rate of foreclosure in the state in Fall 2009, other people apparently took the place of those leaving since, according to the Weldon Cooper Center’s estimates, Spotsylvania’s 2009 population increased by nearly 700 people (0.6%) over the County’s 2008 population.
– In paragraph 6, the writers state “Otherwise, we risk being the only locality in the region to consider a tax hike during the Great Recession.”
- § Contrary to the writers’ assertion, tax rate increases are being proposed in at least nine nearby localities (Alexandria, Arlington, Fairfax, Fauquier, Loudoun, Madison, Orange, Prince William, and Stafford). Due to the limited information available on some of these localities’ web pages, we are not able to determine what portion of the tax rate increases is related to equalizing the rate and what portion is related to a rate higher than the equalized rate. Additionally, because of the timing of budget presentations, data is not available for other nearby localities such as Henrico, Chesterfield, and Richmond.
– In paragraph 7, the writers state “If the recommendations set forth in this report were fully implemented, it would actually lead to a rate below equalization.”
- § Because the FY 2010 Adopted Budget was based on the assumption that the 2010 real estate tax rate would be at least equalized, each penny below the $0.83 equalized rate causes a $0.6 million shortfall in the FY 2010 budget.
Administrator Barnes recommended a budget of over $378 million for the county for FY11.  While the Administrator’s Recommendations (hereafter the “Barnes budget”) is ostensibly lower than last year’s budget, when the capital and education budgets are removed, the local operating budget actually increases over last year’s by more than $2.5 million.
There are several areas for efficiencies or reserve uses that would prevent an increase in property taxes this year. In fact, if all of the recommendations in this report were to be enacted, a tax rate of 81 cents – or two cents below the current equalization rate – is possible.
The following efficiencies or reserve uses were found:
- Reduction of the Strategic Reserve to 10.0% $1,787,316
- Consolidation Efficiencies in Finance, Treasurer’s Office, and
Commissioner of Revenue’s Office $1,405,298
- Efficiencies in Social Services Department $1,393,944
- Cancellation of Payment from General Fund to Code Compliance Fund $1,274,623
- Cancellation of Payment from General Fund to Transportation Fund $877,806
- Reduction in Regional Agency Funding $597,799
- Postponement of increase in the Capital Reserve $536,975
- Efficiencies in Planning Department $426,567
- Efficiencies in Information Services Department $358,073
- Efficiencies in Human Resources Department $141,899
- Efficiencies in Commonwealth’s Attorney’s Office $87,922
The above efficiencies and reallocations provide a total of $8,888,223. Given that each cent per $100 valuation in the property tax yields $1.182M in FY11 revenue (and thus, $591K in FY10 revenue),  these recommendations would – if completely implemented – allow for a tax rate of 81 cents per $100 valuation, or 2 cents below the equalization rate.
These recommendations will lead to staff reductions. If all of them were implemented, the number of Full-Time Equivalents (FTEs) that would be reduced total approximately of 50.75 – 13 from the Code Compliance, 9 from the Commissioner of Revenue’s Office (2 of which are currently unfilled), 6.5 from the Social Services (2 of which are currently unfilled), 6 from the Information Services (2 of which are currently unfilled), 5.5 from the Finance, 5 from the Planning Department, 4.75 from the County Treasurer’s Office (1 of which are currently unfilled), 1 from the Commonwealth’s Attorney’s Office, and 1 unfilled position in Human Resources. The details of these recommendations can be found in Sections 1 through 11.
It should be noted that this report was not put together in the expectation that all recommendations would be implemented. Even the Supervisors who oppose a rate above equalization have not expressed support for a rate below equalization. However, the recommendations allow the Board to select among these recommendations to produce a budget that does not have local government demand more from the citizens and landowners of Spotsylvania than last year.
It should also be noted what these recommendations do not include.
- No reduction in public safety funding (police, fire and rescue)
- No reduction in local school funding
- No delays in the Capital Improvement Plan, including the new Circuit Court and Public Safety buildings, construction of a consolidated fire and rescue station for Company 5 and a new fire and rescue station in the Lee Hill
This is not to say efficiencies can not be found in those areas. The Board of Supervisors may choose to examine those areas for savings. What this does show is by avoiding these budget lines is that the county budget, contrary to popular belief, has enough room for efficiency that a net tax reduction can be achieved without touching these politically sensitive areas.
Also, the Utility budget was not considered directly for savings. As that budget is fee-driven, any reductions in these departments would be better used to fund fee reduction to a more proper level. User fees are a necessary part of any service, but when the fees are set above the necessary cost of the service, they become de facto taxes used to fund redundant posts.
Hopefully, this report will be received in the way it is intended: as an opportunity for alternatives to an economically damaging tax increase just as we are trying to come out of the Great Recession. While the Board may not agree to all that we propose (and in fact, we’d be surprised if they did), we hope they will agree to enough to avoid balancing the budget on the backs of homeowners and business owners.
Staff Response to Executive Summary
– In paragraph 1, the writers state “Barnes recommended a budget of over $378 million” and that when capital and education budgets are removed the budget increase by $2.5 million.
- § The total FY 2011 Recommended Budget including all funds is $374.7 million.
- § When capital and Schools budgets are excluded, the budget for all other funds increases by $3.3 million. Of this $3.3 million increase, $1.5 million is new debt service in FY 2011 and $1.8 million is the total of VRE and PRTC subsidies for which there is an offsetting revenue source.
- § The $1.5 million in new debt service is related to the new Circuit Court and Public Safety Buildings and the new Company 5 and Lee Hill stations the writers recommended against cutting from the budget.
– In paragraph 5, the writers give a tally of the positions that would be reduced through their plan.
- § The numbers cited are not consistent with the figures shown in the calculations in sections 1 through 11. In particular, paragraph 5 notes 5.5 positions being reduced in Finance, 4.75 in the Treasurer’s Office and 6.5 in Social Services. Although the explanation of the calculation in Section 2 is not entirely clear, it appears the writers are suggesting a reduction of 4.75 position in Finance and 5.5 in the Treasurer’s Office. In section 3, they recommend “an approximate reduction of 5 FTEs” in Social Services.
SECTION 1: STRATEGIC RESERVE REALLOCATION
Under the Fiscal Policy Guidelines, the Strategic Reserve “shall be reserved in an amount equal to no less than 10% of the governmental funds’ net operating revenue in the subsequent fiscal year budget.”
Under the Barnes budget, however, the Strategic Reserves is more than 10%; it stands at 10.51%, or over $36.8M.  Given the economic uncertainty facing the county and its homeowners, a Strategic reserve that is over 5% higher than the minimum requirement seems unnecessary. This leads to 0.51% of net operating revenues being the maximum that can be reallocated.
From here, the calculation of the recommend reallocation is as follows:
0.51% * (Barnes budget Strategic Reserve / 10.51%) = Recommended reallocation
0.51% * ($36,832,726/10.51%) = $1,787,316
Stand-alone effect: This reallocation, based on the funding effects of the property tax as described in the Executive Summary, would yield a one cent reduction in the property tax rate from the Barnes recommended rate, with roughly $14,000 to spare.
Staff Response to Section 1
– The $1.8 million above the 10% guideline exists in the Recommended Budget solely because there is an approximate $600,000 “windfall” in FY 2010 for each penny above the equalized rate. If the County Administrator’s recommended three pennies above the equalized rate in calendar year 2010 were adopted, there would be a one-time $1.8 million “windfall” in the FY 2010 budget, and all else remaining constant, permitting the County to end FY 2010 with $1.8 million above the 10% undesignated fund balance guideline. If the recommended three pennies above the equalized rate is not adopted, the “windfall” will be reduced by $600,000 for each penny, potentially eliminating the excess above the guideline.
– Because the “windfall” is one-time money in FY 2010, it should not be used to balance any on-going expenditures in FY 2011. Doing so would only create an equivalent shortfall in the FY 2012 budget.
SECTION 2: COMMISSIONER OF REVENUE/TREASURER/FINANCE EFFICIENCIES
The Department of Finance, County Treasurer’s Office, and County Commissioner of Revenue’s office conduct all financial policies and transactions for the County. While the Commissioner of Revenue and Treasurer’s Offices are constitutionally required, no such justifiability exists for the Finance Department. However, we are not proposing eliminating the department per se, but rather consolidating all three as best as possible, while minimizing duplication.
Additionally, the presence of 10 FTEs in the Assessment office – both in years when assessments or conducted and when they are not conducted – hints toward further efficiencies.
Among the three areas, there are a total of 66.25 FTEs.  One can expect a reduction of roughly 30% (18.75) due to the likelihood of duplication within these departments. It should be noted that three of the positions are unfilled at this time.
The Commissioner of Revenue’s Office, Finance Department, and Treasurer’s Office has 31, 19, and 15.75 FTEs respectively. A reduction of 9, 5.5, and 4.75 FTEs in the respective offices leads to the following efficiencies:
[Barnes Budget FY11 Commissioner of Revenue Personnel Cost * (20/31)] + [Barnes Budget FY11 Finance Personnel Cost * (6/19.5)] + [Barnes Budget FY11 Treasurer Personnel Cost * (5.25/15.75)] = Recommended Savings
= ($2,192,760) * (9/31) + $1,335,822 * (5.5/19.5) + $1,201,011 * (4.75/15.75) = $1,384,988
Stand-alone effect: These savings would not yield a one cent reduction in the property tax rate by itself.
Total effect: When added to the aforementioned recommendations, these savings would yield a one cent reduction in the property tax rate from the Barnes recommended rate with roughly $1,399,000 to spare.
Staff Response to Section 2
– No explanation is given for the assumed 30% reduction in positions in each of these three offices. Likewise, no explanation/evidence is given as to why any duplication is being assumed.
– While it is absolutely true that each of the three offices has the very general responsibility of dealing with finances of the County, each office has a different purpose and responsibility.
- § The Commissioner of the Revenue creates and maintains the County land book; handles land use applications and applications for tax relief for the elderly and disabled; provides personal and business property assessments; provides business license and meals tax assessments; processes state tax returns for Spotsylvania County residents; and audits sales tax to ensure the 1% local tax on sales in Spotsylvania is returned to the County on a monthly basis.
- § The Treasurer prepares, mails, and collects all tax bills for real and personal property located in the County; serves as the collection point for the majority of fees and taxes, including water and sewer charges, business licenses, meals tax, auto registration fees; prepares a daily cash report; balances all cash, tax receivables and bank accounts on a monthly basis, and is responsible for investing the County’s revenues.
- § The Finance Office is responsible for accounting, budget, finanical reporting, procurement, and grants writing. The Finance staff pays all the County’s bills; manages payroll for County employees; manages the County’s property insurance plans; processes billing for water/sewer charges; coordinates the annual audit; prepares the annual budget and Capital Improvement Plan (CIP); monitors and reports to the Board on on-going revenue receipts and expenditures; coordinates bond referenda and the issuance of bonds; coordinates purchases of equipment and supplies and all associated purchasing contracts; provides logistics support for the delivery of goods; seeks grant funding from various sources including state and federal governments, and assists departments in applying, accepting and monitoring of these grants; and monitors County compliance with all County financial policies, Generally Accepted Accounting Principles (GAAP), Governmental Accounting Standards Board (GASB) pronoucements, and grant reporting requirements.
– The derivation of the $1.4 million recommended savings is not entirely clear. Using the writers’ information and arranging it so the figures represent the appropriate departments, it seems the writers may have meant to state the following equation:
[Barnes Budget FY 11 Commissioner of Revenue Personnel Cost * (9/31.63)] + [Barnes Budget FY 11 Finance Personnel Cost * (4.75/15.75)] + [Barnes Budget FY 11 Treasurer Personnel Cost * (5.5/19.5) = Recommended Savings
[($2,192,760) * (9/31.63)] + [($1,210,011) * (4.75/15.75)] + [($1,335,822) * (5.5/19.5)] = $1,365,622
– Finally, because positions in the Commissioner’s and Treasurer’s offices are partially reimbursed by the Compensation Board, a $1 reduction in position expenditures does not equal a $1 reduction in necessary tax revenue.
- § Using a very broad-brush approach and not looking at specific positions, when the Commissioner’s office budget and the Assessment office budget are combined the way the writers have combined them, each $1 reduction in assumed expenditures nets an 86-cent reduction in tax-supported expenditures.
- § Using a very broad-brush approach and not looking at specific positions, each $1 reduction in assumed expenditures in the Treasurer’s office nets a 79-cent reduction in tax-supported expenditures.
- § The revised very broad-brush calculation would look like this:
[($2,192,760) * (9/31.63) * 86%] + [($1,210,011) * (4.75/15.75)] + [($1,335,822) * (5.5/19.5) * 79%] = $1,199,150
SECTION 3: SOCIAL SERVICES EFFICIENCIES
The Department of Social Services provides numerous services across a variety of areas. Under the Barnes budget, a tax-supported increase of nearly 17% is projected in order to fill vacant positions and address “a 72% increase in benefits applications.” 
As Mr. Barnes does not detail the time period for said increase, we cannot be sure how much of this is the effect of the Great Recession (which may soon be ending, as Barnes himself notes ) or recent population growth in the county, which has dramatically leveled off recently.
In any event, when looking at the Social Services budget for FY10, one finds that spending was actually lower than initially projected at budget adoption (operations as well as personnel) despite the increase in applications. This leads us to believe it would be better to project spending as a function of revenue (using FY10 as a guide, the ratio would be 1.54 to 1).
This ratio leads to the following:
Barnes Budget FY11 Expenditures – (FY11 Revenue * 1.54) = Recommended Savings
$17,507,247 – ($10,433,737 * 1.54) = $1,393,944
This efficiency would result in an approximate reduction of 5 FTEs. However, there are at least two vacancies in Social Services as is. 
Stand-alone effect: These savings would not yield a one cent reduction in the property tax rate by itself.
Total effect: When added to the aforementioned recommendations, these savings would yield a two cent reduction in the property tax rate from the Barnes recommended rate with roughly $1,020,000 to spare.
Staff Response to Section 3
– Because the County receives reimbursement from the State for a portion of Social Services positions and other expenses, a $1 reduction in position expenditures does not equal a $1 reduction in necessary tax revenue. Since the reimbursement rates vary by Social Services program, we cannot provide even a broad-brush estimate on this the way we did with the Commissioner of the Revenue and Treasurer positions.
– It is not clear how the writers arrived at 5 FTEs as the recommended reduction. A very rough estimate would begin with the $5,113,331 in personnel expenditures divided by the 79.76 FTEs, yielding a very rough per position cost of $64,109. $1,393,944 divided by $64,109 yields 22 FTEs, not 5.
– There is an approximate $415,000 increase in budgeted expenditures when comparing the FY 2010 Adopted Budget to the FY 2011 Recommended Budget. This increase is due to the following adjustments:
- § Funding of FTEs previously budgeted at $0…………………………. $218,000
- § Replacement of 2 cars (one 1994, one 1995)…………………………. $33,000
- § Increase in facility lease………………………………………………………. $66,000
- § Health insurance/VRS increases…………………………………………. $112,000
– While the FY 2011 Recommended Budget does not include additional positions for Social Services, it does fully fund five positions that have been included in the position count in previous budgets, but which have been funded at $0 with the assumption that savings from annual turnover within Social Services would net sufficient funding for the unfunded positions.
– Workloads have greatly increased as a result of the recession:
- § New applications for food stamps, Medicaid, Temporary Assistance to Needy Families and energy assistance increased by 72% from FY 2007 to FY 2009; by 49% from December 2008 to December 2009
- § Spostylvania experienced the third largest increase statewide in food stamps participation since July 2008 at 119%
- § Increases also occurred in foster care, Child Protective Services reports and investigations, Medicaid, energy assistance, adoptions and elderly and disabled citizens receiving home-based care.
– Workload measures/services provided for calendar year 2009 (this is only a sample of services provided, not a full listing of all services provided):
- § As many as 9,625 individuals/3,746 households on food stamps at one time; average of 8,586 individuals/3,295 households per month
- § Total of 207 fraud referrals on food stamps
- § An average of 120 children in foster care each month
- § An average of 58 child abuse cases under investigation each month
- § An average of 8 elderly or disabled citizen abuse reports each month
- § An average of 5 new or on-going Child Protective Services or supervision custody cases each month
- § An average of 67 Temporary Assistance to Needy Families applications received monthly
- § An average of 34 elderly or disabled citizens requesting home-based care, placement, or support services per month.
SECTION 4: CANCELLATION OF THE GENERAL FUND PAYMENT TO CODE COMPLIANCE
Costs for the Code Compliance Department are supposed to be covered by fees, not taxes. User fees are an essential part of government provided services. Governments that charge fees in excess of legitimate cost are taking advantage of their monopoly position to either replenish the general fund (thus making at least part of the fee a de facto tax) or keep staff in the relevant department above necessary levels.
However, in the case of Code Compliance, a dramatic fall-off in permit applications has led to the Department relying on transfers from the General Fund to maintain staff. In effect, the taxpayers of the county are subsidizing either redundant staff or would-be applicants who are not paying proper fee levels. However the county wishes to address this is up to the Board, but Code Compliance should be a stand-alone department.
The Barnes budget assumes a General Fund payment to the Code Compliance Department of $1,274,623.
This could lead to a reduction of 13 FTEs, but only if the Board chose not to raise fees.
Stand-alone effect: These savings would not yield a one cent reduction in the property tax rate by itself.
Total effect: When added to the aforementioned recommendations, these savings would yield a three cent reduction in the property tax rate from the Barnes recommended rate – an thus bring the county’s rate to the equalization level of 83 cents – with roughly $522,000 to spare.
Staff Response to Section 4
– It has been established at previous Board of Supervisors meetings that there are mandated and necessary “core” services provided by the Building and Zoning offices that do not have any fee associated with them. Code enforcement is a prime example of a core service provided for ensuring public safety, health and quality of life of our citizens which generate no fees. The County Administrator has recommended that these “core” services be funded by a transfer from the General Fund. This $1.3 million is the beginning of that process.
– Since FY 2008, the Code Compliance staff has been reduced by 39%. Further reductions in staff will permanently damage the response to a myriad of daily public requests for inspections, permits, complaints, and State mandates.
SECTION 5: CANCELLATION OF THE GENERAL FUND PAYMENT TO TRANSPORTATION
The Transportation Fund has a rather unusual set of circumstances befall it in FY11, but the one that was most unusual was a dramatic increase in “Reserves” – over $1.1 million from FY10 and a whopping $3.8 million increase from FY09.  Already, a dramatic decrease in the General Fund transfer to Transportation would occur under the Barnes budget (over $2 million). The Board might explore removing the remainder, which would be $877,806.
Total effect: When added to the aforementioned recommendations, these savings would yield a three cent reduction in the property tax rate from the Barnes recommended rate – an thus bring the county’s rate to the equalization level of 83 cents – with roughly $1,399,000 to spare.
Staff Response to Section 5
– Holding the remaining $877,806 of the decal revenue in the General Fund is an option, but it has nothing to do with the increase in reserves. Given that our 5-year Transportation Fund forecast assumes that the transfer of decal revenue resumes in full in FY 2012, use of these funds now would create a $877,806 shortfall in the FY 2012 budget, and would cause the Transportation Fund balance to arrive at $0 sooner.
– Reserves in the Transportation Fund are an accumulation over time of :
a) the 10% set-asides from the Cosner’s Corner and Harrison Crossing developments which are available at the Board’s discretion, and
b) special service district taxes collected to pay the debt service on bonds issued for transportation improvements in the special service districts.
|Description||FY 2010||FY 2011|
|Harrison Crossing Set-Aside||$173,553||$173,476|
|Massaponax Special Service District*||$1,629,767||$2,291,717|
|Harrison Special Service District*||$580,301||$807,949|
|Lee Hill East Special Service District||$0||$16,561|
|Lee Hill West Special Service District||$0||$76,828|
*Includes a total of $113,847 which is unspent bond proceeds from previously issued financings for these tax districts.
SECTION 6: REGIONAL FUNDING
Spotsylvania Count naturally wishes to maintain good relations with neighboring jurisdictions, and regional agencies can go a long way toward achieving that goal. However, the current economic climate, combined with the county joining VRE this year, should provide some leeway.
In particular, Spotsylvania may want to suggest a postponement of the new regional library branch. While Stafford (which would host the branch) might express some angst for this, a postponement would allow them to more smoothly deal with their elimination of the BPOL tax.
Spotsylvania’s addition portion of funding for the library system over FY10 come to $597,799. 
Total effect: When added to the aforementioned recommendations, these savings would yield a three cent reduction in the property tax rate from the Barnes recommended rate – and thus bring the county’s rate to 82 cents, one cent below equalization – with roughly $224,000 to spare.
Staff Response to Section 6
– County Administration and Finance staff have discussed internally and with other participating localities the possibility of postponing funding related to opening the new library branch. All understand that this reduction in funding could impact service delivery (hours of operation) through the library system to include Spotsylvania’s library branches.
– SECTION 7: POSTPONEMENT OF THE INCREASE TO THE CAPITAL RESERVE
The Capital Projects Fund is due to receive roughly $3.8 million from the General Fund in FY11 under the Fiscal Guidelines for the CIP.  While the long-term goal of a 5% transfer from the general fund is laudable, the current economic circumstance may not be the best for taking a step along this path, especially given that part of the CIP budget involves over $400,000 going to the Transportation Fund and its burgeoning reserves (see previous section). 
At 1.75%, the transfer stands at $3,758,827. At 1.5%, the transfer would be $3,221,852, for a savings of $536,975. Again nearly all of that could be countered with the would-be Transportation Fund transfer, if the Board prefers.
Total effect: When added to the aforementioned recommendations, these savings would yield a four cent reduction in the property tax rate from the Barnes recommended rate – and thus bring the county’s rate to 82 cents, one cent below equalization – with roughly $761,000 to spare.
Staff Response to Section 7
– The County has been working its way to the goal of cash to the CIP being 5% of General Fund revenues for the past few years. Each year, one-quarter of 1% has been added such that the FY 2011 amount is 1.75%. Using cash to fund certain capital projects decreases the amount of bonds to be issued, which results in annual debt service being less than it would be if the County were to issue the debt. It is critical that the transfer to the Capital Projects Fund be maintained at the fiscal policy guideline level to allow for necessary capital projects to move forward without adding to the amount of debt to be issued. Additionally, each of the County’s fiscal policy guidelines needs to be maintained to help ensure the County’s strong AA bond rating is reaffirmed or upgraded.
– Yes, $420,268 is being transferred from the Capital Projects Fund to the Transportation Fund for two distinct reasons. This funding is not available for use for other purposes:
- § When bonds were sold in 2009, the interest was capitalized to reduce the strain on the County budget during these difficult economic years. In other words, money was borrowed as part of the bond sale to pay the interest in the first few years of certain projects. We received the capitalized interest as proceeds in 2009, but cannot use the money for anything other than interest payments. Currently, those proceeds are in the Capital Projects Fund balance. In FY 2011, $259,292 in 2009 bond proceeds must be transferred from the Capital Projects Fund balance to the Transportation Fund to pay the interest costs due on the bonds sold for the Lee Hill East/West transportation improvements.
- § One series of bonds sold in 2009 was Build America Bonds (BABs). BABs are issued at higher interest rates, but then, on an annual basis, the issuer receives a subsidy from the federal government which, over the life of the loan, brings the interest costs down. In FY 2011, the County is due to receive $160,976 in BAB subsidy as revenue in the Capital Projects Fund for Transportation Fund purposes. To pay a portion of the interest on the BABs issued in 2009, the BAB subsidy must be transferred from the Capital Projects Fund to the Transportation Fund.
SECTION 8: PLANNING DEPARTMENT EFFICIENCIES
While the Planning Department is not as revenue-driven as Code Compliance – nor should it be – one would expect a relatively stable relationship between the revenue that comes in and the expenses that go out.
However, in FY11, said stability is not to be found. Unlike FY09 or FY10, the Barnes Budget calls for expenses to be more than two-and-a-half times incoming revenue. Given the expected reduction in applications, this seems strange. 
As Mr. Barnes does not detail the need for such a change in ratio, we believe the FY10 ration of 1.53 to 1 would be more apt.
This ratio leads to the following:
Barnes Budget FY11 Expenditures – (FY11 Revenue * 1.53) = Recommended Savings
$976,541 – ($359,336 * 1.53) = $426,567
This efficiency would result in an approximate reduction of 5 FTEs, assuming the Board chose not to raise fees for the Department to make up the difference.
Total effect: When added to the aforementioned recommendations, these savings would yield a four cent reduction in the property tax rate from the Barnes recommended rate – and thus bring the county’s rate to 82 cents, one cent below equalization – with roughly $1,188,000 to spare.
Staff Response to Section 8
– Like Code Compliance, it has been established at previous Board of Supervisors meetings that there are mandated and necessary “core” services provided by the Planning Department that do not have any fee associated with them. State Code required duties such as maintaining and updating the County’s Comprehensive Plan are time consuming and have no associated fees. Additionally, Board-directed studies and other items have no fees associated with them.
– Since FY 2009, the Planning Department staff has been reduced by one-quarter, and in FY 2011 two vacant positions will not be filled. When the two positions to be held vacant in FY 2011 are included, there is an effective 38% reduction in Planning staff since FY 2009. Remaining in FY 2011 are two support staff, two long-range planners, four short-range planners/planning technicians, one manager and one director. As shown in fee analyses discussed at recent Board of Supervisors meetings, the remaining staff level is appropriate for the level of effort necessary for expected applications and other work in FY 2011.
– Removing up to five positions from the Department would leave an inadequately staffed long- range planning section to handle State Code mandates and Board directives, and would make inefficient the short-range planning section to the point that the Department would not be able to comply with State and County Code requirements for turn-around time on applications.
SECTION 9: INFORMATION SERVICES EFFICIENCIES
The Department of Information Services (DIS) provides numerous information technology (IT) services for the county, including providing GIS data for the citizenry. Although the need for a central IT structure for the county is beyond question, in the current economic climate, resurrecting an IT post for even half a year seems unwise. 
Moreover, given the lack of detail in the Barnes budget, we cannot see any new initiatives here. Therefore, it is recommended that the county make a strategic decision to “pause” new application development by eliminating the Application Development Manager permanently (the post is currently vacant) along with four of the five Application Analysts (including one vacancy), and also eliminate the position of Deputy Director. The Operations Manager position would stay vacant for the entire year.
This leads to a total of 6 positions (two of which are vacant), out of 28, being eliminated in this efficiency (plus the reduction of half an FTE for the permanent vacancy). With two other positions in GIS vacant under the Barnes budget,  the effect on personnel cost (given the nature of the IS Department, Operating Cost was left alone) is as follows:
(Barnes Budget FY11 Personnel Cost) * (22-3) / (28-4.5) = Gross Recommended Savings
$1,869,936 * (22-3) / (28-4.5) = $358,703
It should be noted that the GIS service was not examined here, in part because of a lack of data on the cost of the GIS to the IS Department. There may be potential to recoup losses here through an increase of fees, or use said increase to fill the aforementioned GIS vacancies.
Total effect: When added to the aforementioned recommendations, these savings would yield a four cent reduction in the property tax rate from the Barnes recommended rate – and thus bring the county’s rate to 82 cents, one cent below equalization – with roughly $1,546,000 to spare.
Staff Response to Section 9
– There is no explanation of the derivation of the 6 positions recommended for elimination.
– The Recommended Budget includes four Application Analysts to provide applications maintenance and support, and application development/integration/project management – two of Information Services’ nine core areas. Most new development has been postponed with the remaining work being critical upgrades for core systems that can no longer be supported in their current state. Eliminating additional Application Analysts positions would leave the County with no internal maintenance and support of critical systems such as tax collection systems, and public safety systems.
– The Operations Manager position has been requested for half the year. This position works on core Information Services functions such as delivery of critical public safety support services (i.e. public safety radio communications, E911 computer aided dispatch, GIS). This position has been vacant for several years, and while other Information Services employees have compensated for the vacancy in the short-term, this cannot continue for what is now becoming the long-term.
– The transfer of the Information Services Director to the position of Development Services Administrator to assist in the reorganization of those departments has led to the Deputy Director taking on the responsibilities of the Information Services Director for department management.
SECTION 10: HUMAN RESOURCES EFFICIENCIES
The Department of Human Resources includes funds for a restored Director.  The position was resurrected in the Barnes budget after being eliminated last year. Given Mr. Barnes’ previous concern for avoiding reduction of the county force, we were surprised to see him risk the possibility of reductions elsewhere by placing this in. Additionally in neither the budget strategy, Barnes’ opening message, nor the funding breakout is there any explanation for why this position was resurrected.
As such, we recommend not bringing this position back, and thus keeping personnel spending at the FY10 level, which leads to the following:
Barnes Budget FY11 Personnel Cost – FY10 Personnel Cost = Gross Recommended Savings
$556,084 – $413,340 = $142,744
Total effect: When added to the aforementioned recommendations, these savings would yield a four cent reduction in the property tax rate from the Barnes recommended rate – and thus bring the county’s rate to 82 cents, one cent below equalization – with roughly $1,689,000 to spare.
Staff Response to Section 10
– The Deputy County Adminstrator currently performs the duties of Deputy County Administrator, Human Resources Director and General Services Director. While this arrangement has worked in the short-term, one employee cannot be expected to fill multiple roles for the long-term. An organization of the County’s size should have on its permanent staff someone trained in human resources functions to manage the Human Resources department.
– Note that $136,003 of the $142,744 increase in the FY 2011 Recommended Budget is related to hiring the Human Resources Director. The remaining $6,741 is related to changes in health insurance and VRS costs of existing employees in the Human Resources department. In addition, a vacant Deputy County Administrator position will remain unfilled to fund this position.
SECTION 11: COMMONWEALTH’S ATTORNEY’S OFFICE EFFICIENCIES
Like the Department of Human Resources, the Office of the Commonwealth’s Attorney includes funds for a position that was not part of the FY10 adopted budget.  Also as with Human Resources, there is no explanation or justification for the additional position.
As such, we recommend holding this position back, and thus keeping personnel spending at the FY10 level, which leads to the following:
Barnes Budget FY11 Personnel Cost – FY10 Personnel Cost = Gross Recommended Savings
$1,765,750 – $1,677,828 = $87,922
Total effect: When added to the aforementioned recommendations, these savings would yield a five cent reduction in the property tax rate from the Barnes recommended rate – and thus bring the county’s rate to 81 cents, two cents below equalization – with roughly $4,000 to spare.
Staff Response to Section 11
– The position added after budget adoption in the Commonwealth’s Attorney’s office is a grant funded position. In FY 2010, this is a full-year position. In FY 2011, it is budgeted as half-year because the grant is scheduled to end December 31, 2010. Staff acknowledges that there is an error on page 104 of the budget in the table relating to the Commonwealth’s Attorney’s office. Expenditures are shown as $1,880,918 instead of $1,849,772. Also, the grant is missing from the “Associated Revenues” shown on page 104 of the budget, so grant funding of the added position would not have been evident to Mr. McGuire and Mr. Thomas when they reviewed the budget.
APPENDIX: LOCAL VRS AND OTHER OPTIONS NOT EXAMINED
In our analysis, there were some options that we did not consider, but that the Board might.
At present, the Virginia House of Delegates has proposed allowing local governments and school districts to save money by requiring their employees contribute to their own retirement, rather than forcing the localities to match as is the present situation. Dr. Hill himself has admitted this change, if it were to become law, could save the Spotsylvania School Division approximately $5 to $6 million – or roughly 2.6-3.1% of the total personnel budget of $194.4 million. 
The personnel budget for local government is listed as just over $50 million.  Thus, the enactment of the change could save the General Fund between $1.3 and $1.6 million annually, at least more than two-thirds of the way toward a one-cent reduction in the property tax. Again, because this change has not yet been enacted, we did not include it in our recommendations, but should that change between now and April, it would be a tool the Board should consider.
There were other options we did not cost, such as Mr. Marshall’s idea for selling state land and, if necessary, helping to finance the sales for buyers. While the effect on this year’s budget is not clear, it would certainly improve the county’s financial position by (1) moving land from local ownership to private ownership, thus putting it on the tax rolls, and (2) reducing the net debt of the county if it is to become the creditor on these parcels. It is an option very worthy of the Board’s consideration.
A final possibility to be considered is the exploration of Health Savings Accounts (HSAs). Indiana has offered HSAs as an option to its employees since 2005. Today, according to Governor Mitch Daniels, “over 70% of our 30,000 Indiana state workers chose it.” They “will save more than $8 million in 2010 compared to their coworkers in the old-fashioned preferred provider organization (PPO) alternative.” 
As for the state itself:
Indiana will save at least $20 million in 2010 because of our high HSA enrollment. Mercer calculates the state’s total costs are being reduced by 11% solely due to the HSA option. 
Again, this may be more of a long-term budget strategy than one for FY11, but we think it’s worth a look.
Staff Response to Appendix
The House proposal related to VRS employee contributions applies to any new employees hired on or after July 1, 2010. Currently, employers are not “forced” to pay the employees 5% member share of VRS, but are given the option of doing so. Spotsylvania elected in the early 1990s to pay the employee share in lieu of a cost of living increase. Because the House proposal
Here is the Treasurer’s response:
TO: DOUG BARNES, COUNTY ADMINISTRATOR
FROM: LARRY K PRITCHETT, TREASURER
DATE: March 9, 2010
SUBJECT: FY11 RECOMMENDED BUDGET SAVINGS
In response to several recommendations for potential budget saving for FY11 from DJ McGuire and Steven Thomas, I offer the following:
Section 1: Strategic Reserve Reallocation
Section 7: Postponement of the Increase to the Capital Reserve
The two above issues, as stated in the proposed budget, present a reserve over the amounts recommended on the Fiscal Policy Guidelines. This has been recommended by the Financial Consultants, as the three bond rating companies are looking for Spotsylvania County to obtain an AAA bond rating. The current Board and past Boards have worked very hard to obtain this rating and we are getting very close. The AAA rating will save the tax payer a lot of interest in future funds borrowed through the bond market. To stumble now may mean a delay in the AAA rating for many years. This would be a loss to Spotsylvania County and an additional cost to the tax payer. Also, by setting the reserve higher to fund additional projects means there will be a need to borrow less and to pay more as we go forward. Now is a good time to do new projects as the cost of completing the projects are down from original estimates by approximately 15 to 20%. Again, another saving for the tax payer and it’s also possible that additional projects could be completed for the same amount of funds approved or fewer funds that will need to be borrowed. Although bond ratings are probably the most important reason to not make this change, the amount over 10% also provides funding to cover possible revenue shortfalls and protects possible cash flow issues due to decreased revenues. Going forward with both budget items as proposed by McGuire and Thomas would not be sound financial planning.
Section 2: Commissioner of the Revenue/Treasurer/Finance Efficiencies
Combining the three Departments may appear to have some saving but really does not. All three offices are financially related but have separate duties and no duplication. The current level of positions is needed by each department and if any positions were eliminated the required work load would not be completed, leading to negative audit finding and GAAP requirements not being met. This would lead to the county not meeting internal control requirements for checks and balances, the loss of control of public funds, and a reduction in the bond rating. Listed below are the major duties for each office:
COR (includes assessment):creates and maintains the County land book and records of personal property held in the County; provides business license and meals tax assessments; assessment office reassesses existing properties every two years and re-inspects them at least once every four to six years. Assessments are also conducted on all properties with active building permits as of January 1st of each year and when a property is issued an occupancy permit, therefore requiring staff other than when reassessments are being conducted.
Treasurer: prepares, mails and collects all tax bills for real and personal property taxes and serves as the collection point for the majority of fees and taxes generated with the county including water and sewer charges, business licenses, meals tax, auto fees, etc.
We initiated 123,000 collection actions in FY09 and our collection rate for taxes for the 12 month period after the due date was 97-99%. There will be a reduction in the number of collection actions that are taken and a decrease in the collection rate if we have to reduce our staff by 4 or more positions.
The Treasurer’s office also prepares a daily cash report and balances all cash, tax receivables and County bank accounts on a monthly basis, and is responsible for all funds that are received, disbursed or invested.
Finance: This office operates in four functional areas:
Accounting: Oversees the financial management system; payment of invoices to suppliers of goods and services to County; payroll for County employees; management of County’s insurance programs; billing for water/sewer services, landfill services, and other miscellaneous services; maintaining fixed asset system; reconciling Social Service and County financial systems; coordination, development and tracking of bond issuance packages, bond proceeds and debt payments.
Budget: Development of County budget and Capital Improvements Plan; monitoring of County expenditures and revenues
Purchasing: coordination, review and processing of County purchases of equipment and professional service contracts
Grants Writing: seek grant funding opportunities from federal, state, foundation and corporate giving programs; monitoring of County compliance with financial and programmatic reporting requirements.
In summary, you can clearly see that all of these offices work together but also work independently of the other, all with different duties. A reduction of 19 staff for the three offices would prevent required work load from being performed and would cost the County in obtaining Grant Funds, meeting General Accepted Account Principals and the loss of revenue greater than the saving. Accountability of Public Funds and assets is a requirement and has to be handled accurately and professionally.