Revenue

FY 2003 actual General Fund revenues were $375.7 million, representing a 4% increase from FY 2002. About one-half of these City’s revenues came from real estate taxes, with the other half coming from other local revenue sources and state and federal assistance. While revenue from real property taxes has been increasing, other sources of revenue have declined or held relatively steady. In the last two years, as state aid has diminished and the pressure on the residential taxpayer has increased, City Council and City staff have acted to conserve resources, increase the productivity and efficiency of the City government, and reduce property tax rates.

The City has been affected by the slowdown in the national, regional and local economy, which began in FY 2001 and continued through FY 2003. This slowdown has affected the City in many ways, most recently in a significant reduction in the amount of state aid which the City receives. In addition, the state has increased its unfunded mandates, forcing the City to provide local funding for new and unfunded state requirements. State budget problems will most likely result in continued further state aid reductions and increases in unfunded state mandates.

City intergovernmental revenues were down in FY 2003 as state support to localities was reduced due to state income tax, sales tax and transportation-related revenue shortfalls, and the increasing cost to the state of providing car tax relief. State budget problems will likely continue for the foreseeable future, causing additional reductions in intergovernmental revenue aid to the City in FY 2004 and in FY 2005, as well as reduced state-funded investments in street, highway and transit systems.

State aid reductions are comprised of direct cutbacks in specific programs, and the stagnation of state aid for programs where the City and state have historically shared funding. The City has lost state aid in the areas of education, law enforcement, criminal prosecution, tax collection, mental retardation and mental illness, and adult and youth correctional services. As a result, spending in some of these areas has been reduced. However, in most of the areas where the state has reduced its historical funding commitment, the City has elected to, and in many cases has been obligated to, continue delivering core services to the Alexandria community.

Helping to offset some of these decreases was an increase in the real estate tax base for CY 2002 of $1.64 billion or 11.2%, and an increase of $3.2 million or 19.9% for CY 2003, both largely due to higher single-family and multi-family residential property values. This increase enabled the City Council to reduce the CY 2002 real estate tax rate by three cents from $1.11 to $1.08, and expand the City’s real estate tax relief program for Alexandria’s elderly and disabled homeowners. Real estate tax revenues of $186.4 million for FY 2003 reflected both the approved three-cent real estate tax rate decrease and the overall 34% increase in the CY 2002 and CY 2003 real estate tax base. In May 2003, City Council approved a further reduction to the real estate tax rate, for CY 2003, of 4.5 cents to $1.035 – the lowest rate since 1976.

In both FY 2003 and FY 2004, City departments were required to institute savings plans and to turn back a portion of their already approved budgets. By the close of FY 2003, this two-year effort will have saved about $5.4 million. In addition, investments in technology have enabled the City to greatly improve the productivity of the City workforce – from police officers utilizing cutting edge wireless laptop computer technology in their police cruisers, to land use planners with three-dimensional GIS information at their fingertips, to our citizens and businesses reviewing assessments and recent neighborhood sales online.

Marketing

In order to improve revenues, the City continued to partner with the Alexandria Convention and Visitors Association, the Alexandria Hotel Association, and the Old Town Business Association, and increased marketing efforts to entice groups, families and individuals, particularly tourists living within driving distance of the City, to visit, shop and dine in Alexandria. City Council authorized the continuation of the King Street based DASH About free shuttle, which runs from the King Street Metro station to Market Square on an ongoing basis on most Friday nights and on weekends.

In tandem with these promotions, the City provided free parking at meters on City streets and in City parking garages and lots in the evenings, on weekends and holidays from mid-November through the end of December 2002. Many local businesses noted an increase in customers derived from these free parking efforts. The City will be implementing this free parking promotion again during the 2003 holiday season.

In an effort to recover more of the costs associated with new development, City Council approved increases in development related fees such as sewer connection, planning and new building fire inspection fees. Voluntary developer contributions to the City’s Housing Trust Fund substantially increased, helping the City preserve, as well as create additional, affordable housing opportunities for its residents.

Operating Expenditures

Total actual expenditures from the FY 2003 actual operating and capital General Fund budget totaled $386.7 million and was financed by FY 2003 revenues and by $12.3 million in fund balance previously reserved for capital projects. Expenditure increases focused on compensation and benefit increases for City staff due to the need to remain competitive in this area, public safety initiatives, and debt service payments and cash transfers related to a substantially expanded City and School Capital Improvement Program.

The terrorists attacks of September 11, 2001, the subsequent incarceration of suspected terrorists at the City’s Public Safety Center and their federal trials in Alexandria’s Albert V. Bryan Federal Courthouse and, more generally, the City’s growing resident and daytime worker population have prompted increased funding in the area of public safety. Expenditures in this area included funding for nine additional police officer positions to improve the Police Department’s capacity to respond to calls for service, as well as nine deputy sheriff positions to address the post-September 11 need for improved security at the City’s Public Safety Center.

To assist the City in increasing its ability to respond to emergency incidents, the federal government provided $8 million in one time public safety funding, primarily to purchase new equipment and to provide training for City first responders.

Other notable expenditures included utilizing a combination of General Fund, Housing Trust Fund, and Federal Department of Housing and Urban Development funds to establish a new $1 million annual fund to implement new affordable housing initiatives for City residents. In addition, City Council committed up to $3.5 million to assist with the funding of offsite housing units of the Samuel Madden Homes (Downtown) redevelopment project.

Capital Improvements

In FY 2003, the City’s Six-Year Capital Improvement Program (CIP) totaled $183.8 million. During the year, approximately $54.7 million in local funds was provided for capital projects, including $19.6 million for school capital projects such as the expansion and renovation of the George Washington and Francis Hammond Middle Schools, as well as other school expansion and improvement projects.

The capital needs of the City school system, particularly T.C. Williams High School and the Minnie Howard Ninth Grade Center, have had, and will continue to have, a very significant impact on the City’s future CIPs. Increasing City obligations for the capital projects of the regional Metrorail and Metrobus system will also significantly affect the CIP, as will the proposed new police facility. When funded, these priority capital projects may result in the delay or cancellation of many otherwise meritorious City and school capital projects, unless alternate sources of capital funding become available.

Bond Ratings

Alexandria has been well served by City Council’s adherence over the years to the City’s Financial Policy Guidelines. This discipline has played a significant role in enabling the City to obtain and retain its top AAA/Aaa bond ratings. These independently assessed ratings reflect the Council and City staff commitment to maintaining Alexandria’s sound fiscal condition.

Fiscal Year 2004 Challenges

For the current FY 2004 operating budget, the City is faced with the probable slow growth of many business and consumer tax revenues. State funding reductions will continue to be a problem for both the schools and the City. Rising employee health insurance and pension costs and the need to keep City and school employee compensation competitive also will create budget pressures, as will the need for funding of expanded public safety programs and facilities.

In FY 2004, the Council and City staff will be looking for savings and efficiencies in the face of these budget pressures, while seeking to minimize the impact of rising residential real estate assessments. Absent a reversal in these trends, it is almost certain that, in FY 2005, the City will need to achieve substantial budget savings through the cutback in some services and programs, a curtailment in compensation increases (merit and COLA), or a transfer of some benefit costs to employees, or a combination of these measures.