Additional Background on Deficit Situation

I provide some additional background information for those of you who would like to understand better why we are experiencing a budget deficit. As you can see in the attached budget update, we are extraordinarily reliant upon local resources for funding our schools..fully 76% of our operating revenue. From the perspective of the County, this translates into 53% of its revenue base going to support the school system. The remaining funding is received from the State [~21%] and the federal government [~2%]. The remainder is provided via our relationship with Fairfax City and miscellaneous other sources. We can have a separate discussion about unfunded mandates from the State and federal governments, but that impact substantially exceeds $200 million.

Based on preliminary information from the state and direct guidance from the (BOS) that we should expect a 0% increase in the transfer from the County, we have an expected budget shortfall of over $100 million. This shortfall includes a 3% increase in salary for our teachers and staff to offset the growth in the cost of living in this area and to keep our salaries competitive in relation to our surrounding school systems that are eager to attract our teachers. Since 86% of our expenses are for personnel salaries and benefits, the cost alone of this increase is $52.4 million dollars. We also project that we will have 1,800 more students than we did last year and the cost of educating those students is $24 million. These two items alone equate to $76 million of the anticipated shortfall. In order to address this shortage, we need to receive additional funding from the County and the State, both of which are experiencing significant funding shortages, and/or reduce our costs. The Superintendent proposes doing both - i.e., asking for a 3.5% increase from the County in its transfer [as opposed to 0%] and cutting or streamlining programs.

Just a note about our local revenue situation. I am often asked why it is so grim. The answer - in part -- is that Fairfax County is nearly completely reliant upon the value of our homes as our source of local revenues for operating both the County government and the school system. When home value rise, revenues increase; when they decline revenues decrease. The County has adjusted the rate charged per house over the years to reflect market conditions. For example, the real estate assessment rate in 2002 was $1.23 per $100 of assessed value. With escalating housing values the BOS lowered the assessment progressively over the last six years. Today we are at $.89 cents; a 34 cent reduction. To put this in perspective, one penny on the assessment brings in $22.7 million.

So, as we move toward final action Thursday on our advertised budget, the SB members are asking ourselves questions such as the following:

• What is the appropriate amount, or range, to request of the BOS?
• Should we modify or not approve certain recommendations made by the Superintendent?
• Are there other options that we should pursue?