City staff and Leesburg’s financial consultant are encouraging council members to include a new income stabilization reserve in the 2022 budget.

The subject of the reserve was a central point of discussion during the Monday evening council working session. David Rose, the city’s financial adviser to Davenport & Company, said the board-approved repayment of general bonds in October, along with the debt restructuring, freed up about $ 3.67 million that the board could partially used to establish the reserve. The council had moved forward on debt repayment and restructuring on the recommendation of Rose and city staff to take advantage of historically low interest rates.

The goal of the Income Stabilization Reserve is to create a financial cushion so the city does not have to dip into its unallocated fund balance, a rainy day fund that currently has $ 11.5 million. – enough to fund the city government for three months, city director Kaj Dit Dentler. The board has adopted a policy of keeping an amount equivalent to 20% of General Fund expenses in the fund balance in order to ensure financial stability.

For fiscal year 2022, the reserve would be established using $ 2 million from the repayment of bonds. It would be replenished in subsequent years using a maximum of 25% of the available balance of the Unallocated Fund remaining above the current 20% of the General Fund expenditure policy for a given year. The total amount of the reserve would be capped at 3% of the income of the General Fund for the previous year. The money in the reserve would be used in fiscal years 2022 and 2023 to help fill the revenue gaps.

Right now, there is about $ 2.5 million in excess of the unallocated balance of funds over the required minimum balance of 20% of spending, said managing and budgeting manager Jason Cournoyer. income deficits. The forecast deficit for fiscal year 2022 is $ 2.5 million and the excess fund balance of $ 1.5 million and $ 1 million in the income stabilization reserve is expected to be used to balance the proposed budget. for this year.

“Part of the intention of the reserve is to give us flexibility,” Dentler said. “If it’s necessary, we’ll use it. If not necessary, the board has a choice of how to use it if the economy recovers. “

The reserve could be used for any number of unforeseen expenses, including meeting a federal mandate for wastewater treatment, or to cover lost revenue if assessments decline.

“There’s no way I see a downside to putting this up,” Rose said. “We see this as a safety net. He is there if the uncertainties persist. This allows the city to have more control and not dip into the unallocated fund balance below the levels you have. We are in a very strong position; we want to stay in that position. “

Staff noted that the current multi-year financial plan presented as part of the reserve building is a projection based on current information and may change with the economy.

The city is working with a deficit of $ 5 million that it plans to close by the end of this fiscal year on June 30. This deficit stems from the economic impacts of the COVID-19 pandemic, in particular sharp cuts in consumption taxes, which represent 30% of city government revenue.

Staff are looking to fund the Income Stabilization Reserve with $ 1 million through a revenue sharing agreement with Loudoun County in both fiscal years 2023 and 2024. Although details have yet to be released. finalized, the city and the county negotiated a line of demarcation. adjustment that would bring the development of Compass Creek and potentially a Microsoft data center campus within city limits. This agreement should include a revenue sharing agreement.

Several board members expressed concern that staff were including this income in the reserve fund.

“We better be very careful with this because it could go away,” Mayor Kelly Burk said of the revenues envisioned in the deal. “The county could decide not to do it anymore. If we include this as an ongoing source of money, I think we could get ourselves into trouble.

“I don’t know what our decision will be,” Dentler said. “If this deal doesn’t work, we’ll have to find a new source of revenue or make tough management decisions or cutbacks.”

Clark Case, director of the city’s finance and administrative services department, said the council must find a new source of revenue that is not dependent on consumption or property taxes. Economic development, he said, is a great place to look.

“What we’re telling you here is that for the last few years you’ve been running about $ 1 million in deficit in your permanent income,” Case said. “We have to find a new source of income. What we are looking for is economic development to generate new personal property taxes. More than 30% of [town government] revenue now comes from consumption taxes, which are more volatile. We are looking for a new source of income that does not revolve around increasing taxes on homeowners. Data centers are the ones we know would meet the need. “

While the city’s spending grows by 2% a year, its revenue isn’t growing by the same amount, Case said.

“Even if we go back to where we were before the pandemic, it is not enough to cover the growth and the spending budget,” he said.

Rose echoed a point Dentler made many times: the cuts made by city staff last spring to deal with the fallout from COVID, which included freezing staff positions, postponing maintenance cuts and management, are not sustainable.

Dentler pointed out the very minimal additions to his budget proposal. The only additions to the general fund are more money for snow removal; funding for an expanded outdoor dining program on King Street; and securing offices for the use of the mayor and city council.

“My budget proposal in [Fiscal Year] 2022 is only designed to bring us back to the full funding we had. There is no growth in the budget. We’re just trying to get back to where we started this current fiscal year. Ultimately, the city will have to tackle the growth issues that affect us. We’re just trying to get back to square one at this point, ”he said.

The discussion in Monday’s working session also focused on a proposal to rework the management expense funding for capital project staff. As proposed, all indirect costs of $ 1.46 million, such as staff training and vacations, would be paid in cash, and direct costs of just under $ 1 million would be funded. This change would move the city away from its intended practice of ultimately funding all capital management costs, but it would free up approximately $ 335,000 which could pay for an increase in the snow removal budget and city council office space.

The board is expected to continue its budget discussion at its next business meeting on March 8. A public hearing on the budget is scheduled for the following night.

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