Saturday, October 11, 2014
Debt Service as Percent of General Government Expenditures - A Dangerous Game
As someone who followed the Arlington County Board's 2015-2024 Capital Improvement Program deliberations over the Summer, I was often struck by the respect paid to the often-cited indicator of Arlington's fiscal health --- Debt Service as Percent of General Government Expenditures. According to County Manager Barbara Donnellan, Director of Management and Finance Michelle Cowan, and other high-level County employees the County's financial managers struggle mightily to keep the Debt Service to General Expenditures ratio around 9%.
However, if one looks at the manner funds are actually appropriated and spent, the Debt Services to General Expenditures ratio is meaningless and will never be allowed to exceed 10% because the County Manager routinely asks for, and the Count Board routinely appropriates, funds from pay-as-you-go General Fund accounts for capital projects, often via the County Board's consent agenda. For example, although the 2015-24 CIP calls for $28.8 million in funding for synthetic playing fields, as often as not synthetic playing fields are funded by paygo via the County Board's consent agenda, not from the sale of park bonds.
It gets worse, because cost overruns from capital projects are also paid from General Funds. And there are few limits on how the County Manager can move General Fund tax revenue around. So what appears to be a stable financial system is anything but stable, except when it comes to indebtedness. Bondholders can't be told they'll be paid when the County gets around to it, as you're told when you ask when your street will be repaved.
Thanks for your blog.