How Capital Budgeting Works; or, Some People Are Misrepresenting the Facts to You

Several misrepresentations have been made in this campaign about the present Board of Supervisors being “spendthrift” and borrowing to the max. Neither is correct. Here is a letter I sent to a constituent who asked about the “rumors” about County “out-of-control” spending:

Dear Ms.___:
Thank you for asking about the rumors you hear. During the “silly season,” the three months before an election, candidates are prone to say things or exaggerate issues for political gain. Unfortunately, some folks swallow those misrepresentations without seeking out the truth. I very much appreciate that you are asking questions before accepting the rumors.
The “evidence” you’re seeking to confirm or refute the rumors is on the County website, updated regularly during the budget season. I have hard copy also, and will be glad to send it to you if you wish. Again, I thank you for seeking clarity.
Some facts about Powhatan budgeting (and probably more than you want to know): We have an operating budget, which covers all the ongoing expenses of the County, such as payroll, operation of Water & Sewer (W&S), Transfer Station, Fire & EMS, Sheriff’s Office, the operation of our schools, etc. This is approximately $69 million, with the bulk earmarked for the operation of schools, debt service on school buildings, and public safety.
The second budget is the Capital Budget, which deals with planning for “hard” stuff, like school buses, school buildings, libraries, fire engines, and hardscape issues such as W&S pipes and pumping stations, etc.
It is the second category of budgets that you’re asking questions about.
Let me explain the process:
The County has a Comprehensive Plan (CP), which looks out 20 years or so, trying to identify needs we will encounter, the changes we will confront, and how we intend to respond. The CP is an attempt to paint a picture of what we want future-Powhatan to look like.
There are also Master Plans for all functions (Fire, Technology, W&S, EMS, etc.) and projections of population growth and other metrics that help us project what is going to happen. In a household analogy, you know the roof will need replacing in 20 years, you intend to start a family, your sports car will not accommodate your plans for a growing family, you may need to add on a mother-in-law room to your house, and so on.
Each department (Sheriff, Fire & EMS, Court system, Utilities, etc.) and the schools use (1) and (2) to identify capital needs for the next five years. Of course, other inputs—demographic changes, state and federal mandates, safety issues, road issues—also factor into the projections. This is a huge list, and when the prices are added up, identifies (in this cycle) $141 million in long-term needs. The public is invited to “weigh-in” with its opinions in public hearings in front of both the Planning Commission and the Board of Supervisors, just as with any other major issue the County faces.
Clearly, the taxpayer (mainly homeowners, farmers, and timbermen in Powhatan) cannot fund this kind of money, on top of the $69 million needed to pay teachers and provide all the other operating expenses. Also, we are constrained by law and good management practices on how much we can borrow (the “debt service”, principal + interest we must pay back each year). That calculation indicates Powhatan can presently only borrow $21 million over five years to fund capital projects, if we choose to borrow. At this point, there is no plan to borrow up to this limit. (The $21M is the amount that is affordable over the next 5 years).
This is similar to your family calculating the carrying cost or capacity of your income: how much can you afford to spend and how much can you afford to pay in mortgage and car payments, etc., in your household. (Not necessarily that you choose to spend it all.)
The Plannind Commission and then the Board of Supervisors must prioritize, from the $141 million, what Powhatan can afford (but not to exceed $21M) and what prudent management would allow, given the present state of affairs (state and federal funding declining dramatically, for instance, and real estate values plummeting, which yields less local tax revenues) and our best projection of where the economy is going. We do this, of course, with (a) citizens’ input, and (b) an eye to the future.
Your family is doing the same thing: is bringing your mother-in-law to a safe place more important than a new car right now? Is putting money into your childrens’ education fund more important than adding on a sunroom?
The $141M CIP (Capital Improvement Program) listing doesn’t go away because we can only afford or choose to fund a portion of it. The “program” is still on the books, because needs don’t just go away.
You know, for instance, even if you can’t fix the roof and bring mom to live with you and buy a new car and be ready for a septic failure, all of these things are still on your radar screen. Indeed, it is only prudent to have them identified and prioritized.
Even if we were to choose to borrow the entire $21M allowed by debt-service guidelines (which we have no intention to do), we must maintain enough flexibility to allow us to adjust in an emergency. For instance, if the boiler at the Junior High (built c. 1971) were to fail, we’d have to find the money. That’s why we re-visit the CIP every year—because needs change (just as your household needs change) and the Board of Supervisors certainly revisits and re-addressess them regularly.
In your family, if your 5-year-old van is totaled and the insurance company gives you $7,000, you’ve suddenly got to come up with another $20,000 of capital to stay on the road. If mom takes a turn for the worse, you may be forced to add that mother-in-law attachment to your home now even though you’d planned to bring her to live with you in 2015.
So if you were to look at Powhatan’s FY12-FY16 (5-year program) CIP of capital requests, which is 25 pages long, you’ll see a few projects marked “Funded” and a whole lot marked “Unfunded”. The CIP is on the County website, www.powhatanva.gov under the Finance tab along with all other financial data. I will also send you hard copy if you choose.
Now, finally, to your question. On page 5 of the present CIP you will find $2M listed for design and pre-construction of a County Government Complex, which would house the Courts, Fire, Emergency Services, Sheriff’s department, County Admin., School Admin., etc.
The estimated cost to build the facility has not been approved.
The need for such a facility was determined over the last several years (with inputs from the school administration, County department heads and representatives from the Board of Supervisors and School Board) through two in-depth Facilities Studies (I & II). These studies took into account the age and condition of existing facilities (the Health Department Building, next to the Village Building, for instance, is settling and crumbling); the mounting yearly costs of repairs to keep older facilities operational; the growth in County government and schools (serving 8,000 residents when most of the facilities were built, serving 28,000 now); and the monthly rental fees we pay for offices/departments which we do not have space to house in existing County facilities (e.g., County Attorney, Facilities).
For a very real and very specific example of the need for flexibility: in the last few weeks the septic system for County buildings (including the Courthouse itself, which houses the Courts, Sheriff’s offices, and public records), has failed. We either find the capital (CIP) money to fix the system or we pay (out of the operating budget) approximately $7,500 per month forever to “pump and haul” the sewage. Of course, to pump-and-haul over the long term doesn’t make sense.
The Facilities Studies helped us understand the magnitude of the present problem and projected the worsening of that problem over the next few years. It is good planning to identify for the citizens of Powhatan these types of needs.
One final thing for you to know: beacause a need is identified in the CIP, even in the approved portion of the CIP for the possible next year’s expenditures, the projects cannot be started until the BOS approves moving forward, takes public action at a Board of Supervisors meeting, and appropriates the money. In your household, you may plan a new roof, even agree as a family it must be done, even perhaps try to identify where you’re going to get the funds. Yet nothing happens until you let the contract and stroke the check.
The BOS has done neither of these. Given the present economic situation and our projections of future continued deterioration of the general economic situation, I suspect the BOS will not appropriate any time soon the money for many of the projects in the CIP. As a matter of fact, at the October Board of Supervisors meeting, the Board will actually be considering a refinancing of an old borrowing that will save the County approximately $1 million over the life of the loan and not extend the length of that loan. County staff constantly looks for mechanisms to evaluate savings in our borrowings to save taxpayers’ money.
I hope you can see, Ms. ___, that this process is designed for due diligence; proactivity rather than reactivity; long-range thinking rather than stopgap thinking; and prudent checks and balances. We are not suddenly spendthrifts because we were elected to office, but are trying hard to balance public needs against available funds (“ability to pay”). Our job is to husband scarce available resources (tax revenues) while not destroying our future viability as a community: we must invest in schooling; we must invest in water for commercial development to lower the tax burden on homeowners; we must provide the equipment needed by Fire/EMS/Sheriff’s deputies. And we have to do it all in a rational way. At the same time we can’t drive the taxpayer to the poorhouse.
That’s the job you “pay” me and the other supervisors to do.
I close with how I started: thanking you for asking and not assuming.

I am,
Respectfully,

Carson Tucker
Supervisor, District 5
804.598.2213