The town of Fairfax is considering using about $249,000 from its general fund reserves to fund one-time expenses such as capital projects and the prepayment of some of its unfunded retirement liability during the next fiscal year.
The Town Council will hold a public hearing June 7 on the town’s proposed fiscal 2017-18 budget. A workshop was held May 25.
The preliminary $13.1 million 2017-18 budget is approximately $2 million higher than the current fiscal 2016-17 budget. About $9.4 million is allocated for general fund operations while $2.7 million would go towards capital improvement projects. A large portion of the increase over last year’s budget is because of $700,000 needed to repair roads damaged by the winter storms.
“The good news,” Town Manager Garrett Toy wrote in his report to the council, “is that approximately 93 percent of the estimated $700,000 in costs to repair the roads damaged by the winter storms are reimbursable from the Federal Emergency Management Agency.”
The proposed budget contains about a $650,000 increase, or 7.4 percent, in general fund operating expenses compared with the current budget. Toy said the increase is primarily because of increases in overall personnel costs and the prepayment of a portion of the town’s unfunded retirement liability, including its share of the Ross Valley Fire Department’s unfunded retirement liability.
Toy expects the increase in operating expenses to be largely offset by a corresponding increase in revenue. He is projecting revenues to be nearly $520,000 higher than in the fiscal 2016-17 budget, with about 75 percent of the increase coming from property tax and sales tax revenue. He estimates that the voter-approved extension and increase of the town’s half-cent sales tax to three quarters of a cent will bring in an additional $200,000 alone.
In 2016, the town refinanced its pre-2013 unfunded pension liability by essentially borrowing $3.86 million at 5.4 percent interest — a considerable improvement on the 7.5 percent interest it was paying to the California Public Employees’ Retirement System.
Fairfax Finance Director Michael Vivrette estimates the refinancing will save the town more than $1 million over the long term.
Nevertheless, the town still owes CalPERS about $3.49 million for its post-2013 unfunded pension liability. Toy is recommending that the town pre-pay $100,000 of that during fiscal 2017-18 using general fund reserves. The town began the year with more than $3 million in general fund reserves.
The joint powers authority that operates the Ross Valley Fire Department — which consists of Fairfax, San Anselmo and Sleepy Hollow — is also prepaying some of its unfunded pension liability, and Vivrette said Fairfax’s share in fiscal 2017-18 will amount to about $84,000.
Toy is proposing that the town continue dipping into reserves for one-time expenses and the prepayment of a portion of the town’s unfunded pension liability over the next five years. But he says the amount of money dedicated to the pre-payments will have to be reduced over that period to ensure that the town maintains adequate reserves.
In his report, Toy wrote, “One major assumption of the five-year forecast is the renewal of Measure J, the special municipal tax of $195 per residential/commercial unit, in 2018 or 2019.”
The tax, which is due to expire in June 2020, was first imposed in 2005 following much debate and has been renewed periodically since then. Toy said if the tax is not renewed the town will need to fill a $713,000 revenue gap in fiscal 2020-21.
“Without it, the town would need to consider drastic cuts in services to balance the budget,” Toy wrote.
Toy said when the Town Council discussed the budget on May 25 it expressed a desire to spend an additional $150,000 on street maintenance, repair and improvements. He said it isn’t clear how that additional spending would be funded, but Fairfax might borrow the money from the county of Marin’s investment pool.
Roy Given, Marin County finance director, said he would be willing to lend the town the money for five years, charging it 3.5 percent interest during the first three years, then 3.75 percent the fourth year and 4 percent in the fifth year. Given said he extended a similar loan to the town of Ross in the past.
“For Fairfax, it’s a cheap way to borrow,” he said. “And for the investment pool it works out well for one of our longer investments.”
