Arlington staff warn of tight year‑end finances, recommend pause on some capital work

Arlington County finance officials told the County Board on Wednesday they expect fiscal 2025 to close with a historically small amount of discretionary funding — roughly $5 million to $15 million — and urged continued monitoring of revenues and possible temporary pauses on some nonpersonnel spending and capital activity.

The presentation, led by Maria Meredith, director of the Department of Management and Finance, and Richard Stevenson of the same department, outlined final FY 2025 performance risks, an outlook for the FY 2026 budget the board adopted in April, and a set of steps the manager recommends to preserve fiscal flexibility.

The county manager, Mark Schwartz, and staff stressed why the advisory stance matters. "At this time... we recommend no changes to the adopted FY 26 funding decisions," Richard Stevenson said, "however, we may pause certain nonpersonnel expenditures and delay the initiation of some new capital projects." He added the manager would return with closeout recommendations in the fall.

Why it matters: The county expects revenue categories to behave unevenly. Residential real estate receipts are modestly favorable in the near term, but consumption taxes (sales, meals and hotel) are weaker than earlier projections and could leave an estimated shortfall of about $6 million if current trends continue. Staff also identified expense pressures from higher-than-budgeted overtime and rising health‑insurance costs.

Key details and context

- FY 2025 year‑end: Staff estimate discretionary savings of about $5 million to $15 million (under 1% of the general fund). Final numbers will not be known until late August, when year‑end accruals are complete.

- FY 2026 risks: Consumption‑tax trends since April show sales tax down roughly 1.2% year over year, meals tax up 1.9% and hotel tax down 6.2% in recent months; early indicators point to potential revenue pressure of roughly $6 million for FY 2026 if those trends persist.

- Federal funding uncertainty: Staff flagged several federal grant lines that could be at risk under proposed federal budgets and reconciliation proposals, including housing and human services grants. The manager identified roughly $6.8 million of direct federal funding at potential near‑term risk and noted larger possible impacts if proposals such as converting certain federal housing programs to block grants proceed.

- Expense drivers: Health‑care costs and payout/severance related to FY 2026 position reductions are running above prior assumptions; staff said they are working with Human Resources and providers to determine whether recent increases are a one‑time spike or a longer‑term trend.

Board reaction and next steps

Board members pressed staff for additional briefings and confirmed the manager’s schedule: staff will return with a closeout report in November and earlier updates if conditions change materially. Several board members said they supported the recommendation to delay a bond sale if doing so preserves borrowing cost advantages while retaining capacity to deliver urgent capital work.

Board member Susan Cunningham said: "We will keep a careful eye on it," noting capital projects and school coordination as areas of particular sensitivity. Mark Schwartz said staff is developing criteria for use of the stabilization reserve set aside in the FY 2026 budget.

Staff noted that both Fitch and S&P reaffirmed Arlington’s AAA rating in May 2025 and Moody’s surveillance is expected in July — a factor that supports low borrowing costs if the county needs market access.

What’s next: Staff will continue revenue and expenditure monitoring, pursue limited expense deferrals where feasible, coordinate with the schools on capital timing, and return to the board in November with fiscal‑year closeout recommendations and any suggested budget adjustments.

Quotes in this article are drawn from the June 18, 2025 recessed meeting of the Arlington County Board.