Davenport affirms Fairfax City’s AAA ratings; staff warn school tuition spike and project borrowing will press future budgets

Davenport & Company, the city’s financial adviser, and City Chief Financial Officer J.C. Martinez briefed the council on Jan. 28 and confirmed that Fairfax City retains two triple‑A credit ratings — a position Davenport described as rare and advantageous for borrowing costs.

“Kyle Laux of Davenport said, “You as a city enjoy two triple‑A credit ratings,” noting the ratings were reaffirmed in a recent review. Davenport emphasized the city’s strong, diverse tax base, formal financial policies and low long‑term liabilities as reasons for the affirmation.

Martinez presented the city’s second‑quarter financial review for fiscal year 2025 and said the city was projecting a $1.4 million negative variance for FY 2025 based on the information available as of Jan. 14. Total revenues are running about 3.2% — roughly $6 million — above budget, he said, with drivers including roughly $2.6 million from higher real estate assessments, about $1.3 million in increased state school aid, roughly $700,000 in additional investment earnings, and about $500,000 in personal property tax receipts.

The single largest expense driver is a higher projected Fairfax County Public Schools (FCPS) tuition payment. Martinez said the city is facing an anticipated roughly $7.2 million increase in its tuition contract payment; after recent large increases the city and schools are discussing the unusual increase and the city expects to pursue further discussions with FCPS and Fairfax County. Martinez said staff would likely use the budget stabilization fund to cover the FY25 shortfall; the planned draw would reduce the budget stabilization fund balance from about 2.6% to an estimated 1.7% of general fund revenues while leaving the city’s unassigned fund balance above the 15% policy minimum.

Looking to FY 2026, Martinez presented a planning projection that assumes no rate changes and conservative revenue growth (roughly 2% annually). That projection showed a possible $11.2 million gap in FY 2026 under current assumptions — equivalent to about a 13.5‑cent increase on the current real estate tax rate if no other offsets are identified. Martinez cautioned these are planning figures and that the city will continue to refine assumptions, including updated revenue estimates and any state or federal developments affecting grants.

Davenport also reviewed the city’s capital plan and the recently approved school referendum the city expects to finance over several years rather than all at once; the firm explained how staggered borrowing and a strong fund balance can preserve the city’s AAA ratings while financing generational projects. Davenport used conservative assumptions, including a 5% interest rate in its planning examples, and noted that a one‑percent sales tax for school construction — a measure approved by some jurisdictions in Virginia via local referendum and then by the General Assembly — would largely cover the proposed school program if that state authorization and local voter approval were to occur in the future.

Council members pressed staff to pursue further dialogue with FCPS about the tuition invoice dynamics and asked for continued updates on transportation, stormwater and other capital assumptions tied to the city’s five‑year capital improvement program.