6.4% Overall Decline Tests City’s Budget

The City of Falls Church issued its official annual report of overall real estate assessments Monday, and if there were any surprises, it was that the recession-driven overall 6.4 percent decline was not as steep as City officials feared it would be when they began discussing revenue shortfalls for the coming fiscal year budget last fall.

“It’s a little better than the numbers we began working with in November,” City Manager Wyatt Shields told the News-Press in an interview Tuesday, not that it means things are rosy.

Shields explained that the usual practice is to err on the side of deeper declines in the early stages of budget planning, until the numbers are firmed up, as the City Assessor did this week.

Individual assessment reports will begin to be mailed out next week. While free-standing, single family homes declined only 2 percent, with 54 percent of the City’s total of 2,405 unchanged or increased in value due to improvements, the 21 percent dive in the value of large commercial office buildings will create a special problem for homeowners this spring.

That is because they will bear a disproportionately large burden to make up for the City’s overall revenue shortfall resulting from the assessments.

Shields said that, given the decline in assessments, if the City were to maintain service levels in the next fiscal year budget at the same level as this year’s, with no salary increases and a hiring freeze in place, it would have to raise the real estate tax rate by 32 cents per $100 of assessed valuation.

That would be an almost 10 percent increase above the current rate of $1.07, the biggest one-year jump in the City’s 60-year history.

Also, while the City will not be prohibited from extracting its usual $2.1 million from its water fund as a “return on investment” for the time being, if an appeal of the recent ruling by a Fairfax Circuit Court judge prohibiting the practice fails, the City will have to find a way to make up for that amount with further program cuts or tax increases.

The steep decline in the value of large commercial office properties reflects a phenomenon throughout the Northern Virginia region, Shields said, as office vacancies are at record high levels in adjacent jurisdictions.

Even as this region is among the most insulated from the full brunt of the global recession, the high office vacancy rate could portend the dreaded “second dip” in the national economy as serious foreclose issues begin to hit the commercial property sector. That, combined with the ripple effect of the massive layoffs that will attend the adoption of most jurisdictional budgets this spring  could cause the economy overall to take yet another nosedive.

The City of Falls Church this year is not gaining the benefit of new commercial development, which helped to allay residential real estate declines in recent years.

Aside from the construction of the new BJ’s Wholesale store, now underway on Wilson Blvd., the City has now measurable added revenue from business activity, and its sales tax levels have plummeted.

Still, early suggestions on how to pair back the School Board budget have already led to significant citizen objections and unrest.

Shields conceded to the News-Press that while no one knows for sure how much the public is willing to bear in terms of a tax increase, it is elected officials at the local level who have the best idea.

“The further detached political policy making is from real people in real neighborhoods, the more likely the policies will be more ideologically or politically-driven than by an appreciation of people’s real needs,” he said.

Two opportunities City officials have to vary the tax rate on real estate are relief programs for the elderly and disabled, on the one hand, and a recently-added capacity to set a higher rate for commercial property, as long as the funds derived from that are earmarked for transportation improvements.

The City’s relief program includes both exemptions and deferrals and is eligible for anyone over age 65 or totally and permanently disabled, applies only to primary residences, and with combined household incomes not to exceed $33,450 for exemptions and $75,000 for deferrals, and with net assets not exceeding $540,000.

Shields said that while a tax rate surcharge for commercial properties is not in the cards for this coming year, it may be for the year after that if it can be “sold,” to the business community by the promise of transportation improvements that will encourage new business.

The breakdown of property assessments by categories in Falls Church was reported as follows:

1. Overall residential values declined by an average of 3 percent. Single family home values declined by 2 percent, town homes declined 2 percent, and residential condominiums declined 10 percent on average. However, 1,308 of 2,405 (54 percent) of single family homes remained the same or increased in value due to improvements to the property and 113 of 556 (20 percent) of town homes remained unchanged.

2. Overall, commercial property values declined 14 percent since January 2009. The value of multi-family apartments declined 12 percent, large office buildings down 21 percent, and large retail properties (stores and restaurants) down 15 percent. City hotels declined 11 percent, and general commercial properties (smaller retail, office and general space) declined 10 percent.

The public will have an opportunity to comment on the upcoming budget deliberation at the City Council’s business meeting this Monday, Feb. 8, at 7:30 p.m. Also, town hall-style meetings on the budget are slated for Saturday, Feb. 13 at 10 a.m. and on Thursday, Feb. 18 at 7:30 p.m., with both meetings at the Community Center