F.C. Can Begin to Pay New School Bond With No Tax Rate Hike

It was the budget presentation no one was looking forward to. How bad was it going to be? The bond to build a new middle school was approved overwhelmingly by voters last November, but at the cost of an additional 13 cents to the real estate tax rate. The state slapped the City with a huge cost increase for its school retirement fund. None of the new large-scale mixed use projects were far enough along to add to the revenue base.

With a City Council election looming in May, everyone came to the Council chambers at City Hall Monday night holding their breath.

When City Manager Dan McKeever stood shortly after the start of the City Council meeting to present his $56 million City budget recommendation, he didn't waste any time getting to the bottom line.

The dreaded tax rate increase? Zero.

No tax rate increase in his budget, and perhaps some room to even lower it by a penny or two.

The entire $2.5 million debt service on the school bond, and the $514,000 Virginia Retirement Fund increase and other new costs can be absorbed, completely, by a sharp rise in both residential and commercial real estate tax assessments, McKeever explained.

That means, to be sure, City property owners are going to pay higher taxes. But it will be due to appreciated values of their assets, not to a political decision to raise the tax rate. New assessments will be mailed to City property owners within the next few weeks.

Overall, the value of real estate in the 2.2-square mile City of Falls Church has risen by an average of 25% over what was reported last year. For 58% of City property owners, the increase will fall below the 25% average.

City residents can take comfort in the fact their assessments will be the most accurate the City has had in many years. McKeever said he was stunned to find, after the departure of the City's veteran assessor of over 15 years last spring, that no door-to-door field study of the value of the City's real estate had ever been conducted. Most jurisdictions undertake such thorough studies every five years or so (the policy in Fairfax County, for example, is to do one-fifth of the county every year).

When the search for a new assessor for Falls Church stalled last summer, McKeever decided to move ahead by retaining a professional, outside firm to conduct a field study of every real property in the City. That study was launched in January, and the results were what McKeever reported this Monday.

The sharp increase in real values, McKeever explained, was due to three factors:

1. The continuing red-hot market in real estate throughout the region, which has led to double-digit value increases annually for the last few years (including jumps of over 25% in some residential properties in Falls Church),

2. Additions and renovations of existing properties in the City, and,

3. Adjustments in assessments based on criteria of fairness and equity. In other words, due to lack of field studies in the past, some properties in the City slid by as under-assessed for an undetermined period of time. The door-to-door examination caught those irregularities and corrected them.

The result is to bring Falls Church into full compliance with the state law that requires all assessments to be "fair and equitable," as well as accurate.

McKeever provided Council members with a chart showing the assessed value and the actual sale price of certain properties sold in the City in the past year. In some, there was a differential of over 35%. In other words, the assessed value did not reflect the real value. Whenever that happens, the burden of paying for City services falls disproportionately on others who don't enjoy such an unfair advantage.

But anticipating the new assessments will be surprising to some City residents when they arrive in the mail shortly, the Council voted to extend the deadline for appeals to the Board of Equalization from the first week in April to the first week in July.

Still, the Council had no problem with McKeever's report, breathing a collective sigh of relief that they're free of the responsibility for making a political decision to increase the tax rate for the coming year.

They will begin a heavy schedule of deliberations and public hearings on the budget beginning at a work session this Monday. Final adoption of the Fiscal Year 2005 budget (for the fiscal year running from July 1, 2004 to June 30, 2005) is expected April 26.

The Council heard still more good news Monday. McKeever reported the City's bond rating had been upgraded by two New York firms, Moody's and Standard and Poor. Standard and Poor moved the City's rating up two notches from A+ to AA, which will result in considerable savings on bond interest rates as the $25 million in City school bonds go to sale later this month.

"This is an astonishing presentation," said City Council member Ron Parson. "Congratulations on a job well done."

"As one who's never voted for a tax rate increase, I am very, very pleased with the direction of this budget," said Council member David Snyder.

:"It's nice to have the assessment increases," said Council member Sam Mabry. "But the impact is going to be very significant on a lot of people. We have to determine if there is any fat here to determine what we should be charging the people."

"This is another example of the City's excellent leadership," said Vice Mayor Marty Meserve of the City Manager's proposed budget.

"We won't rest of our laurels," said Council member Robin Gardner. "There is a possibility we can lower the tax rate here."

"It's good news we don't have to raise the rate, and may lower it," added Council member Lindy Hockenberry.

"This shows that an investment in a home in Falls Church is the best investment anyone could make in a long time," added Mayor Dan Gardner.

The City Manager's budget includes the total amount requested by the School Board. It includes the scheduled second year rate increase for water and sewer and a doubling of the cigarette tax from 25 to 50 cents a pack. But there are no other tax increases or increased fees for services.

Among cost-effective improvements McKeever is recommending is establishment of a City-wide e-mail list serve and the licensing of a low-frequency AM radio station for use only in emergencies. Such a radio capability could have allowed the City to provide on-going information during the protracted electric power outages in the aftermath of Hurricane Isabel, he noted. Most people had battery-operated radios that could have picked up such a signal.