Real Estate Values Buoy F.C. Budget

By Nicholas F. Benton

Due to another double-digit lurch upward in real estate assessments, Falls Church City Manager Dan McKeever urged the City Council to start its annual budget deliberations with a promise of at least a two-cent drop in the real estate tax rate Monday.

McKeever presented his $62 million annual budget plan to the Council Monday subject to its final adoption by April 25. It marked a $6 million increase over the current fiscal year budget. Despite his proposed two-cent tax rate cut, a 15% projected overall real estate assessment hike will increase the average tax bill by 12.8%.

A more precise read on the assessments will be available when they are mailed from City Hall to all City property owners next week.

The biggest jump in the City's costs the next fiscal year will come from its school system expenditures, which the School Board recommends jump by 11.5%, mostly to cover costs of operating the new Henderson Middle School now under construction and to ensure the City retains a competitive edge in retaining teachers.

McKeever also recommended some modest additions to the City staff, including a technical coordinator at City Hall, the conversion from part-time to full-time of a position in the Commissioner of the Revenue's office, two erosion and sediment control inspectors and a building code compliance technician. He called for a revenue collection initiative, as well, that could involve hiring someone or outsourcing the job of collecting past taxes due. He recommended $2 million be included in the budget for open space acquisition.

The City's annual debt service obligation, mostly going to pay for the construction of the new middle school, will more than double from $2.5 million to $5.034 million.

Every $260,000 in expenditure translates into one cent (per $100 assessed valuation) on the real estate tax rate.

McKeever cautioned that "dramatic action is needed" to prevent the City's Water Fund from running out of money by 2009. With a current balance of over $20 million, the Water Fund is used to operate the massive City-owned water system that has 120,000 customers all over Northern Virginia.

While the City will continue a three-year phased increase in its water rate, more is needed to maintain the fund, McKeever said. $4.6 million will be drawn from the fund this year for capital repairs, and another $4.6 million will be drawn as a "return on investment" into the City's operating budget.

He suggested that the City may have to bond for capital repairs to the water system for the first time in its history and that the return on investment transfer may have to be lowered, as well as adjusting connection fee rates and extending water rate hikes through 2010.

But McKeever saved his gravest warnings for the real estate tax dependency of the City, something that is not a problem with the kind of jump in assessments the City has experienced in recent years.

Real estate taxes account for a whopping 72.5% of the total revenues the City utilizes to operate and McKeever said that some studies show that continued assessment growth may continue "for a long time to come."

But the City's budget is very sensitive to even small changes in real estate values, he said. He suggested that the tax rate can remain stable for the next five years if real estate values grow annually at an average rate of 8%, school expenditure growth is limited to 7% and all other expenses limited to 4%. But if the real estate assessments were to come in even just one percent below that projection, then the budget would be out of whack.

With his proposed two-cent drop in the tax rate, the current rate of $1.08 would drop to $1.06. Last spring, the Council dropped the rate from $1.13 to $1.08 because average real estate assessments came in above 20%. This year marks the first time since the 1980s that the city manager has recommended a tax rate cut prior to the beginning of budget deliberations, and McKeever suggested the Council might seriously consider dropping it ever further.

In outlining the overall proposed $33,471,302 School Board budget ($25 million of it covered by the City), School Board chair Kathy Chandler spelled out the need for seven new custodians, a maintenance technician, two secretaries, a librarian, a security guard and other needs for the new middle school and the addition of 3.7 FTEs (full time equivalent positions) for George Mason High School to accommodate the addition of the eighth grade.

Noting that fully 40% of the teachers in the City's school system have been here four years or less, and that Loudoun County is offering 12% salary increases to attract new teachers, she said the School Board decided to seek a 3.1% cost of living adjustment for its teachers and staff.

She said that while the projected enrollment growth rate did not materialize the last year, there is expected to be a net growth of 35 students in the system to 1,902 total students next year.

McKeever said there are also items in his proposed budget for enhanced security at City Hall, new police and fire equipment, "skill pay" rewards for police officers, and a series of studies, including a "Big Picture Study" on economic development led by Dr. Stephen Fuller of George Mason University, and a study of downtown redevelopment options.

He said that the plan for a multi-modal transportation center in downtown Falls Church that Rep. Jim Moran helped by including $2 million in funding for in the comprehensive federal transportation bill had been outlined in a memo circulated by his office to the Council prior to a meeting with Moran in January 2004.

There is also money in McKeever's proposed budget for a gang intervention and prevention initiative, for a demographic study, for an exploration of affordable housing opportunities and for an E-Focus bi-weekly online news resource. The City will utilize a $300,000 grant to study traffic and transportation issues, as well as alternatives for the George bus system. The City will collect data on its storm water system, as well as pay for an inspection and cleaning of the system, and it will test the sanitary sewer system for leakage.

McKeever started his presentation by noting the City's current bond rating is double-A at Standard and Poor's and Moody's, and that Fitch came in with a double-A-plus this year.

But Mayor Dan Gardner noted that the tax burden will continue to increase on the City's real estate owners as long as state and federal mandates continue to grow and tax cuts at the state and federal levels reduce the revenues to accompany those mandates.

"The buck stops here," he said, "But not enough bucks, unfortunately, from the state and federal governments."