Falls Church, Fairfax County officials and business developers are joining average citizens to cope with the cascading impacts of the housing crisis as it is now spilling over into a Wall Street and banking crisis.

Local government leaders are immediately faced with significant revenue shortfalls derived from the housing downturn.

In the City of Falls Church, an $800,000 shortfall to date in its $76 million annual operating budget in the current fiscal year will result in a cost-reduction “plan of action” that City Manager Wyatt Shields promises to have ready for the City Council on Oct. 6.

In Fairfax County, a series of extraordinary meetings, both public hearings and “lines of business” reviews by the Board of Supervisors, are already underway preparing the county for an estimated $430 million cut in expenditures with the onset of the next fiscal year budget next spring. Mason District Supervisor Penny Gross, in an interview yesterday with the News-Press, said it is going to be “very painful,” and suggested that senior citizens and others requiring special services could be hurt the most.

County pension funds are also taking a hit, due to Wall Street’s woes. The Washington Business Journal reported last week that $3.6 million in Lehman Brothers’ debt and $3.5 million in its stock has been lost, and that $15.5 million will be lost if shareholders are wiped out in the Fannie Mae and Freddy Mac conservatorships. This, according to Bob Mears, director of the county’s pension funds.

In the context of this, bank lending for large scale development projects is becoming much more problematic, if not impossible, for what some developers think could last for months, if not years, even if the Congress approves the current $700 billion Wall Street bailout plan.

That could significantly delay local development projects that have not already secured their commercial loans. While no one has stepped forward to explicitly concede their difficulties in this matter, it manifests itself in slower preparation of site plans and other delays.

Developer Bob Young, who has a number of projects built or under construction in Falls Church, and is looking to get final site plan approval for a new Hilton Garden Inn here, said he expects that banks will remain cautious, no matter what happens, because of the uncertainties associated with the upcoming presidential election.

“It will be spring, at the earliest, before capital begins to free up,” he said. “But it could also be years.”

Dr. Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University’s School of Public Policy, remarked to the News-Press in an interview yesterday that the spillover of Wall Street’s problems onto Northern Virginia is felt at a number of levels.

On the individual level, he said, a lot of citizens are concerned for the loss of value of their 401K or pension accounts, while the loss of a lot of asset value already began with the housing downturn.

“A result of this is that people will spend less because they feel poor, even if they’re still in their jobs and earning the same,” he said. “This will lead to lower retail sales and is compounded by concerns for the economy more generally.”

“It’s a contagion with widespread effects,” he said. “It becomes harder to get loans and people are more hesitant to take risks. There will be a broad, chilling effect along Route 7.”

On the upside, Fuller said the economy of Northern Virginia remains better than the nation as a whole, and an economic stimulus could come with the change of administrations following the November election.

He noted that, if Congress creates the new version of the Reconstruction Finance Corporation that the Treasury Department now wants, it could create a lot of new jobs in this region, as it did in the late 1980s when a similar institution was created to handle the savings and loan crisis.

As for a decline in commercial real estate values, triggered by the bankruptcy of Lehman Brothers, with large holdings in the area, this will bring down values, but that is not necessarily a bad thing for anyone but investors, he said. “We’ve been overpaying for housing and commercial space for a long time around here. This could make things more affordable.”

“We feel worse off than we really are,” he concluded.

But the depreciation of values will also translate into fewer revenues for the local governments, placing vital services even more at risk.