Local Commentary

Editorial: Wall Street to Leesburg Pike

The impact of the meltdown on Wall Street on conditions on Falls Church’s Broad Street, and Fairfax County’s Leesburg Pike, is going to become unmistakable over the next period, and will impact government revenues, pension funds and the commercial market.

This is on top of how the housing market slide, associated with what set off the Wall Street debacle, has already impacted budgets and pocketbooks here.

Folks had better be prepared to batten down the hatches in ways not needed perhaps since the Great Depression. By all accounts, the region may have been able to avoid the kinds of natural disasters that have leveled New Orleans and Galveston in the recent period, but does have a massive financial tsunami rumbling its way, on its way most of the way around the globe.

The first ripples are resulting in major losses in Fairfax County’s pension funds, according to Bob Mears, executive director of Fairfax’s almost $5 billion in pension funds, according to Mara Lee’s article in this week’s Washington Business Journal. He reported the county lost $3.5 million in Lehman Brothers stock when the company declared bankruptcy last week, and another $3.6 million in Lehman debt. He added that the county could suffer losses as large as $15.5 million if shareholders get wiped out in the Fannie Mae and Freddie Mac conservatorships. This is on top of the fact that the county is already faced with a projected $450 million shortfall in its coming $3.3 billion fiscal year budget, and that losses will be even greater for the following year. Compounding the problem is a feared decline in commercial real estate values that will likely also be triggered by the Wall Street woes.

One harbinger involves an array of Lehman Brothers’ real estate holdings in the Washington, D.C area. The Business Journal has cited four major real estate projects that Lehman has invested in, in Rosslyn and D.C., including the Watergate Hotel, long before a complete list of its assets will be made public in bankruptcy court in mid-November.

With the commercial office vacancy rate at 11.9 percent already in Northern Virginia, a major devaluation of Lehman-linked commercial properties, followed by more of a similar nature, could send commercial real estate values spiraling downward, trailing after the collapse of residential values into the morass.

This is a time when compassionate, fair and civic-minded individuals will be especially tested. As public officials consider what programs to cut, they will be pressured relentlessly to preserve those that serve their interests of the wealthier and more enfranchised voters. That means programs for the needy and unrepresented, already chronically under-funded, are most likely to get cut first and hardest. Few will stand up for them, but when it comes to funding school sports or homeless and mental health services, the latter is the far greater social need.

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