The global recession has translated into a steep nosedive in sales tax revenues, rather than declining residential real estate values, as the primary cause of a $1.2 million shortfall that confronts the City of Falls Church as it moves toward adoption of a budget for the new fiscal year.

In an exclusive interview with the News-Press Tuesday, Falls Church City Manager Wyatt Shields said that while real estate assessment numbers released Monday show the City’s average residential values dropped only 2.5 percent, revenues from the general sales and use taxes are down a whopping 14 percent over the previous year.

The drop is in non-restaurant and food sales, he noted, as the long bright spot in the budget numbers to date has been an actual rise, by 3.18 percent, in meals tax revenues.

Tonight, Feb. 12, Shields will host an extraordinary town hall meeting at the Falls Church Community Center, 222 N. Little Falls, starting at 6:30 p.m. It marks the first time ever that such a meeting has been called in advance of the formal budget adoption process, which kicks off when Shields presents his recommended, balanced budget proposal to the City Council on March 9.

Citizens will be able to ask questions and get an updated briefing from the City’s Chief Financial Officer John Tuohy at the meeting.

Meanwhile, the Falls Church School Board is moving to adopt its proposed budget for the coming year, which is expected to show the first actual year-over-year net decline in the system’s history.

The board is wrestling with whether or not to include “step” salary increases for its teachers and other key personnel. Fairfax County has already ruled out any such salary increases for its school employees, and Shields said that he expects a freeze this year on salaries of Falls Church City employees.

Despite the austerity anticipated in the Falls Church budget, it is minor compared to the revenue shortfalls facing other Northern Virginia jurisdictions, Shields told the News-Press Tuesday.

He said he doesn’t yet have actual numbers from the economically-ravaged Prince William, Loudoun, and Fairfax counties, and the cities of Manassas and Manassas Park, but that they will come in among the worst in the nation.

Among other things, sharp declines in state revenues to the locales is also aggravating the problem, along with losses in income from investments.

In the case of Falls Church, Shields reported, investment revenues are down a startling 67 percent, from $650,000 to $214,000.

Licenses and permits for new construction in the City are also off sharply, by 58.5 percent from $915,624 to $379,483. But Shields says he’s “confident” that new revenue streams will be coming from the BJ’s Wholesale Warehouse, slated for construction this year on Wilson Blvd., and the Hekemian Company mixed use project at the site of the former Pearson Funeral Home on N. Washington St.

With their lease now signed, BJ’s officials have told the City that once the first shovel goes into the ground, a new store can be up and running within nine months. Based on averages from existing stores, Shields said, BJ’s could add a full 10 percent to the City’s sales tax revenues.

In fact, Shields said that revenue from new construction has continued to offset declines in residential real estate values, which in Falls Church was sharpest for condominiums, down 7 percent.

With slowed construction in the past year, compared to the years of aggressive construction of mixed use projects, the City’s revenues from new building has been lower, but is still a significant contributor mitigating the budgetary impact of the overall economic downturn.

Shields said that if a tax rate increase is implemented in the coming budget that will still keep net tax bills paid by City residents even with last year, the coming budget still faces a shortfall of $1.3 million.

While he anticipates cuts can be made without any net loss in job positions, finding $1.3 million to cut will be a particular challenge, since the City had already been in the business of cutting non-personnel costs by $3 million since 2006.

Both City Hall and the city schools are awaiting word on how the economic stimulus package coming out of Washington, D.C. could altar their budget numbers.

City residents can expect to receive their real estate assessments in the mail this Saturday or Monday, Shields said.