Local Commentary

Guest Commentary: Fiscal Constraints, Opportunities and the Future of Falls Church

My wife and I moved to Falls Church five years ago. Having lived in Arlington, with our two sons for 24 years, we have always been attracted to Falls Church. Once the kids left home we decided to would be great to live here and enjoy the City’s unique charm. Falls Church combines both an urban and village feel.

Having retired about a year and half ago it was my civic responsibility, and desire, to “give” back to the Community. On that basis I have tried to help analyze the City’s budget and fiscal situation based on my experience and expertise as the Chief Financial Risk Officer of the Inter American Development Bank.

The well-known financial genius; Warren Buffet famously said “When the tide goes out we will see who is swimming naked”. He meant, of course, that when the markets are prospering underlying weaknesses are covered up; when the markets falter these weaknesses become apparent.

Upon reviewing the City’s projected fiscal condition, circulated in 2008, it became clear that even with projected real estate assessment increases and assuming full revenue generation of all current and planned mixed use development projects, including the City Center project, the City would experience permanent and increasing budget shortfalls. The current development approach has generated increased net revenues and has provided benefits to the City. However, it has also generated some unexpected costs but under no circumstances did it ever generate enough revenue to prevent shortfalls.

The conclusion is clear; any new debt issued under the City’s current financial situation would inevitably, and unavoidably, have to be paid for through some reduction in the School budget since it is the City’s largest single City expenditure item. As a result there is little fiscal room to maneuver. The City simply should not take on any new debt at this time even for projects with worthy social objectives and large leverage ratios if they do not strengthen the City’s economic base.

The value and importance of the City’s school system as a social and economic pillar of the community is well recognized. One of the challenges facing the City will be to maintain the high quality of the schools in the face of “budget drivers” that are continuing to diverge.

We should take advantage of the excellent work done by neighboring jurisdictions in order to create a fiscally sustainable City.

The City’s primary revenue stream is real estate based and is likely to continue to decline in the short run and then stabilize in the mid term. The school system budget, in contrast will need to increase, at some point, due to overdue maintenance requirements of existing schools, principally George Mason High School, and the need for additional school room capacity resulting from a projected increase in enrollment. It is also clear that tax increases, especially for real estate, can only be increased so far before they become counterproductive. These forces were in play, even before the onset of the current economic difficulties.

In other words, using Warren Buffet’s observation, due to worst fiscal crisis the City has ever experienced the “tide” has rolled out faster than expected; the inevitable has become the present.

We need to stop the current fiscal hemorrhaging, brace ourselves for some tough times over the medium term, and develop a long term comprehensive development for urban revitalization. We should take advantage of the excellent work done by neighboring jurisdictions in order to create a fiscally sustainable City.

The City should make every effort to secure tenants for currently vacant commercial and retail space. However, even at full utilization, it would not be sufficient to cover the City’s long term budget requirements.

The only significant revenue generating option left is to expand our revenue base by an aggressive and proactive effort to consolidate and develop properties along already established business/commercial corridors. This conclusion is not rocket science, and has been raised by thoughtful and perceptive citizens before but it should be reiterated. It is our best and perhaps only chance to remain a vibrant and independent City.

Such an approach would expand the City’s revenue base while preserving the charm and appeal of the City’s core residential areas.

Comprehensive development using the services of professional firms that have a proven track record of redeveloping and enhancing a city’s revenue generating capacity is essential. As financial markets and the economy improve; we need to be in front of the curve by starting now. We can not wait until the economy has improved, by then it will be too late.

I strongly believe it is worth our best effort.


Ira Kaylin is the former Chief Financial Risk Officer at the Inter-American Development Bank. He is currently on the Board of Falls Church City’s Economic Development Authority.