Taxpayer Cost Estimates of GMHS Excluded Tax Yields

THE 36-ACRE campus site, with 10 acres designated for economic development in the form of mixed use and commercial projects. (Photo: City of Falls Church)

With less than two weeks to go before the Falls Church City Council will be voting to forward a petition to place a $120 million school bond referendum on the November 2017 ballot, the estimated taxpayer cost of a new school has so far excluded any projected tax revenue coming from the development of 10 acres on the 34-acre school site. This fact came to light for the first time late into the night at this Monday’s Council meeting.

Lacking that revenue source, preliminary estimates of the impact of the new school on taxpayers have been projected as very significant, even with the sale of 10 acres of the land to a commercial developer for around $40 million.

That lack stunned some on the Council, including Mayor David Tarter who said that revenue will be a “hugely important” factor in mitigating the cost to taxpayers of the school construction, and called for an estimate of that revenue flow to be developed urgently, and a new assessment of the cost to taxpayers of the new school be presented before the scheduled July 24 vote to proceed with a referendum.

Falls Church City Manager Wyatt Shields explained to the Council that the reason no such estimates had been asked for from the City’s consultants was that he wanted to take a very conservative, low-risk approach to calculating the burden the new high school will place on city taxpayers.

“In modeling the transaction, we decided that from a risk management perspective to not include tax revenue projections because we don’t think they should be counted on, and including them would just add another layer of risk,” he said.

But Councilman Phil Duncan protested, saying, “We can’t pretend to the public that we’re not expecting tax revenue.” Mayor Tarter added, “Tax revenue from the project is hugely important. It will add more money on the tax side.”

Mayor Tarter summed up the public deliberation with the consultants in the wee hours of Tuesday morning by identifying three matters that need to be addressed as the Council comes down to the last two weeks before a petition to the court to place a referendum on the November ballot will need to be approved. The Council is scheduled to take that vote at its July 24 meeting.

Tarter listed the three factors as 1. an estimation of the annual tax yield of the consultants’ perceived optimum development of the 10 acres and an assessment on how that would alter the City’s estimate of the tax burden of citizens of the new school, 2. a dialogue with the public on the matter (a public forum is scheduled for next Wednesday, July 19) and 3. the establishment of what he called “guard rails,” or limitations, on development that the community may want to set in place.

In Monday’s meeting, in an extraordinary way, the general public was invited to high level economic development deliberations between an expert consulting team, in this case the Washington, D.C.-based firm of Alvarez and Marsal, and a governing body, in this case the Falls Church City Council, that are normally reserved for secret and candid behind-closed-doors meetings.

This represented a departure based on a decision by the City Council to bring in the public at some risk of impairing its competitive edge, done to optimize the public’s support for the outcome of the talks, given that outcome will undoubtedly involve asking the public to vote in favor of a hefty school bond referendum in November.

Unfortunately, despite this intent, the public discussion of the economic development potential of 10 acres of the 34 City-owned acres occupied by George Mason High and Henderson Middle School, did not begin until after 11 p.m. Monday, carrying on until almost 12:30 a.m. Tuesday morning. (A video of that deliberation can be seen on the City’s website.)

Among the more candid exchanges that took place between the Council and the consultants centered on the flexibility and creativity that the consultants would urge potential developers to exercise on the site.

Councilman David Snyder asked that, even though the consultants based their estimates of the economic potential of the site on the brief Urban Land Institute assessment taken three years ago, “what if someone came in with a proposal for something entirely different?”

“We would welcome that. We would want maximum flexibility,” consultant Jay Brown replied. “We would want the greatest innovations and pushing of the envelope.” The best outcomes often are the result of “a bright idea that none of us thought of.” For this, he said, “We need to look for outliers.”
He conceded their current modeling was “necessarily conservative,” but they’d encourage something different.

Council member Letty Hardi said that the campus location “is one of the few spots in the City where building high will not have an impact on residential neighborhoods,” and that citizens may want to know what the revenue yield will be on buildings five stories high compared to ones 10 stories high.

Consultant Ted Richard responded, “If the City wants to encourage that (greater height), we could go higher, maybe not to 20 stories, but to 10 or 12 certainly.

He said that if there were someone like a Wegman’s that wanted to come in and take over the entire 10 acres, “that would make this analysis a lot easier.”

He added that given the likely buyer (or lessee) of the site, based on the estimate that it will undertake $380 million in development there, the City’s asking for $10 million up front will not “scare them off.”

The acquisition would likely be by a “extraordinarily well capitalized” large company that could complete the transaction on an all-cash basis, bankrolling it from it internal cash flow “out of pocket.”

Councilman Dan Sze asked if that would preclude anyone except sovereign fund entities, and Richard said that would not be a bad thing.

Brown said that in order to gain yield from taxes, the City may want to include a provision in the deal requiring construction within 10 years of acquisition, and he added that for the amount of money involved, he doubts a developer would want to waste any time. “They’ll be incentivized to get stuff done right away,” he advised.

Next Wednesday’s public forum on the campus project will be held in the Council chambers of City Hall at 7:30 p.m.