Falls Church City Manager Wyatt Shields confirmed that the new $120 million George Mason High School, as well as the renovations to City Hall and the Mary Riley Styles Library, will get built without costing City taxpayers an extra dime over what they’re already paying in real estate taxes if the preliminary deal struck between the City and the master developer for 10.3 acres at the City’s West End passes. Shields revealed the development at a joint work session Monday night of the F.C. City Council and School Board, their first take at the next fiscal year budget.
As much as it was hoped for as the outcome of the dealings with the EYA, PN Hoffman and Regency team that wants to put a $500 million development onto the City’s site where the current high school sits, it was not stated openly that the plan would enable an effectively cost-free high school and other developments, beyond the 3.5 cent real estate tax rate increase that was assigned in two steps over the last two years.
But this was the cornerstone of the joint session Monday night, a prequel to the next six months deliberations that will result in the adoption of a new annual City and Schools operating budget next April, set to go into effect next July 1.
It is a signal that the upcoming budget deliberations, even with an unusually modest projection for a net 2.0-percent revenue growth in the City, may not be as painful on City taxpayers as some may have been expecting. Not only will the new high school come at no additional taxpayer cost, but so will the $17 million renovation of City Hall, currently underway, and the coming $8 million renovation of the library.
The numbers are predicated on the West End development team’s following through on its $45 million 99-year ground lease on the 10.3 acres, which will cover the City’s added debt service costs to the tune of $6.5 million next year, and $7 million annually for four consecutive years beginning in 2021, and the resumption of payments on the balance due in 2029.
Other contributors to covering the debt costs are projected as an annual $640,000 return on investment from the City’s pension fund, which is the result from the decision taken by the Council to use $9.2 million of the proceeds from the sale of the City’s water system three years ago to buoy its pension fund, and a prudent measured use of the City’s reserve fund (which will continue to maintain a running balance of between $14.7 and $18.1 million the next five years.)
The combined effort will cover an increase in the City’s annual debt service obligation from its current $6 million annually to $9.8 million to pay for the debt incurred for all the new projects.
Only School Board member Justin Castillo chose to comment on the overall result Monday, saying, “Good job!” to the City staff that negotiated the preliminary deal with the West End development team and the other decisions that contributed to the City’s capacity to manage the increased debt at no new cost to the individual taxpayer.
The cautionary approach taken by the City’s Chief Financial Officer Kiran Bawa is based on the less-than-stellar projections for the wider economy, which is long overdue for a new recession, she noted. The projection for the region is for two percent consumer price index growth (inflation) and “modest assessed valuation growth nationwide and regionally,” she reported.
Still, on the other hand in Falls Church’s case, the strong financial position of the master developers of the new site and their record of success in the wider region mitigate against any potential pessimism, and it is also noted that work on the 4.3 acre Founders Row mixed use project at the northeast corner of the W. Broad and N. West Street intersection is also beginning with the demolition of existing now abandoned structures at the site.
The Amazon HQ2 announcement last month also has everyone buoyed about its potentials for the wider region, including the need for more housing and office spaces for satellite businesses and industries, good schools for well-paid households, including the impact of the plan for Virginia Tech to coordinate with Amazon for a major new campus in Crystal City, and enhanced transportation infrastructure.
Currently, 61 percent of the City of Falls Church’s annual budget of $92.5 million is paid for out of residential and commercial real estate taxes, with state and federal funds providing only five percent. The forecast is that the City’s residential properties will grow in assessed value by an average 2.75 percent, and its commercial properties by only one percent. Total new revenue is projected at $1.7 million, a 2.0 percent increase.
This compares to Arlington’s projected revenue growth of 1.5 percent, Fairfax growth of 2.9 percent (based on the state’s “local composite index” formula that will provide proportionately greater subsidies for its schools), and Alexandria at 1.9 percent.
Over the last 10 years, the overall revenue growth has been only 1.3 percent in the City due to “no strong rebound” from the Great Recession a decade ago, she said. A decade ago, the recession caused a 25 percent decline in commercial real estate values and a 10 percent drop in residential values and the recovery has been very sluggish.
Projected cost drivers for the coming year include $400,000 for WMATA, a number higher than expected, and an additional $200,000 for health insurance coverage. If the City were to offer a one-percent salary increase for its employees, that would be at a cost of $200,000.
“We need to reward success,” Shields said, noting the lack of salary growth for City employees in recent years and the loss of two valued engineers to the City in recent months.
On the school side, Superintendent Peter Noonan told the joint session Monday that enrollment in the Falls Church system is projected to increase by 54 students next fall from current enrollment at 2,645 to 2,699.
The schools count on the City Council for 83 percent of their revenues (getting 13 percent from the state because of the City’s low LCI based on average income factors), and spends 86 percent of their budget on teachers, administrators and other people.
With no step increase for teachers last year, adding one this year would cost $1.1 million in a highly competitive regional teacher salary environment. A cost of living increase would cost $400,000 for each percent, health insurance is expected to rise $315,000, and substitute teacher pay needs will rise by $50,000.
Noonan said the added needs for the schools add up to $1.7 million.