Huge 8.5¢ Tax Rate Cut Proposed by Shields

“Monday was a landmark night for Falls Church,” exclaimed F.C. City Councilman Phil Duncan exclaimed in a late night text message to the News-Press. The comment followed a lengthy Council meeting in which both City Manager Wyatt Shields’ recommended FY23 budget with an 8.5 cent real estate tax rate reduction was proposed followed by the Council’s final approval of Founders Row 2, another large scale mixed use project.

“Another step forward to a better future for Falls Church city, Founders Row 2 approved 5-2 combined with the news of the city manager’s proposed tax rate reduction of at least 8.5 cents to $1.235, lowest in more than a decade, Monday was a landmark night for Falls Church,” the full text of Duncan’s statement read.

At the meeting Shields proposed to City Council a Fiscal Year 2023 (FY2023) budget totalling $112.6 million Monday, which provides for a six percent ($2,451,107) increase in general government operating expenditures and a 6.3 percent ($2,750,000) increase in local funding for public schools, as requested by the School Board.

Shields was joined by School Board Chair Laura Downs and Superintendent Peter Noonan in the budget presentation.

Reducing the real estate tax rate by 8.5 cents to $1.235 per $100 of assessed value (down from $1.32) comes in the context of assessed values increasing by 11.4 percent overall, as reported recently.

“This budget proposal is intended to strengthen the core government and education services at the high level residents expect, while at the same time ensure that we manage well the transformative capital projects and new development currently underway,” said Shields Monday.

Key investments contained in the budget he said are the City public schools, core government services, the City’s work force, public safety, improved walkable neighborhoods and traffic calming, and flood mitigation.

“The tension between basic services and transformative things like all the new development coming in represent a tension,” Shields said Monday, calling this “our most dynamic budget environment ever, including coming out of the pandemic, the impact of the war overseas, the actions of the Virginia general assembly in Richmond, and cost inflation.”

With overall real estate assessments up by a whopping 12.1 percent, as reported earlier this month, the proposed 8.5 cent tax rate reduction proposed by Shields does not cover all the added cost to homeowners the assessment increase will represent.

To propose a tax rate reduction equal to the assessment growth would require lowering the rate all the way down to $1.19, he noted. Some on the Council have suggested in this context that lowering the rate below Shields’ proposed $1.23 level will be open for Council consideration.

The proposed budget includes an additional $2.2 million of new investment in City employee compensation, as the City struggles to recover from manpower shortages that led to an overall 15 percent vacancy rate, and 25 percent as of last September for the police department. The department is now back to 100 percent, Shields reported.

The City’s tax rate reduction contrasts to what Shields reported was no rate reduction for the City’s two large neighbors, Fairfax and Arlington counties.

In Shields’ proposed budget, debt service will decrease by $1.3 million or 9 percent due to the cancellation of planned debt issuance in FY2021 and the refunding of prior bonds from 2013 and 2011 at lower interest rates.

The proposed budget includes the use of $4.03 million in capital reserves towards debt service, which is part of the long-term plan of finance for the new high school that was presented to voters during the bond referendum in 2017. Offsetting the use of capital reserves is the third payment of the ground lease ($4.5 million) for the impending 10-acre mixed use West Falls project.

The budget proposal includes an appropriation of $3,789,331 of federal pandemic relief in the form of American Rescue Plan Act (ARPA) funds: almost $1.4 million for assistance to small businesses, households, and schools, and $2.4 million in the Capital Improvements Program for sidewalks and HVAC replacement at the Community Center.

Last year, the City Council approved $7 million in ARPA funds to be used for the six major flood mitigation projects recommended by the Stormwater Task Force.

The budget proposes a new Commercial and Industrial (C and I) Tax of five cents per $100 of assessed value on commercial properties, which by law must be used exclusively to fund transportation improvements. It was emphasized Monday that this tax will be levied solely against commercial property owners.

According to a statement from City Hall, while most counties and cities in Northern Virginia adopted a C and I tax of 12.5 cents in recent years to help pay for transit and road expansions, the City proposes to use the revenue to pay for its share of WMATA capital costs, bike share program, and other transportation needs.

Shields submitted the proposed operating budget to the City Council Monday along with a six-year Capital Improvements Program (CIP) that will be detailed in a Council work session this coming Monday.

The School portion of the overall budget proposal has come within Council’s budget guidance for the third straight year, below the 8.4 percent expected annual growth in overall revenues.

As the lion’s share of the school system budget goes each year to personnel, this year it includes adding $1.6 million for a “step” salary increase and $890,000 for a 2.5 percent cost-of-living (COL). This is set against neighboring Arlington County’s planned four-step, or 11 percent, increase to make up for the constraints of the pandemic era.

Still, since the new high school construction actually came in under budget, the schools are returning $100,000 to the City coffers.

Three major components of the schools’ funding involve the ongoing infusion of K-12 International Baccalaureate curricula, a “caring culture,” and equity considerations, Dr. Noonan said.

The Council is expected to adopt a final budget on May 2. The 2023 fiscal year runs from July 1, 2022 through June 30, 2023. A virtual town hall is slated for today (March 31) at noon, and another Thursday, April 7, at 7 p.m. and City Council meetings every Monday night until the final budget is adopted May 2 is open to the public.