The Falls Church City Council took the uncommon step of modifying its own draft document relaying its expectations for its coming annual budget cycle at its meeting this Monday. By what became a unanimous vote, the Council added language to its budget guidance memo to open the possibility of a tax rate increase.
It comes at a time when manifestations of weaker economic realities are becoming clearer throughout the region, and, in that context, the relative strength of the City of Falls Church’s fiscal situation is very noticeably evident.
Nonetheless, the impacts of uncertainty, especially as they relate to federal government contractions that are being signaled by the incoming Trump administration, of skyrocketing home prices, of other inflationary pressures, and of an alarming regional office space vacancy rate, are generating headaches for policymakers. While maybe less so, still Falls Church is not immune from all that.
The economic report from Kiran Bawa, the City’s chief financial officer, projects $5,900,000 in new revenue for the City, but $7,910,000 in projected new expenditures ($4,960,000 by the City schools and $2,940,000 by the general government), leaving a budget gap of $2,000,000. Given that a penny on the tax rate is now equivalent to roughly $500,000, the gap could be made up for with an increase of 2 cents in the tax rate above the current $1.21 per $100 assessed real estate valuation.
The City government’s anticipated cost drivers are $1,800,000 for wage and benefit increases, $150,000 to fund positions previously funded by federal ARPA dollars, and an additional $1,000,000 in WMATA and other regional contracts. The sums do not include any new positions, new initiatives or expanded services.
While real estate assessments will not become official until mid-February, it is estimated that there will be an additional $4,713,718 in real property taxes marking a 6.9 percent increase over last year, and with another roughly $1.2 million in other taxes, an overall increase in revenue of 5.9 percent.
But most important are the estimates indicating that real property values are jumping by 7.8 percent in Falls Church, almost double that for Fairfax, estimated at 3.91 percent, and way above Alexandria City which is at 1.57 percent.
While total numbers are not indicated for Arlington County, differentials compared to regional neighbors are very pronounced when it comes to values for commercial real estate including apartments. Reflecting wider economic realities, the commercial real estate values are projected to decline by as much as 2.6 percent in Arlington and to decline by as much as 1.27 percent in Fairfax, while in Falls Church they are projected to increase by 2.4 percent, and new construction in Falls Church is estimated to leap by 3.4 percent year-over-year (compared to 0.51 percent in Fairfax).
It means that, for projected new tax revenue, while Falls Church projects an overall 5.9 percent increase, for $5,900,000 in new revenue, an impressive $2,900,000 will be coming from new construction for the year.
In a sobering note for Falls Church, trends indicate that no real gain in meals taxes will be coming to the City in the next year, despite all the classy new restaurants that are opening here, and business (BPOL) taxes are also not expected to increase in the coming year.
As for what the actual assessed real estate value increases may be when the City’s Assessor Erwving Bailey issues individual formal assessments in mid-February, Bawa noted that of 4,500 properties in the City, there were only 20 appeals of his decisions that came from owners last year.
Mayor Letty Hardi, who attended the meeting remotely from a location in Germany, noted that the gap between revenue and expenditures are not due to economic growth, but, on the contrary, not only did that growth pay for improvements in the schools, but without that growth, the gap would be much bigger. She noted Falls Church’s growth is two or three times better than its neighbors.
Vice Mayor Deborah Shantz-Hiscott noted that there are a lot of unknowns that will be impacting the budget process. She said that schools are the major institutions that make Falls Church different, and growth in enrollment is a natural cost of growth. Council member Laura Downs said the schools “are our crown jewels,” and “we need to be very careful” about not funding what they request.
Council member Marybeth Connelly opened the discussion about allowing for a tax rate hike in the Council’s budget guidance, since that would “cut off a lot of conversations.”
Council member Justine Underhill stated that “growth pays for growth, or otherwise we’d be in a much bigger hole.”
Going forward into the new budget cycle, the next step will be on January 14, 2025 when Superintendent Noonan presents his recommended budget to the School Board and the School Board acts on its 5-year capital improvement plan, and following a number of presentations and public hearings, the School Board will adopt its budget on March 11. City Manager Shields will present his recommended budget to the Council on March 24. The Council will adopt its official budget, including the School Board budget, with whatever tax rate they adopt on May 12, and the School Board adopts its final budget the next day, and the new fiscal year will begin on July 1.
