Citing a revised projection downward of $1.2 million in upcoming fiscal year revenue due to draconian Trump administration federal worker and contractor layoffs, the Falls Church City Council voted unanimously Monday night to work with new budget numbers eliminating the 2.5 cent real estate tax reduction recommended earlier by City Manager Wyatt Shields and instead proceeding with one that has no tax rate cut.

The dramatic change, keeping the current rate of $1.21 per $100 of assessed valuation instead of Shields’ earlier proposal for a rate cut to $1.185, was adopted with no disputes among the Council’s seven members, and still leaves open the prospect that some changes could be introduced before its approval of the final budget for the coming year on May 12. 

The Council also moved to increase the personal property tax rate, the so-called car tax, upward to $5 per $100 assessed valuation.     

Shields told the Council Monday that budget numbers in the current fiscal year indicate that “we face a challenging economy” and that he is forecasting that $1.2 million less than originally calculated will come to City coffers in the coming fiscal year. 

In a discussion with the Council’s Budget and Finance Committee last week, he said, his staff came to recommend a flat rate for the real estate tax instead of the 2.5 cent reduction that he had recommended just last month.

With relatively little discussion and virtually no dissent, the Council proceeded to adopt his recommendation. The City’s director of finance, Kiran Bawa, stood at the speakers podium throughout the deliberation, but was not called on by any Council member. 

By law, the Council can now proceed in the budget deliberation process to lower that rate, but not increase it, in its final vote to adopt the new budget in May.

In a written report to the Council, Shields and City Director of Finance Kiran Bawa noted that for the third quarter of the current fiscal year (January through March 2025), “local taxes, excluding real estate, lag the budget projection by $1.18 million (3.7 percent). The softening of local tax receipts, including meals and sales taxes, is a continuation of trends we observed in the midyear financial report.”

It continued, “Regional economic turbulence caused by federal job layoffs, spending cuts and the overall economic uncertainty from tariffs likely is contributing to reduced consumer spending and decreased business activity that drives these local tax receipts.”

Through the third quarter of the current fiscal year, sales tax receipts have come in below estimates by 4.7 percent and meals tax receipts by 12.9 percent, the two major indicators that the report referred to.

The sales tax shortfall, the report noted, “is in part due to a very strong sales tax growth forecast” for the year, even as the actual number is 2 percent above the previous year. Sales tax from groceries are up 1 percent while online sales are down by 5 percent.

Sales tax numbers are considered a key indicator of overall trends, the report noted.

As for meals tax revenue, it is almost 13 percent below the earlier budget estimate and flat compared to a year ago. “Expectations of boosted receipts from new developments have lagged as some openings were delayed; but additionally, there are also indications of a change in consumer spending behavior sales as existing restaurants are flat or below last year.”

These trends are particularly worrisome as the completion of a number of new mixed use projects adding hundreds of new apartment units in the City have been expected to contribute to an uptick in both sales and meals tax revenues.

According to the report, scenarios for the coming fiscal year that the Council will mull as it prepares for a final vote in the next month range from ones showing deficits below current revenue projections that range widely from $0 to $3.6 million, being equivalent to 0 to 6 cents on the real estate tax rate. A 4 percent growth scenario is considered likely, the report stated, based on the 10-year average from pre-Covid years, with a projected deficit of $1.2 million, or 2 cents on the tax rate. Thus the recommendation for adjusting the staff recommendation away from proposing a tax cut this year.

Shields noted to the Council that job fairs and resources are listed on the City’s website, including one on Wednesday, April 30 at 5:30 p.m. that offers resume crafting skills and more, and the May 3 event organized by U.S. Rep. Don Beyer in Alexandria (details in story on page 8).