Guest Commentary: Falls Church City’s Answer to Raising Taxes

August 14, 2014 9:40 AM3 comments

“Eat Mor Chikin”

….and more beef, salmon, pasta. While washing it down with a nice craft beer or bottle of chardonnay. And please don’t forget desert. All in the City, of course. Which you can enjoy before or after that movie or concert at State Theatre.

There has been much discussion about the need for more “commercial” development in Falls Church as the alternative to having to raise taxes on residents in the City. Commercial development is indeed a “cash cow” for many jurisdictions, no pun intended. The property taxes, gross receipts taxes and other taxes paid by businesses are significant, with a relatively small cost to the City in service expenses.

However, with commercial office buildings experiencing historically high vacancy rates and millennials and their 21st century entrepreneurial employers figuring out ways to do more work with less office space by telecommuting and office sharing, the demand for new class A office space in non-Metro locations such as Falls Church is limited. The Silver Line expansion all but assured that, with master plans for tens of millions of square feet of future office space nearly on top of Metrorail. That’s not to say that Falls Church won’t see any new office development in the coming decade or two. But my guess is that without significant economic incentives and investment by the City, it probably won’t exceed what occurred in the last decade or two.

What’s the answer? For some, it is maximizing the retail, restaurant and hotel potential of Broad and Washington Streets. And indeed, restaurants and hotels are particularly attractive to the City coffers, given the additional meals and rooms tax generated by these establishments.

The challenge for the City, as I see it, is generating the demand for more retail and restaurants in Falls Church and making the necessary investment to encourage such development. A quick look at restaurant economics: A successful restaurant in the City needs to achieve $400-$500+ per square foot in sales. That’s $2.0 to $2.5 million for a 5,000 square foot restaurant. With a population of roughly 13,000, that works out to nearly $200 a year for every man, woman, child, baby and grandmother in Falls Church. On top of what they are already spending in all of the other restaurants in the City. Certainly, not every customer would be a resident of the City. But by the same token, not every resident of the City eats all of their restaurant meals in the City.

So, in my opinion, the other part of the answer is that the City – and current residents – could view new residential development as complimentary to commercial development rather than competitive with it. And continue to grow its population to include those millenials that don’t need as much office space as they used to, but may eat out more often than the typical traditional family of five. The City Council would likely immediately deny a proposed mixed use project with, say 200 apartments totaling 150,000 square feet and a ground floor restaurant of “only” 5,000 square feet, because it is only three percent commercial measured in terms of square feet. How about measuring it in terms of the market served? That 5,000 square foot restaurant would need to serve 10,000 customers spending an average of $250+ per year. Or 5,000 spending an average of $500 per year. By that measure, the 250+/- residents of those 200 apartments are a small fraction of what is needed to support just one new restaurant in the City.

The other option is for the City to pass a new regulation requiring every current resident to “Eat Mor Chikin,” or whatever their favorite dish is, at City restaurants. That would not only encourage more restaurant development, but perhaps increase demand for cardiologists, fitness clubs and pharmacies.

In full disclosure, I am an investor in Mad Fox Brewing Company. So take my “Drink Mor Beer” suggestion with the humor intended. But in all seriousness, Mad Fox will be looking forward to the opportunity to serve the new residents of the Tinner Hill, Harris Teeter and Northgate projects. We like “Mor Custumers.” And the City should too, as we approach $1 million in meals taxes paid to the City since our opening four years ago. As our master brewer, Bill Madden would say, “Cheers!”

 


Ed Novak is president of Nova-Habitat and Falls Church Chamber of Commerce board member.

  • FallsChurchCitizen

    If you can guarantee that the resulting population boom wouldn’t involve more school-age kids that necessitate increased spending on school expansions, teacher salaries and pensions, then we’re all for it! Otherwise, when does the cycle end?

    • Ed Novak

      That’s a fair question, but perhaps a better one is why is there a cycle in the first place? The answer is that a single family house in the City that is valued at, say $750,000, pays roughly $10,000 per year in property taxes. Over 25 years, that’s $250,000 in current dollars. During those 25 years, if that home has three children using Falls Church public schools for 12 years each at an average cost of $16,800 per year, that’s about $605,000 in school operating costs to the City. That’s a deficit of over $350,000, before any other City services are included. A $750,000 house in New Jersey, New York or Pennsylvania is likely to have an annual property tax assessment of around 3.5% (vs. 1.305% in Falls Church) and pay over $25,000 annually in property taxes. That still wouldn’t cover other City services provided in Falls Church for a family with three children, but it would at least offset the school costs over a 25 year time frame.

      The “cycle” isn’t being perpetuated by 800 square foot apartments catering to millennials, or condominiums catering to empty nesters, or assisted living residences catering to seniors. I respectfully suggest that perhaps more of these other residents are needed to help balance the demographic to help reduce the deficit that is built into the City’s tax rate on homes that have children.

      For the record, I don’t live in Falls Church. But I do love children. I was one once. I have a couple now. They may be expensive to educate, but they are our future.

      Best,

      Ed

      • FallsChurchCitizen

        Thank you for the response; I wonder what the comparable calculation is for The Fields or Roosevelt Towers, which would have many school children for all 25 of those years. Also, if (like mine) that house you speak of has just one child using the school system, there’s actually a surplus over that period. FWIW, I believe there are something like 2,350 single-family homes in Falls Church, with about 1,500 students (as of last year).

        I’m heartened that the City seems to have learned from the Pearson Square experience, but there are still hundreds of two-bedroom apartments that are under development. The condos — such as those above Mad Fox — appear to generate far better returns for the City, so it’s concerning that all the new developments are so rental-heavy…especially in the midst of the current apartment glut around D.C. and given the crucial detriment that none of the new developments are next to a Metro station.

        I hear what you’re saying about the need to find customers to eat at those restaurants, but we aren’t an isolated dot on a map–we are in one of the most densely-populated regions in the country. One could argue that simply addressing the woeful lack of parking (to serve those who don’t live above Mad Fox, for example), could do more to drive additional commercial $$ without straining City services. Seems like more of a win-win.

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