Surge May Soften City Manager Budget Prognosis Due Monday

Eyeballs were popping around the Falls Church City Hall last week when officials started looking at City Assessor Mel Peterson’s new report showing that the value of commercial properties in the City soared by over 13% in the past year. This figure was well over double what was expected.

The news came as “sight for sore eyes” for City Manager Wyatt Shields, tasked for the first time since taking the reigns of his office last fall with forging a new proposed budget for the coming fiscal year. The flattening out of residential real estate values, still the primary source of City revenue, promises a severe budget crunch that the good news about commercial values will only marginally assuage.

Shields will present his recommended budget to the City Council Monday night, and it is not yet clear whether or not he will call for a tax rate increase.

Shields and others on the City staff received Peterson’s report on residential and commercial property assessments this week, a critical component to estimate the revenue side of the budget ledger for the coming year.

Peterson is slated to mail out property assessments by Friday. Some residents should expect to get them in the mail as early as Saturday.

While the growth of residential real estate values, red hot for the last four years, cooled dramatically in the last 12 months, the City’s greater-than-expected rise in commercial property values is attributed directly to the new mixed-use commercial development that has been approved for construction here.

The process was set in motion with the Sept. 10, 2001 approval by the Falls Church City Council of The Broadway, a mixed-use project now completed and occupied in the 500 block of West Broad. It took a blighted space that had been unutilized for over a decade since an Ad-Com art store closed its doors in the site.

Since then, The Byron was approved across the street and is nearing completion. Pearson Square on S. Maple, The Spectrum in the 400 block of West Broad and the Read Building, also in the 400 block of West Broad are now under construction. All are large-scale mixed-use projects in the City’s commercially-zoned areas.

More projects are now in early stages of official approval at City Hall, including the Atlantic Realty City Center project, ones by the Hekemian Company and Akridge on N. Washington, and an office building in the 800 block of West Broad.

All these developments, Shields explained in an interview with the News-Press yesterday, raise the value of all real estate in the City’s commercial zones, and not just the ones directly being developed.

That’s because new development begets new development, he said. Therefore, even if new transactions on commercial land has occurred, for example, only on the south side of West Broad Street, that will cause values on the north side, where nothing has been sold, to rise accordingly. That is because it can now credibly be presumed that the property on the north side will carry that value into a prospective sale.

By contrast to the robust 13% growth in the value of commercial property in the City, the residential component, historically the source of the overwhelming portion of the City government’s revenues, has been flat, as expected, in the last year.

Shields reported that, overall, the rate has grown by 2 to 2.5%, and without counting new residential construction, it is under 1% for single detached homes. In the case of townhouses and condominiums, the values are actually down an average of 4%.

Issues with the new budget will be compounded by three more factors:

1. On the plus side, revenues from sales, business license and food taxes, all reflective of an improved business climate, are up 9% in the last year.

2. But the current fiscal year budget’s revenue estimations were based on an 8% overall real estate value growth this spring. In actuality, the number has fallen far below that.

3. The Falls Church School Board forwarded its budget to City Hall requesting an overall 5.2% increase. That is significantly above the growth in revenue anticipated for the coming budget year.

While the flat residential property value situation in Falls Church reflects similar trends in neighboring Fairfax and Arlington counties, those larger jurisdictions have begun deliberating on budget recommendations that do not call for a tax rate hike.            The same might not be possible in the Falls Church case.

After Shields presents his recommended budget this Monday, the Council will launch an ambitious schedule of work sessions and public hearings to scrub the budget before adopting it, finally, on April 23. It will cover the fiscal year beginning July 1.