The oxygen was sucked out of the room where the Falls Church City Council and School Board were gathered for their first take on the coming fiscal year budget Monday night, as the City’s Chief Financial officer John Tuohy tallied up expected revenue shortfalls and unavoidable cost increases.
At the current tax rate in the current recession, he summarized, the City in its Fiscal Year 2010 budget beginning next July 1 will face a $4.3 million deficit.
Around the table in the library at the Mary Ellen Henderson Middle School, the seven Council and seven School Board members, along with key members of the City staff, had been animated and jovial in earlier discussions, and even stopped to eat some takeout food, before Tuohy began his “power point” presentation. Once he started adding up the numbers, there was an audible silence, broken only by subdued questions and comments.
Tuohy told the officials the shortfall was equivalent, as a proportion to the total operating budget, to the shortfall that Fairfax County is confronted with. For Falls Church’s $76 million budget, it is a massive hole that would take 11 cents on the residential real estate tax rate to plug.
But no one in the meeting suggested that kind of tax hike will be remotely considered, given the burdens of the recession on citizens, who are experiencing lost values in real estate and, in many cases, deep losses in retirement accounts and market investments.
So the Council and School Board will be confronted by an array of very tough decisions as they craft a balanced budget, as required by Virginia law, in time for final passage next April. Never before in the City’s 60 year history will it face such pressures to make deep cuts in services.
Both the Council and School Board will soon schedule a number of open hearings to elicit priorities from the public as they move toward the spring budget deliberations. It will mark the first time in the City’s history that it will hold such extraordinary meetings prior to the start of the usual annual budget-crafting process.
That process kicks of when School Superintendent Dr. Lois Berlin will present her recommended budget by mid-January, and City Manager Wyatt Shields will follow with his recommended City operational budget by the end of February, and the Council’s final vote will come at its final meeting next April.
But still, the good news, Tuohy said Monday, is that Falls Church’s fiscal situation is not as grim as what is facing jurisdictions all across the nation, including in neighboring counties like Prince William and Loudoun.
He also pointed to the fact that, with revenues also expected to shrink in state and federal coffers, the City depends for a relatively small percentage of revenues on those sources, compared to some jurisdictions in southwest Virginia that depend on the sources for up to two-thirds of their revenues.
The other good news, Tuohy said, is the fact that development projects currently under construction are expected to mitigate the impact of the economic downturn in the City, recovering almost a full percent of assessment declines in residential real estate.
He said depending on how fast the now-anticipated BJ’s Wholesale Warehouse and Hilton Garden Inn hotel get built and become operational, additional revenue could fill in some of the deficit gap.
Both are some of the most lucrative forms of commercial development on a per acre basis, and City Manager Wyatt Shields said that the BJ’s could bring in up to $1 million annually of new money to city coffers. Despite the difficult credit markets, he said, it looks promising for construction to begin on both the hotel and BJ’s within months.
A 3-3.5 percent projected decline in residential real estate values, for a jurisdiction that depends on taxes from such sources for 57 percent of its total revenue, is the biggest single cause of the anticipated decline in revenue, followed by declines in sales and other taxes, and in state and federal funds. Making up losses caused by poor market conditions for pension and retirement plans is the primary cause of added expenses.