Blog posts are the personal views of Letty Hardi and not official statements or records on behalf of the Falls Church City Council
Over the past year, I’ve fielded variations of questions around “why is my tax rate so high?” and “how does all of this development help my taxes?” So as a precursor to the upcoming budget season, I thought it would be useful to put my take on these questions into its own dedicated blog post:
Q1: How did we get to the real estate tax rate of $1.31?
A: Those who lived here awhile will recall the most precipitous jump happened around 2009/2010, when the rate increased from $1.07 to $1.24. Neighboring counties’ tax rates also went up a bit due to the great recession and decline in property values. From my reading of old documents – in the City of Falls Church, it was magnified by the loss of getting a return from the water system dispute, shortfall in sales tax revenues and errors in forecasting, and pension funding needs. We had to dip into the unassigned fund balance, lay off City workers, services were cut, and everyone’s budgets *actually* decreased then.
Q2: How does economic development help my taxes and the City’s finances?
A: (short answer)
Without the developments that have occurred the past 10+ years, our budgets would much tighter and tax rates would be even higher than they currently are. This was from last year’s budget documents, but it essentially shows the positive economic impact from new development in the past 10+ years in Falls Church. West Broad and Tinner Hill weren’t included yet.
It shows the direct net annual tax revenue we get from the new buildings, plus other revenue benefits like personal property, sales, meals taxes, etc. All of that combined is equivalent to 7 cents on the real estate tax rate, which means our tax rate would be 7 cents higher had it not been for the projects that have occurred. In other words, every year when we’ve had various surprise costs or pressures to fund new priorities, we would be 7 cents in the hole than we would be otherwise if those projects weren’t generating that revenue.
For reference – the total City budget was $66MM in 2010 during the recession, and it took until 2013 before budgets grew again. During the most recent 4 years, budgets have grown from $69MM to $86MM, while the tax rate went from $1.27 to $1.31. So the total City budget has grown $17MM post recession – and that growth has been partially enabled by economic development, and not solely on the shoulders of residential tax payers, else I think the tax rate would be much higher than $1.31.
Q3: Why all this mixed use development? How do these projects help my tax rate?
A: (Long answer to Q2 above)
The new developments in Falls Church have been predominantly mixed use buildings, which is what the market currently wants to generate. We’ve recently passed incentives to encourage more commercial only development, but the regional market for office only development is tough.
That said, mixed use projects in Falls Church have more than paid for themselves. The link below contains the actual data from the first 6 projects in the City and will be updated in the coming year as we get data coming in from West Broad and Tinner Hill. They have contributed $2.8MM net annual tax revenue (ie, after all service costs have been accounted for) and on a per student basis – generate $38K per year per student basis – more than double what they cost the City in services. There’s also spinoff economic benefit that’s harder to quantify.
In addition, new development projects have contributed over $3MM in cash contributions that have gone towards school construction like Mt. Daniel, which lowers the amount we need to borrow, and cash to other parts of the city to enhance the things we cherish like parks, library, affordable housing.
There’s also a bunch of soft benefits I personally see with the new developments. They have often replaced underperforming, dilapidated buildings. They also improve the streetscape, sidewalks, and provide more destinations for our residents to walk or bike to without needing a car and bring people outside of FCC to visit and spend their money here. (On the flip side, I believe we have a responsibility to plan for impacts like parking, protecting residential neighborhoods with traffic calming measures, and retaining as many local small businesses here as possible.)
Q4: Don’t the new buildings generate a ton of students, that then in turn creates higher costs?
A: The fact that the new mixed use buildings drives student growth is also false. Last year’s enrollment by housing type chart is online here: https://drive.google.com/file/d/0B7vaFg7PcgKyWUJOQ0lGaG1JX00/view
and this year’s is in the process of being finalized. From the draft version of this year’s data that I’ve seen – single family homes produced 1550 pupils and all apartments, townhouses, condos, and mixed-used buildings produced a grand total of 1112 pupils. Of the 1112, the mixed use buildings account for 214 total pupils which is 8% of the total student population (214 out of 2675). A few specifics:
–Pearson Square is the anomaly – 60% of the 214 students from the newer mixed use buildings does originate from Pearson Square which was designed as a condo building with a much higher mix of larger units, but then converted to apartments during the housing recession.
–While we’re about 70% occupied at West Broad and just starting to lease at the Tinner Hill, the unit mixes in these buildings are similar to Northgate’s with smaller units. From the data we have so far, the student count coming from West Broad is in line with the modeling done by the City and FCCPS – about 20 students total.
–We also have high student growth from older apartments like Oakwood. Besides being a destination for many State Dept families, my opinion is that Oakwood is one of the remaining “affordable” options in the City.
–There’s little we can do to stem organic student growth from by right development in single family neighborhoods or from existing buildings.
Q5: More students from mixed used developments mean we need to build more schools, and that raises our capital costs, right?
A: I believe that we have large capital needs because there have been long deferred infrastructure projects across the City, not necessarily because of student growth from development. For example – at GMHS, the condition of the aging roof, HVAC, and need for new space would still need to be addressed regardless of student growth from new developments, given that student growth is happening everywhere. As you look at our neighboring counties, everyone is facing a similar challenge of a growing student population and the need to expand or build new facilities.
Q6: So why are my taxes so high?
A: I’ve tried digging into past budgets too to better understand how we got to the $1.31 current rate.
–The foundational issue starts with the fact that Falls Church City is disadvantaged from a state funding perspective. Because of our high property values and the high incomes, the LCI (Local Composite Index) stacks the deck against us and we receive comparatively little state funding. Our LCI is the same as Arlington, yet we don’t have the scale or commercial tax base they do. Councilman Snyder wrote an informative op-ed about this: https://fcnp.com/2016/04/14/guest-commentary-falls-church-the-great-richmond-rip-off/
–See #1 Q&A above on the tax rate increase in 2009/2010.
–We’re still trying to diversify the tax base with more commercial revenue. Real estate taxes are 60% of our total revenue and of that, 70% is residential, 22% commercial, and 9% apartments. This takes time…
–Our school operating budgets, which makes up over half of the total budget, have been higher than the growth of the school population – the 3, 5, and 7 year averages are below comparing enrollment growth vs operating budget growth. There were several years of flat or decreased school budgets during the recession, but since then, budgets have grown to fund competitive teacher salaries, growth of students, and other priorities. Also, enrollment growth hasn’t been “explosive” as often reported, except in FY2014 and this year FY2017 when we’ve had growth above the 3.5/4% average.
Seat Enrollment Growth Operating Transfer to FCCPS Growth General Government Budget Growth
5-YR AVE 4.2% 7.7% 4.0%
3-YR AVE 3.3% 5.7% 1.7%
Q7: If the tax rate goes up, I can’t afford to live here! Does anyone care about affordability?
A: I don’t have a magic bullet answer on how to solve affordability for the region, but I understand the concern and I care about the risk of an unsustainably high and potentially growing tax rate. We have the highest tax rate in the immediate region, but actually comparable to other small jurisdictions in Northern VA, likely due to the scale issue. See below.
However, besides affordability being a values issue (we talk about being a community that supports all kinds of diversity – not just racial but generational and socioeconomic diversity) - the lack of affordability can create a real economic issue for the City. Affordability helps attract business and employers when they see a diverse city that can support new businesses. Also, as taxes rise and cost of living increases and our property values continue to reflect a premium compared to our neighbors, people who don’t have a reason to stay anymore or can’t stay anymore move next door. And with our school reputation, inevitably that house gets re-developed and a family with kids move in. As more families with kids move into neighborhoods (the median tax bill is $10K but it costs $18K to educate each child) – that further continues the spiral of rising school enrollment and costs and puts further pressure on the tax rate which disproportionately affects homeowners. And so it spirals.
So while I don’t have an agenda to keep the tax rate flat and I go into each budget and capital decision with an open mind, I am very cognizant of the affordability issue - not only what it means for current residents, but for the future of the City. With big capital costs looming, it is important to look critically at annual operating budgets, figure out compromises in needs vs wants, and keep pace on new economic development – so we have the revenue to keep everything going.