Cuts in Spending, Increases in Taxes Considered to Offset Revenue Drop-Offs

By Annie Gowen
Washington Post Staff Writer
Tuesday, November 14, 2006

Local governments across the region are considering cutting spending or raising taxes in the coming year because of a decline in revenue growth caused by the housing downturn.

Officials in Arlington and Prince William counties and Alexandria said yesterday that they are projecting budget shortfalls. The Loudoun County Board of Supervisors is scheduled to be briefed next week on the extent of that county's budget gap.

Maryland governments are less squeezed because properties there are assessed every three years instead of yearly, as Virginia does. Maryland and D.C. real estate assessments also are capped each year. Still, Maryland officials said they are seeing sharp declines in recordation and other tax revenue connected to the housing market.

The difficulty in Northern Virginia is that after six years of double-digit increases in home values, officials are predicting little or no growth for the coming year. Tax revenue could creep slightly upward, but the increases are nowhere near the whopping totals of recent years, officials said.

Local governments in Virginia by law cannot run budget deficits, so to balance their budgets for the fiscal year that begins July 1, officials must make up millions of dollars in shortfalls by cutting spending or raising taxes.

In Arlington, where the County Board this year approved one of the largest spending increases in recent history, officials said at a recent briefing that they have projected a budget shortfall of about $20 million for next year. To make up the gap, officials are contemplating cuts in services for such vital items as computers, wireless technology and maintenance of county-owned vehicles.

Arlington officials want to cover the shortfall without raising the property tax rate, according to Mark Schwartz, the county's director of management and finance. "We will not present a budget that says: 'Here's a gap. Let's increase taxes to fill it,' " Schwartz said.

The vice mayor of Alexandria, which is facing a budget gap of about $18 million, said the city could resort to raising the real estate tax rate or changing the tax rate on personal property for cars next year. Residential property values increased nearly 20 percent last year in Alexandria, but officials said they expect a decline of 2 percent next year.

Vice Mayor Andrew H. Macdonald (D) said of bridging the shortfall, "we can do that either by finding some more efficient way in making cuts or find a new source of revenue by slightly raising the tax rate. . . . My view is that we may have to change the tax rate slightly."

Alexandria's City Council cut the tax rate last year to 81.5 cents per $100 of assessed value, although residents still had bigger tax bills because of higher assessments.

In Loudoun, officials are warning of spending cuts -- likely in schools -- or an increase in the tax rate in a rapidly growing county of 260,000 people awash in spending for such public projects as schools, firehouses and roads. Loudoun led the region this year in the growth of property assessments at 28 percent, but housing assessments are forecast to plummet to negative figures during the 2008 budget year, officials said.

"The situation has deteriorated a little bit and is expected to deteriorate further," said Loudoun budget manager Ari Sky.

Fairfax County Executive Anthony H. Griffin has asked his departments to cut 1 percent from personnel budgets in the coming weeks to hold the county's increase in spending next year to 3 percent, officials said. Overall county revenue is projected to grow by a scant 3 percent next year.

The region's real estate market is expected to continue stabilizing through spring, according to a recent report by the Northern Virginia Association of Realtors. Houses are taking more than twice as long to sell, and the average price of a home in Northern Virginia last month was $524,236, a 4.7 percent drop from the previous year.

In the District and Montgomery County, property assessment increases are capped at 10 percent a year. But the slowdown in the residential housing market is cutting into the money Montgomery collects when property is bought and sold, according to Timothy L. Firestine, the county's finance director.

The transfer and recordation taxes, which provide a glimpse of how homes are valued, as well as the number of sales, are substantially down from last year in Montgomery, officials said.

The county could lose about $64 million of the $263 million it had projected it would collect from the taxes this year, according to one recent estimate.

Because of the steep drop in taxes linked to home sales, council member Marilyn Praisner (D-Eastern County) said she warned the school system and the public works department to be "cautious about asking for anything new" in next year's capital budget.

The county had expected to collect about $26 million in taxes on developers used to build schools and roads, but that estimate might be optimistic, officials said.

Jonathan R. Seeman, director of management and budget in Prince George's County, said the cooling housing market has resulted in a drop-off of about 20 percent in revenue from taxes collected on home sales. But the county had anticipated a drop-off of 27 percent, so no cuts will be necessary, he said.

Staff writers Miranda S. Spivack, David Nakamura, Rosalind S. Helderman, Timothy Dwyer and Amy Gardner contributed to this report.