Damage From Downturn May Be Worse Than Expected

By Amy Gardner
Washington Post Staff Writer
Sunday, March 9, 2008

Fairfax County's financial outlook has worsened in the two weeks since officials proposed a relatively austere budget with flat spending on schools and government services for the year beginning July 1.

In the first of three all-day budget work sessions for the Board of Supervisors, officials said yesterday that the impact of declining home values and consumer spending is likely to be greater than was predicted Feb. 25, when County Executive Anthony H. Griffin rolled out a $3.3 billion spending plan. The proposal halves scheduled employee pay raises and delay about $40 million in transportation and storm-water projects to pay for other programs.

New data show that home foreclosures continued to rise in January, to 1,330 from 74 the previous year. Officials also said they think that the real estate dive is causing a ripple effect on automobile purchases and other consumer spending, meaning predictions for sales tax receipts might also need a downward revision.

"No one was even projecting that it was going to be this bad, and it's probably going to get worse," said Deputy County Executive Edward L. Long Jr. "We're monitoring this, but in all likelihood, it's probably going to be midsummer before we have a good feel."

As with most cities and counties in the region, Fairfax County relies primarily on real estate, car and sales taxes to pay for schools, police, fire protection, parks, libraries and other services. And as in most other communities, Fairfax is just beginning to feel the effects of the regional economy's downward drift.

The rise in foreclosures, generated by the subprime mortgage crisis, is a driving force in the county's budget crunch. Reduced interest income resulting from lower federal rates is also a factor. So is a softening in the commercial real estate market because of a glut of empty space and flattening job growth.

The grim budget picture, with revenue declining for the first time since the 1992 recession, follows years of economic growth in Northern Virginia. New jobs and rising home values drove up tax revenue during the boom, making it easy for local governments to absorb the rising cost of services even as they lowered property tax rates.

Supervisors are contemplating a budget with no new revenue that keeps the tax rate at 89 cents per $100 of assessed value. That would translate to a $4,450 tax bill for a home valued at $500,000.

Supervisors indicated that the budget proposal is too austere for their tastes. Supervisor Jeff C. McKay (D-Lee) said the board must find at least $1 million to expand a new code-enforcement "strike team," a multi-agency effort to crack down on illegal property uses and neighborhood blight. The foreclosure crisis and its effects on declining neighborhoods make the effort all the more critical, McKay said.

"I don't know what we're going to do in April and May, when the grass starts growing again, unless we think about how to deal with it now," he said.

Board Chairman Gerald E. Connolly (D) said it is not acceptable to use dedicated funding sources intended for transportation, storm-water management and affordable housing to fund ongoing operating expenses, as Griffin has proposed. Connolly also said it is time to revisit a board policy restricting use of a $100 million reserve fund meant to cushion midyear budget shortfalls.

"It's a good thing to have a rainy-day fund, but I also think it's raining," Connolly said. He said the fund should be studied in addition to Griffin's suggestion that the board consider raising the property tax rate from 89 to 92 cents this year, which would raise $68 million and keep most property tax bills flat.

Griffin has said he is reluctant to use the reserve fund because fiscal woes are likely to continue. Predicting a $200 million shortfall for 2010, he urged supervisors to consider program cuts.

Supervisors did not discuss school funding, which they will be under pressure to increase. Griffin proposed level school spending; the School Board has asked for an additional $63 million. The two boards will discuss school funding in an upcoming work session.

Also yesterday, the county's assessor, Kevin C. Greenlief, told supervisors his staff will review all residential land values to address concerns about recently published assessments.

Many property owners were surprised by assessments published last month that in many cases slashed the value of a home while increasing the value of the land. Overall, property values declined across the county by about 3 percent.

Greenlief said the shift in value of land and structures reflected a long-term rise in land values in the region. But he apologized for moving too quickly to make the correction and for poor communication with the public.

Last year, land values represented 37 percent of overall assessments. This year's numbers pushed the proportion to 54 percent. After Greenlief's review is done in the next few weeks, land value, on average, will represent 41 percent of overall assessment, Greenlief said. He stressed that overall assessments will not change.

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