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Fairfax Prepares to Raise Tax Rate As Region's Fiscal Outlook Darkens

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By Amy Gardner
Washington Post Staff Writer
Tuesday, April 22, 2008

Fairfax County yesterday joined a growing list of communities across the region that have raised property taxes this year to protect government services and public schools in the face of declining real estate values and a generally sluggish economy.

The bad news is that, for Fairfax and many other communities, next year's outlook is even worse.

Some economists are predicting greater declines in property values during the next year, which for local governments would mean less money from their primary source, the real estate tax. In other words, residents across Northern Virginia should brace for higher taxes and fees and more belt-tightening for such services as schools, public safety and parks and recreation.

In Maryland, the effect of declining real estate values has been muted because properties are reassessed less often. And the District has been shielded by still-growing property values, particularly in the commercial sector. But the region's weakened economy and projected declines in other revenue sources are likely to pinch budgets throughout the region this year and next, officials said.

"We don't have a safety net next year," said Fairfax Supervisor Linda Q. Smyth (D-Providence). "We won't be able to pull any rabbits out of the hat."

Dragged down by a stagnant economy and the subprime mortgage crisis, Fairfax's property values declined on average about 3 percent this year, although the county fared better than some.

Yesterday, the Board of Supervisors tentatively approved a $3.3 billion spending plan for fiscal 2009 that raised the property tax rate 3 cents, to 92 cents, per $100 of assessed value. The average home assessment declined from $542,400 to $524,100, and the average tax bill is projected to drop about $6, to $4,822. Final action on the budget is set for Monday.

In Prince William County, where foreclosure rates have soared more than in other area communities, supervisors today are scheduled to consider a 21-cent tax rate increase to offset a 15 percent decline in home values. Loudoun County leaders have approved an 18-cent tax increase to contend with a 10 percent decline. Average tax bills in both counties would rise about 8 percent.

Budget officials across the region said they are responding to the shortfalls this year with a combination of tax increases and smaller-than-usual spending increases -- but not with the deep cuts that could become necessary next year and that would affect services more directly. The budget year starts July 1.

"We eliminated some vacant positions, and we transferred some positions from local tax funding to special finances," said Ben Mays, Loudoun's budget chief. "We did not have any kind of fundamental reductions in services."

In Fairfax and Prince William, budget analysts are predicting further 10 percent declines next year in residential property values. Loudoun officials have projected a slightly less steep drop. In all three counties, a slowdown in the commercial real estate market is expected to hit hard.

"It's not good," said Prince William Finance Director Christopher E. Martino.

In Maryland and the District, property tax receipts are likely to be less volatile than in Northern Virginia, but budget officials are prepared for a pinch as a result of the economic slowdown. A spokesman for D.C. Chief Financial Officer Natwar M. Gandhi said yesterday that city officials are waiting for April revenue estimates but that "we're being realistically conservative."

To close a projected $297 million shortfall, Montgomery County Executive Isiah Leggett (D) has proposed the largest property tax increase in two decades, the elimination of 225 government jobs and a new ambulance fee. And in Prince George's, County Executive Jack B. Johnson (D) proposed raising local taxes on income and on real estate transactions to cover an estimated $121.6 million gap.

In close-in Arlington County, the housing slump has hit less hard than in the outer suburbs. On Saturday, Arlington approved a modest tax increase of 3 cents in order to protect services. But steady residential and commercial markets have protected the county from the revenue declines projected farther west.

"Our condos are in highly desirable mixed-use communities, and our residential property is in very limited supply," said County Manager Ron Carlee. "Our environment in Arlington is almost as stable as it possibly could be. But we will feel the ripple effects. And Washington is not going to be immune to the national climate."

In Fairfax yesterday, supervisors instructed the budget staff to start the process of scouring programs for opportunities to save in fiscal 2010. They also urged the school system -- which accounts for more than half of county spending -- to do the same.

"We have such a dire situation next year," said Gerald E. Connolly (D), county board chairman. "They have to be a part of the solution."

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