$14 Million Drop in Tax Revenue Will Force Cuts

By Michael Laris
Washington Post Staff Writer
Thursday, October 23, 2008

Arlington officials said yesterday that the county's budget shortfall is bigger than they thought two weeks ago, and they expect real estate revenue to drop for the first time in more than a decade.

After years of sharp spending increases, government officials, even in such places as Arlington that have avoided the worst of the real estate downturn, find themselves in what for many is a rare predicament: They have to cut their budgets instead of just growing them more slowly.

County revenue for the current fiscal year, which ends June 30, is down $14 million, not the $10 million projected earlier, County Manager Ron Carlee said yesterday. Officials had forecast 4 percent growth in residential and commercial real estate tax revenue in the first half of 2009. Now they expect a 2 percent drop.

In recent days, they also began factoring in state funding cuts covering mental health and other areas, Carlee said.

Carlee said he expects commercial real estate tax revenue to remain flat but for revenue from residential assessments to drop about 5 percent.

"We've had a tremendous run-up in the course of this decade. The only surprise I've had is that the run-up lasted as long as it did," Carlee said.

County Board members were briefed on the revised forecast last night.

Board Chairman J. Walter Tejada (D) termed it a "severe blow." He said the county must continue to work to find reductions while protecting poor residents. "Every service has a constituency, and probably a vocal constituency," he said.

Forecasts will continue shifting as budget officials get new data, Carlee said. County officials are also eyeing the budget for next fiscal year, which begins July 1. Carlee said he expects cuts in that budget "in probably the $20, $30 million range or so. It could be more."

In Fairfax County, which has five times Arlington's population and has seen housing values drop faster, officials are trying to figure out how to close a budget gap next year that could reach a half-billion dollars. Montgomery County faces an estimated $250 million shortfall.

Whatever the final figures, Arlington officials are not accustomed to finding tens of millions of dollars in cuts. Over the past decade, the near-in suburb has experienced dramatic increases in home values and large commercial growth.

The county's operating budget jumped from $319 million in 2000 to $592 million in the current budget. In addition, funding for schools has jumped from $178 million in 2000 to $350 million this year. Adjusted for inflation, that's a combined spending increase of 48 percent.

The school system faces a $7.5 million deficit for the current fiscal year.

The new funds have gone toward a wide array of services, including libraries, public safety, and environmental and affordable housing initiatives, officials said. The county has about 3,700 employees.

In conversations with staff members, Carlee said, he is trying to strike a balance that is neither alarming nor complacent. Whatever happens, he's telling them, it will probably feel worse than it is.

"It's going to feel like the glass is more than half empty, when in reality, the glass is 90 to 95 percent full. We've just been through eight years when the cup runneth over," Carlee said.

Carlee said a combination of spending cuts and tax rate increases will probably be necessary, though he would not say which programs might be cut and how much taxes might go up. He said everything, including public safety, is on the table. Those are ultimately decisions for the County Board, although his recommendations have significant influence.

"There are things you can do in good times that you can't do in lean times," he said. "We will have to downsize."

To make up for this fiscal year's shortfall of $14 million, the county has implemented a hiring freeze and is considering staff reductions. Officials are targeting overtime, travel, training, technology expenses, supplies and serving food at events, Carlee said.

More significant for Arlington is what happens in the broader economy, he said. Budget changes are "normal stuff."

"The larger stuff that's going on on the national and international level, I don't know where that's headed," Carlee said. "That's what gives me the anxiety."