Despite signs of a cooling real estate market, most area homeowners will see hefty increases in property assessments when notices go out early next year, leaving them once again with fattening equity but bigger tax bills, officials said.
The escalating values will also deliver elected officials another windfall in property tax revenue and ignite their annual quandary: how to balance demands for tax relief against the increasing costs of such basic services as education, public safety and transportation.
At the same time, officials increasingly are looking at what would happen if the housing market flattens so significantly that it no longer provides enough tax money to underwrite steady growth in spending. Some have instructed their staffs to craft proposed budgets that cap expanded spending.
"The reality is that the market is changing," said Fairfax County Executive Anthony H. Griffin, who has been asked by the Board of Supervisors to hold spending growth in next fiscal year's budget to 5 percent -- lower than in years past. The board is also preparing Fairfax school officials for a smaller rise in the contribution from the county, asking them to limit their funding request to a 6 percent increase, also less than in previous years.
Elected officials are pledging to salve homeowners' pain by chopping tax rates. Montgomery County Executive Douglas M. Duncan (D), a candidate for the Democratic gubernatorial nomination, this week proposed cutting 9.5 cents from the current rate of $1.02 per $100 of assessed value, which would shave about $400 off taxes for the owner of a $400,000 home. Prince William Board of County Supervisors Chairman Sean T. Connaughton (R) said the board could approve a cut of as much as 17 cents, which would take the tax rate from 91 to 74 cents.
Fairfax County Board Chairman Gerald E. Connolly (D) said he would "absolutely" push for tax relief, although he is not sure the board can duplicate the 13-cent cut (from $1.13 to $1) it passed this year. Any tax relief would have to be measured against increasing costs.
"We want to make sure that any tax relief we provide is sustainable," he said.
None of the tax-rate cuts, however, is likely to completely offset the economic impact of steadily climbing home values. Anti-tax activists say elected officials tout negligible cuts in tax rates to deflect attention from swollen bills.
"We have these huge [assessment] increases, and the politicians cut the rates a little bit and pat themselves on the back," said James T. Parmelee, president of Republicans United for Tax Relief, a Northern Virginia group. "The average taxpayer reads the paper and thinks his taxes have been cut, and lo and behold, their bill continues to go up."
Despite signs that the market is softening -- home sales nationwide slowed more than expected in October, and inventory is at its highest level in 20 years -- assessments typically lag behind the business climate. So a downward trend won't be reflected in the new round of valuations.
In Northern Virginia, where the average assessed value of a home has roughly doubled since 2000, officials said they expect values to grow sharply. Alexandria homeowners probably will see increases of about 18 percent, slightly less than this year's, "but still significant," Assessor Cynthia A. Smith-Page said. That would raise the average value of a single-family Alexandria home from $441,823 to $521,351. At the current tax rate of 91.5 cents per $100 of assessed value, the property tax bill for such a home would rise from $4,042.68 to $4,770.36.
Connaughton said Prince William residents can expect as much as a 25 percent boost in assessments. That means the average home valued at $327,433 could be worth $409,291. Without a cut in the 91-cent tax rate, the bill would grow from $2,979.64 to $3,724.55.
Maryland homeowners, who receive valuations every three years, will get similar bumps. State officials said that in portions of Montgomery that have been assessed for 2006, including parts of Rockville, Gaithersburg and Olney -- about 114,000 households -- residents can expect increases similar to this year's, which ran at about 70 percent. That would make a Montgomery home worth $400,000 three years ago worth $680,000 next year. Values in the District, driven especially by appreciation in condos and co-ops, are expected to grow at roughly the same rate as last year, about 21 percent, officials said.
Maryland and District residents have some indemnity from runaway property tax bills. Under state and D.C. laws, yearly increases on owner-occupied residential properties are capped at 10 percent.
Virginians, however, have no such cap. The dawn of each budget season brings a litany of complaints from local lawmakers about the structure of the tax system imposed by the state legislature, which bars counties such as Fairfax from taxing personal income. That has meant an increasing reliance on real estate taxes to underwrite local governments. Since 2000, for example, property tax revenue has grown from 50.2 percent to an estimated 59.5 percent of Fairfax's general fund. About half of Arlington County's general fund comes from property tax receipts.
Some localities are beginning to look to the day when the largess of property taxes begins to thin. The Arlington County Board has instructed County Manager Ron Carlee to submit a proposed budget with no new programs and spending growth capped at the average for the past three years -- about 6.5 percent. Pay increases for public safety employees are exempt from this cap.
In Fairfax, Griffin, the county executive, has usually submitted proposed budgets with increases in spending tied more directly to revenue growth, which has averaged slightly less than 7 percent in recent years.
For next year's proposed spending plan limits, he has instructed department heads to "essentially give us the same budget you gave us last year," meaning no growth, except for pay raises and increases to cover such items as rising health care costs for employees and retirees.
As for the limits county officials have requested of the schools, Connolly said, "Even the schools can go on a diet for the sake of the taxpayers."
Staff researcher Bobbye Pratt and staff writer Peter Whoriskey contributed to this report.