Articles

Boxed In

As diving property values threaten its hard-won AAA bond rating, Prince William County has put its road-building program on hold. There appear to be few options left for dealing with growth. 

by Peter Galuszka

For years, fast-growing Prince William County has pursued a build-it-yourself transportation policy, showing how Virginia localities can circumvent the no-tax dogmas of General Assembly legislators and the nit-picking of federal highway administrators. But now the county's efforts seem to be coming to a crashing halt.

The mortgage crisis has seriously slowed housing starts. That, in turn, has cut revenues Prince William County needs to service debt needed to build roads. Getting dangerously close to a self-imposed revenue benchmark, the county is deferring planned roads so it doesn't jeopardize its pristine AAA credit rating.

"The county can no longer pick up the state's slack and we no longer can do the state's job," says Corey Stewart, chairman of the county board of supervisors. Moreover, he adds, the county can't expect much help from the newly hatched North Virginia Transit Authority, which will soon start levying regional taxes to pay for new roads. Only a pittance is set aside for Prince William.

Yet some land use experts don't believe the current hiatus is all bad: It provides Prince William officials breathing room to reconsider the way the county has managed growth for more than a decade. Willy-nilly zoning has put tens of thousands of homes in the development pipeline, and neither roads nor public services can keep up.

Instead of using local revenues to support sustainable land use patterns, the county has tended to use its resources to open up virgin land for more development, contends Stewart Schwartz, executive director of the Coalition for Smarter Growth. "It would be nice if they took this downturn as a pause as how to do some rethinking about how they do their development."

Faced with diminished revenues from housing construction, the county is delaying work on two key projects – improvements to the Prince William Parkway and Route 28. Supervisor Stewart insists they "are not scrapped but delayed," beyond the 2012 plan in which the county had hoped to include them. More projects could be jeopardy as well.

One reason for the housing slowdown is the dramatic downturn in housing starts aggravated by the sub-prime mortgage mess. To be sure, another reason could be the county's self-imposed hiatus on approving new permits.

While Stewart insists that the county action "is not exactly a moratorium," it's not far off. About six months ago the county, concerned about the strain on services that the multitude of planned new homes would cause, made it clear that it would take its time approving new housing permits. Generally, the county now takes 12 months to process the permits.

Housing statistics look bleak enough as it is. According to the Metropolitan Regional Information Systems, Inc., the total units of housing sold from 2006 to 2007 in Prince William County declined 24.65 percent and the total dollar volume declined 33.26 percent. Assessed value of homes overall is down 35 percent, says Stewart. Meanwhile, revenue from deed recording fees has taken a nose dive as well.

In 2006, the county approved 4,700 new housing units. This year the number was 300 units. Residential units actually built from 2006-2007 plunged from 4,500 to less than 1,000.

To keep up with growth, Prince William has been issuing bonds roughly every four years to pay for new roads. Currently, the county is in the midst of an ambitious, 15-year plan to raise $1.5 billion in bond levies. The latest levy was for $300 million in 2006. Future bond issues for $500 million are planned in 2014 and for $800 million in 2018. The county could afford to take on such debt loads because it had managed its finances well over the years. It is one of only a handful of Virginia municipalities to bear the coveted AAA rating.

Therein lies the problem. To keep the AAA rating, the county cannot let debt get out of hand. The rule of thumb, says Stewart, is to keep bond service expenses to under 10 percent of the county budget. As revenues fall from property taxes and deed recording fees, the county is fast approaching that trigger. That's why it's putting the future bond issues on the back burner.

The regional tax authority created by the Omnibus Bill 3202 this year could make up some of the difference. But Stewart says that the proceeds must be divvied up between various Northern Virginia localities. "The amount of money will be miniscule," he says.

The regional tax authority is expected to bring in $275 million to $350 million for the Northern Virginia region each year. Of that, 60 percent is earmarked for regional transportation projects and 40 percent will go to the localities. Stewart says that Prince Williams' cut would be about $17 million when the authority starts levying fees in 2008.

Marty Nohe, vice chairman of the board of supervisors describes the sum as "not insignificant, but not what we need." 

An alternative, says Nohe, would be to impose "a huge tax hike." But raising taxes is never popular, and would undoubtedly provoke an outcry among homeowners already buckling under the burden of rising adjustable mortgage rates.

The local real estate industry feels whipsawed by events, but opinions vary as to how long the downturn will last. "The housing situation is a more a product of financing and that is always a historically short-term problem," says Mike Minnery, president of the Prince William Realtors Association. The Bush Administration's proposal to let some homeowners cap their adjustable rate mortgage in a limited and voluntary program with the financial industry should help.

In the meantime, though, the county is in the soup. "The proffers won't be there. The services won't be there," says Minnery. What the construction industry finds especially annoying, he adds, is that politicians such as Stewart are proposing raising proffers from $30,000 per house to $51,000. Now is not the time to do so, Minnery says.

Richmond may not provide much succor to county officials either. Proffers are such a controversial issue statewide that the housing lobby, leveraging the economic pain of its members, may push to have them eliminated all together. The Home Builders Association of Virginia hasn't officially decided whether to press the issue. But Schwartz of the Coalition for Smarter Growth expects the home builders to make a move: "Our NIE (National Intelligence Estimate) is that they are still pressing for the nuclear option in proffers."

Supervisor Stewart complains that the Kaine administration has written off road issues for now, assuming that they were covered by the omnibus legislation in the 2007 General Assembly session. "[House Bill 3202] was a hoax," he says. "It did not fix transport problems." He says that Kaine and his staff consider the transportation "solved" and have moved on to other issues, such as mental health and Pre-Kindergarten programs.

On this, Schwartz agrees with Stewart. But he has a different take on what Prince William should do about it. The county, he says, should use its down time to reassess its entire development strategies. "As far as I know, none of the money in the county bond project is going for public transit," he says. Prince William has good opportunities to include urban transit, especially along its proposed multi-use plans along U.S. 1 and several stops along the Virginia Railway Express.

Raising property tax rates is a possibility, Schwartz says. Real estate assessments are going down with the housing market slump so real estate rates, once the highest in Northern Virginia, will likely have to go up again, he says.

Kim Hosen, a member of the Prince William Conservation Alliance and a planning commission member, says, "We could take the time to review our policies. But what should we do about existing projects?" 

The total backlog of homes that has been zoned but not built is huge – on the order of 30,980 units, says Hosen, quoting planning department statistics. That's enough to last the county for at least the next 15 years. And, the slowdown in new road construction isn't a necessarily a good thing because "we need those roads to handle existing projects."

There doesn't seem to be any easy way out for Prince William. Citizens are paying the price for budgetary policies made in Richmond and zoning decisions made long ago. The county's build-it- yourself transportation strategy has hit a fiscal dead end, momentarily at least. While it may seem like a good time for introspection and taking stock, there are few signs that anyone in charge is in a mood to do so.

-- December 14, 2007