Here Comes the Fiscal Crunch

More than a year ago, I predicted on this blog that the impending end of the real estate bubble would portend fiscal problems for local governments, especially those in Northern Virginia, which have relied upon soaring property assessments to fund their massive spending increases. Not to toot my own horn, but I was right about the real estate bubble, and now, it appears, I was right about the fiscal distress.

The headline on Annie Gowan’s story in the Washington Post this morning: “Cuts in Spending, Increase in Taxes Considered to Offset Revenue Drop-Offs.” According to Gowan, Arlington County faces a $20 million shortfall next year, while Alexandria will take a $18 million hit. Loudoun County, which saw a 28 percent growth in property assessments last year, is anticipating an outright decline in 2008. Fairfax County is already trimming personnel expenses this year in expectation of a modest three percent revenue increase next year.

In my real estate jeremiads, I predicted one additional effect from the bursting of the market bubble: A surge in anti-tax sentiment. The budget cuts and tax hikes are only anticipated right now — they haven’t taken place yet. The screaming won’t begin until next spring when localities begin working on their fiscal 2008 budgets. That’s when the public will focus on just how much local government spending has surged since the recession – far outpacing inflation and population growth. The agitation will only increase when the tax hikes actually go into effect that summer.

That’s right about the time that Gov. Timothy M. Kaine thinks voters will be itching to chastise the low-tax partisans in the House of Delegates for failing to embrace his $1 billion-a-year taxes-for-transportation proposal. Somehow, I just don’t think it’s going to happen. Indeed, depending on how much taxes increase in NoVa, low-tax advocates could gain ground in the 2007 elections.

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7 responses to “Here Comes the Fiscal Crunch”

  1. nova_middle_man Avatar

    figure this is a good story to jump back in here

    The article shows politicans are getting smarter and that tax increases are not being talked about yet in favor of limiting budgets or “gasp” cutting them.

    The one interesting locality is Loudoun. We all know the factors here the growth no growth split and the resulting costs of more inferstructure. Seems like more ammunition to flip the board back to slow growth which will make 3 consecutive flip flops. Divided government on a local scale, what the people want, or a conflicted vision with waste and inconsistency humm…

  2. Great. Assessments go up, taxes go up, assessments go down, taxes go up.

    What makes us think that APFO will make things any different?

    The winner take all mind set is waht causes the flip flops. After you have enough binary flip flops you wind up with an average that is centrist, but without the transparent, fair, and predictable quality that government ought to provide.

    Meanwhile, the long term predictions for population and job growth have not changed.

  3. Toomanytaxes Avatar

    APFO would help Fairfax County residents stop the bleeding. Given the run-up in taxes and the deterioration in our quality of life, quite a few of us care a lot less as to what happens elsewhere in Virginia. To paraphrase Marie Antoinette, “Let them live in Warrenton or even West Virginia.”

  4. Larry Gross Avatar
    Larry Gross

    hmmm.. do you think this is going to “flush” the HD folk who say the answer to more funds for roads is the surplus?

    Now.. when the Senate guys say “sustainable”.. what are the HD going to say?


  5. Larry Gross Avatar
    Larry Gross

    I’m on the belief that APFO is unrealistic .. and to be honest a little bogus as a concept.

    Localities have a number of options for dealing with the infrastructure impacts of growth, two of which are the use of

    1. – LOSS – Levels of Service Standards (used by Prince William and other jurisdictions)
    2. – just say “no” to rezones (Spotsylvania does this on a very regular basis, and Facquier has their own version of it)

    The problem in Fairfax, I believe, is not a lack of options but a lack of intent and will.

    For instance, a big deal was made of the fact that Stafford County was given the ability to implement road impact fees. Not as well known was the fact that Fairfax has had this ability for about a decade and never used it.

    I don’t think even if APFO were passed that Fairfax would use it.

  6. I think APFO is just an excuse to say No. At least Fauquier is up front about it, they just say No. As my supervisor said recently, “The reason we are different is, well, we are different.”

    That makes about as much sense as all the other excuses.

    Meantime, the next two million people are going to have to go somewhere. How long will we be able to say No?

  7. Larry Gross Avatar
    Larry Gross

    re: where will 2 million people go?

    not to Timbuktu …

    I’ve often mentioned Reality Check – which is a Regional Exercise .. using LEGOs to answer this very question.

    They get citizens, planners, elected officials, a diverse group of people in a room and then group them around multiple huge tables with maps of the entire region.

    Then they give them a 2 million-people supply of legos – each one representing a certain number of folks.

    Then each table… team.. places the Legos… on the map.

    Then at the end of the exercise.. they aggregate the results of all the tables into a composite.

    The Result?

    I’ve seen two of them. One in the Wash DC Area and one in the Fredericksburg Area.

    BOTH of them… a vast majority of all the participants CHOSE … DENSITY around the existing transportation corridors – up rather than out and infill rather than Greenfield development.

    In fact.. very few people advocate Greenfield development ..

    so the title of this thread: ” Here Comes the Fiscal Crunch”

    which is about declining property tax revenue projections… and how that will be handled.. increased taxes or cuts in services or (more likely) a little of both.

    but I’m still a bit skeptical that a downturn in real estate .. and the subsequent shake-outs to include lower than expected tax revenue by localities … will.. in fact, have any major effect on the density/greenfield conundrum.

    This thing is like a huge ship… it ain’t going to turn on a dime… just more likely to change speed.

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