City Council held its annual retreat last weekend and spent considerable time discussing the budgets. The Capital Budget requires an additional $89 million over the next two years to fund all the projects it presently contains. The Operating Budget for just next year is facing a shortfall of nearly $20 million assuming city and school employees receive a 2 percent cost of living adjustment and all programs are maintained.
The revenue picture is not bright. The housing slowdown has sharply reduced the growth of the real estate tax base which accounts for about half of the city income. That revenue, even given new commercial and residential projects coming on line, will only increase about 3.1 percent according to city staff. That is far below what is needed. Their projections for other sources of revenue are even less favorable.
Last year a newly elected all Democratic council vowed to be tough on spending and set targets that were tight. The city manager met those targets by sharply controlling city expenditures. The schools missed them by a mile. Council then simply ignored its own guidance and raised the tax rate. All the tough budget talk dissolved when friends and political supporters argued for their favorite projects. Taxpayers can take little comfort in that precedent for this year.
The fact is that this city, like all of the surrounding jurisdictions, became addicted to an unsustainable level of higher spending in the years when real estate values were skyrocketing. This spending has now been built into the budgets but the revenue increases have dried up. The result is that unless council changes its approach, we can look forward to a major increase in the real estate tax this year and every year that the annual growth in real estate values remains below 14 percent. The pigeons have come home to roost.
This year will be doubly hard on the owners of commercial properties. As part of the transportation legislation from Richmond, localities can now tax commercial property at a higher rate then residential to help pay for transportation improvements. Alexandrias city manager noted that Alexandria would probably follow Arlington and Fairfax in doing this. So commercial owners will get a transportation tax increase, plus a general real estate tax increase.
Council is still trying to decide whether to set targets. We must ask: Does it really matter? Despite their rhetoric, our leadership seems to have determined that Alexandrians are prepared to pay whatever tax it takes to maintain the status quo. The coming months will show whether that assumption is justified.