Two local governments are finally feeling the pain from the “Great Recession,” as the down economy rattles budgets across the Washington area.
Falling commercial real estate values — and the resulting revenue losses — will prompt Alexandria and Arlington County officials to make painful spending cuts, raise property taxes or do both in an effort to balance their budgets for the coming fiscal year.
Leaders in both jurisdictions are considering raising property tax rates about 7 cents to fill holes left by revenue losses, while their current budget proposals indicate leaner times lie ahead.
“This is the largest decline in commercial property values since the early 1990s,” said Mark Jinks, Alexandria’s deputy city manager, echoing statements made by his Arlington counterparts.
Alexandria’s commercial property values are down more than 10 percent, and vacancy rates have risen above 16 percent.
“Our major revenue source has taken a significant hit,” said Alexandria Vice Mayor Kerry Donley, calling the decline in commercial property values a “new phenomenon” that has contributed to a projected $44 million budget shortfall.
Jay Fisette, chairman of the Arlington County Board, said commercial real estate values have fallen about 14 percent. Vacancy rates in Arlington also are rising.
While most Northern Virginia governments collect about 15 percent to 25 percent of property taxes from commercial real estate, Fisette said the commercial property slice of Arlington’s revenue pie was closer to 45 percent.
The situation is similar in Alexandria, and that’s bad news as commercial real estate values fall.
“In other years when counties were being smashed by residential assessments going down, commercial real estate was still in the positive,” thus buoying Arlington County revenues, Fisette said.
That’s no longer the case.
Arlington is facing a roughly $65 million budget gap, thanks largely to a projected $45 million drop in property tax revenues.
Still, the county’s property values have fared better than most, said Thomas Rice, the county’s director of assessments. But until lenders start doling out more cash for commercial property financing, Rice said the downward slide probably would continue.
