This week the City of Alexandria released its 2017 report on changes in its real estate tax base. The impact of new construction and property appreciation pushed the total just about 2.07% higher than last year adding about $1.1 billion to the assessed value of real property. The gain was the worst since the corrections caused by the large economic decline of 2009-2010 and the third smallest yearly growth in the last 20 years.
While localities usually do not sit around cheering their growth on, it is of critical importance in producing new revenues to accommodate inflation and new programs in the City budgets. Without growth the only recourse is to cut the budget or to raise taxes. For those Alexandrians hoping for zero or modest increases in their tax bills, the growth report is bitter news. The City Manager will have only about $12 million of new real property taxes for next year at the existing rate.
The future outlook, moreover, is not significantly brighter. Alexandria’s economy is tied to the federal government and Americans have just elected a president committed to reducing the size and reach of that government. Alexandria cannot count on a growing federal workforce and plentiful contracts for consultants to underpin our economy.
Alexandria’s housing stock is already expensive by regional standards. The cost of housing in Alexandria has grown because of its desirable location but also because years of extremely low mortgage rates have allowed the worth of properties to be inflated. It is difficult to see people qualifying for loans if prices continue to rise and once interest rates start climbing the problem will be compounded. The City is not in an enviable position.
We have warned about the revenue gap for years but the elected leadership of Alexandria has simply not changed its approach to government. While there has been some talk about finding new revenue sources and some concerns about getting spending under control, there has been little real action except for across-the-board cuts by the City Manager. These cuts have run their course and further savings must now come from cuts targeting programs.
City Council seems to have hoped that increased development would bring forth enough additional revenue to allow the City to ride through this period with the occasional modest tax increase. This year’s report must finally serve as a wakeup call that business as usual in the City cannot continue unless it is funded by massive tax increases.
Politicians never want to admit that there are few options: they do not want to raise taxes; they only want to spend money on the shiniest, newest projects. Economic history, however, shows that there is no free lunch. Eventually you hit the wall and poor planning comes apart.
Over the past five years, City spending has resulted in increasing budget challenges. Our officials have been unwilling to confront the fact that every dollar spent should be carefully scrutinized in the light of resource scarcity. Every operational or capital expenditure must be built into the long-term budget and paid for every year.
The City Manager will propose his budget next week. He will be starting out with a great hole to fill just to keep the City on its current track. How the massive requests from the School Board can be accommodated is unknown and how the myriad of other needs can be addressed is equally murky.
We look forward to the budget and to the months of discussion that will follow as the City finally has to confront a future that can no longer be ignored.