As the housing market begins to cool, the county government will have a smaller increase in discretionary funds to spend next year but is in better shape than neighboring localities to meet upcoming challenges, County Manager Ron Carlee said in a speech last week.
After six straight years of double-digit growth, residential real estate assessments are expected to level off or grow modestly this year, Carlee said in a wide-ranging speech to the Arlington Committee of 100 at Marymount University last Wednesday.
IN COMPARISON, assessments for commercial properties will grow by five times that of residential assessments, he added. Real estate taxes make up the majority of the county’s overall revenue each year.
Homeowners will "see some relief over the coming years," Carlee said. "The plateau really is here."
The average single-family home increased in value by 18.25 percent last year, to $541,000. In 2001, the average Arlington home was worth $224,000.
Due to Arlington’s large number of commercial properties, a slow down in the residential market will not affect the county as much as it will other counties in Northern Virginia. Last year 40 percent of the real estate base in Arlington was commercial, while 60 percent was residential.
"As the residential market plateaus, we will be reaping the benefits of mixed-use development, while Prince William and Loudoun counties will struggle to maintain services," Carlee said.
Many residents are hoping that because commercial assessments will be higher, the County Board will be able to provide homeowners with a measure of tax relief.
"The real question is whether the County Board will try to live within the revenues that will come from the existing tax rate, or will they increase the tax rate?" said Wayne Kubicki, a former member of the county’s fiscal affairs advisory committee, who attended Carlee’s speech.
THE ARLINGTON GOVERNMENT has already taken steps to ensure the sustainability of the budget in an area of new economic realities, Carlee said.
This past summer the County Board passed a more austere five-year construction plan, which is 10 percent smaller than the package put together two years earlier. The county is focused on completing its prior commitments — such as completing the Cherrydale Fire Station and Westover Library — rather than taking on new projects at this time.
Due to the changing real estate picture, the county will have to make difficult decisions about what to prioritize in the coming years, Carlee stated.
"We are blessed to have the ability to do anything we want to do," he added. "We just can’t do everything we want to do. We have to make choices."
One of the larger challenges facing the county is repairing its aging infrastructure. Many of Arlington’s roads and buildings were constructed in the middle of the 20th century, and are starting to show their age. It will take millions of dollars to repair furnaces, renovate community centers and parks, and maintain the Metro system, Carlee said.
A rise in personnel costs in the coming years will also drain the county’s coffers. Employee retirement costs are expected to grow by nearly 20 percent this year, and the county’s health care bill is set to expand by 10 percent, county officials predicted when they passed the fiscal 2007 budget in May.
Even if there is a slight downturn in housing prices, homes in Arlington remain too expensive for many low- and middle-income to afford. The lack of affordable housing remains Carlee’s "greatest worry," because it means Arlington is losing its cultural and economic diversity.
John Peterson, a professor of public policy at George Mason University, who also spoke before the Committee of 100, said Arlington is moving toward "gentrification," and has yet to figure out the formula for retaining low-income workers.
"How do we maintain what we want — a diverse community — when this is such a darn attractive place to live," Peterson asked the audience of 150.
On the whole, Peterson and Carlee painted a rosy picture of the state of the county’s fiscal health. The greatest concern for each of them was Arlington’s over-reliance on the federal government as its source of economic strength.
The county has prospered thanks to the post-Sept. 11 influx of federal contractors, but a fiscal crisis or drastic slowdown in spending would hurt Arlington.
"A dramatic decline in the federal government or draconian cuts would severely affect our economy," Carlee said.
Otherwise, the county should have little trouble living within its means in the coming years, Carlee said.
"We’re in an enviable position and our prospects are outstanding," he added. "But we do face continued challenges."