Our slide into fiscal problems has been in the works for some time. Back on Oct. 25, 2013, then-County Manager Barbara Donnellan told the County and School Boards that she had "no more rabbits" that she could pull out of her budgetary hat. As a community, we must transition from being world-class spenders to finding more efficient and effective ways to stretch our communal dollars. In that regard, I have recommended a shift in funding to provide a staff to support our new Internal Auditor to the County Board. (The last Internal Auditor lasted just 9 months.) Typically, these internal auditing offices evaluate projects, services and government functions, identifying enough efficiencies and cost savings to cover their own costs plus some.
Unlike commercial development, residential development represents a net loss of revenue over the long term. In other words, new residents, on average, pay/contribute less in taxes than the county spends to provide services — schools being one of the larger but not the only cost driver. Though single-family homes often get blamed for this net negative revenue situation, we aren't, in fact, building more SFHs. We are building thousands of new multifamily units every year. So the question is where to come up with the revenue to keep the overall level of service roughly the same in the face of increasing costs. Two options: cut spending on some areas in order to have more revenue to support core functions. Or raise taxes.
Few citizens ever agree to spending cuts unless it involves cuts that fall on someone else. Because there is upward inflationary pressure on land values — due to increased density/redevelopment in some cases (multifamily and commercial) and McMansionization and restricted inventory in other cases (single-family homes) — our taxes go up ever year through higher assessments even in years when there is no increase in the real estate tax rate. On top of the base tax-rate, commercial properties pay an additional 12.5-cent/$100 of assessed value surcharge for transportation.
At a certain point, tax increases hit diminishing returns — because tax increases also simultaneously inflate costs. Example: Taxes are pass-through costs that commercial and residential tenants must absorb in the form of higher rent — including those living in the county's purportedly "affordable" housing units. So when a tax increase raises the cost of rent/housing, the county must then spend a portion of the additional revenue raised to pay for additional housing subsidies and keep the rent/cost of housing the same as the year before for low-income residents who receive subsidies. (Those who don't receive subsidies eventually get economically cleansed from our community, which results in decreasing diversity and increasing income inequality.)
And when taxes go up, those costs are passed along to commercial tenants. As the County Manager confirmed at a meeting this spring, increases in commercial rents can exacerbate our commercial vacancy problem. Each additional 1% increase in the commercial vacancy rate equals a loss of roughly $3.4 million in revenue. [Source: Arlington Magazine]
There are three big-ticket cost drivers in the budget — Metro funding, schools, and affordable housing. If we funded each of these at the desired/recommended levels, these three alone would crowd out all other spending — for things like libraries, police-fire-EMS services, sports programs/facilities, etc. So just as we do with our own budgets when costs go up, we must figure out where we can economize to preserve funding for necessities. These decisions aren't easy, but most of us automatically incorporate them into our everyday spending choices and monthly budgets because we know we are not likely to get a huge raise.
The close-out surplus that Dave Schutz has mentioned is a source of funds that could be used to offset tax increases, add to our reserves, supply one-time funding for capital projects (to reduce borrowing costs), or a combination of all of these. Typically, the county spends every dime of the close-out surplus. And interest groups compete to see which one can grab the most.
Better-informed and more reality-driven planning and decision-making are key to putting our budget on a more sustainable path — and that would be beneficial for all Arlingtonians