To maintain services amid falling commercial real estate values, Arlington may end up reaching even deeper into homeowners’ pockets in the years to come.
At a March 11 forum sponsored by Advance Arlington, County Manager Mark Schwartz warned of even more pressure to raise taxes on homeowners due to a drop in the assessed valuation of commercial properties.
“More of that burden is going to fall on residential homeowners,” Schwartz said.
“You’re going to see more pressure on the tax rates as time goes on,” he said. “That’s just a fact.”
It’s a reversal of what has been the norm in the county for more than a half-century. For six decades, Arlington has relied on the commercial sector — office buildings and retail — to offset some of the property taxes on homeowners.
But with total assessed valuation of commercial properties having dropped from 30% of the overall tax base pre-Covid to just 17% now, more of the costs of government are being shifted to owners of residential properties.
“It’s playing out in the current budget,” Schwartz said at the Advance Arlington forum. “You’re going to see more of that tension. The choices will become, on a relative scale, harder.”
Schwartz’s fiscal 2027 budget proposal, introduced Feb. 21, calls for a 1.5-cent increase in the real-estate tax rate, taking it to $1.048 per $100. County Board members advertised an even higher rate — $1.053 — but are not obligated to raise it that high when adopting a final budget.
Most homeowners saw property assessments rise this year. That means they will face a potential double-whammy of a higher tax rate ladled on top of increased assessments.
Schwartz’s overall fiscal 2027 budget proposal stands at $1.69 billion. That figure is essentially unchanged from a year before, marking a once-in-a-generation instance that the budget might not rise year-over-year.
Schwartz, who reports to the County Board, has served as county manager for 10 years and has been in county government for three decades. He said one of the key challenges facing local governments across Northern Virginia is the lack of state funding for core services.
Forty years ago, he said, local taxes covered 70% of county expenditures. Today, it’s about 83%.
Schwartz’s fiscal 2027 budget plan was designed to take into account guidance provided by the five County Board members, he told the audience at Lubber Run Community Center. “I take my lead from them,” Schwartz said.
Another panelist at the forum was Brad Case, chief residential economist for Homes.com. He suggested Northern Virginia local governments need to ensure their communities don’t become enclaves of the wealthy on one hand, and those who need government support to live there on the other.
“What you don’t want to do is suck out the middle,” Case said, saying that could lead to civic and economic “sclerosis.”
It was in the 1960s that Arlington leaders used the prospect of the Metro system to begin planning for a community where commercial corridors could bring in major tax revenue, offsetting costs to owners of single-family homes.
As a result, Arlington long had a larger percentage of its tax base in commercial properties than other Northern Virginia jurisdictions. While a financial golden goose, it has proven a liability during economic downturns.
Advance Arlington hosted the forum in order to get the facts on the table.
“As Arlington evolves, so do the questions before us,” said chair Devanshi Patel. “Changes in our tax base are already affecting our community.”
While county office-vacancy rates have spiked and property values have plummeted in recent years, Arlington leaders are beginning to cautiously consider that improvements may be on the horizon.
“The consensus is, maybe, we’re bottoming out,” Schwartz said.
“Don’t give up on commercial,” said Kate Ange, acting director of Arlington Economic Development. “It’s not going away.”
But, Ange added, “we have to be creative and nimble.”
Case agreed conditions may improve, but added some cautions.
“It’s cyclical,” he said of the office sector, “but it’s not easy to bounce back.”
“We’re just going to have to ride out this current crunch,” Ange said.
The number of aging office buildings razed or converted to housing or hotels will likely increase in the years to come, carrying more tax implications.
If those buildings are filled with adults, the county budget is probably a net winner. If a large portion of new residents have school-age children, however, tax revenue from their homes will be more than offset by Arlington Public Schools’ per-student cost of more than $25,000.
As for reducing government spending to keep tax rates down? That’s a hard sell in a community that has grown used to both must-haves and nice-to-haves from the local government.
“I’ve never seen a program people don’t support,” Schwartz said.
