Members of the Board of Supervisors’ finance committee heard about what could be a tight budget year in a time of changing priorities during an early budget briefing Oct. 12.
County supervisors hope to direct a portion of tax revenues toward tackling Loudoun’s attainable housing problems going forward, akin to how a previous board voted to direct two cents of the real estate tax toward transportation improvements, but at the same time the county is coping with the impacts of the COVID-19 pandemic and the county budget staff is warning the government may be too dependent on data center tax revenues.
Real estate taxes are considered a less volatile source of revenue for governments than sales or personal property taxes, protecting the county government to some extent from short-term economic fluctuations. Director of Finance and Budget Janet Romanchyk said county budget officers recommend ensuring at least 60 percent of county revenues come from the real estate tax.
“Implementing this recommendation today would involve either a substantial real property tax increase or a substantial decrease in the personal property tax rate, or a combination of both,” Romanchyk said. For now, she said, they recommend not letting that share get any lower than 51.5%, where it is now, and work in the long term toward the 60% balance.
Some of that effort may include lobbying the General Assembly for new taxing authorities, such as on streaming services and prepaid phones, she said. They could also lobby for authority to levy a county meals tax without a voter referendum, something only towns and cities can levy right now.
“As much as we appreciate our data center industry, we have got to start diversifying our commercial revenue or we’re going to be in even larger trouble, so maybe this is a discussion about what areas data centers just can’t be built in,” said County Chair Phyllis J. Randall (D-At Large).
Economic indicators for Loudoun remain stronger than for the rest of the country, state or DC region, but the county is still seeing slower growth. Additionally, the rate of new residential construction—an important source of new revenue for the county budget—is slowing, at least in part because of the lack of available land, according to county staff members. Assistant Budget Director Megan Bourke said the forecasted construction and new growth in that sector in Fiscal Year 2023 is $26.5 million compared to $31.5 million in Fiscal Year 2020 and $41.4 million in Fiscal Year 2021.
All of that means that presently, the budget staff is projecting that the equalized real estate tax rate—the rate at which the average homeowner pays the same dollar amount despite changing values—will be insufficient to cover new county spending.
And with each penny on the real estate tax worth adding about $10.6 million to the county’s revenues, the proposal to dedicate a half-penny toward attainable housing projects could be an additional strain on county revenues and taxpayers next year. However the cost of housing has often been cited as a drag on the county’s economy as well, which has limited business growth and potentially other tax revenues.
“I don’t want to get to the point where we’re making housing less affordable by putting too much money into affordable housing,” said finance committee Chairman Matthew F. Letourneau (R-Dulles). “Because the reality is, if it does require a direct, significant increase on the tax rate, then that is impacting affordability for the entire county.”
In the near term, the county staff expects to ask supervisors to allocate $5 million in year-end fund balance to a revolving loan program to help affordable housing developers purchase existing properties considered affordable at market rates. When apartment complexes go up for sale, affordable housing developers have approached the county government with plans to buy those complexes to keep that affordable housing available, Bourke said. Money would also need to go toward hiring three new positions to support that program.
At this early stage, budget projections are still very much in flux, and there remain big unknowns—such as the budget request from the school system, which gets roughly two-thirds of the county’s revenue. County Administrator Tim Hemstreet said he expects to hear an update from the school system by the end of October. And with budget officers making conservative projections, often the county’s revenue picture improves through the budgeting process, which typically runs through early April.