Supply and Demand

Supply and Demand

Rising property tax bills prompt questions.

When property assessments came in the mail earlier this year, many people in Alexandria were scratching their heads. Why were assessments rising? How would the property tax bill get paid? What's the city doing with all of this new money?

Assessments have been rising steadily over the past several years, creating rising tax bills for people who live in the city. In 2000, the average residential property tax bill was $2,157. If City Council's advertised tax rate of $0.915 for every $100 of assessed valuation isn't lowered during this year's budget cycle, the average tax bill this year will be $4,396. This would be an average increase of $418 over last year's average bill. A public meeting on the budget is scheduled for May 2 at 4 p.m. at City Hall.

THE REASON why property taxes are increasing is a matter of supply and demand. More people are moving to the Washington metro area, and Alexandria doesn't have enough residential property to supply adequately for the demand. As a result, the fair market value of residential property in the region is increasing, and Alexandria's rising tax bills reflect this change.

"It is basic economics," said Stephen Fuller, director of George Mason University's Center for Regional Analysis. "When demand exceeds supply, prices go up."

Many factors have contributed to this phenomenon, but the most significant is job growth. Last year, more than 53,000 jobs were created in the region.

"To house those new workers in Northern Virginia, the housing stock would have had to increase by 33,500 new units," said Fuller. "The stock increased by just one-half the required amount."

While demand has been steadily increasing, supply has not kept up. Although large-scale residential developments are now being planned at Cameron Station, Potomac Yard and Landmark Mall, demand rose much quicker than supply in the past five years. This gap created Alexandria's dramatically rising property tax bills.

"Developers respond to markets, and they need money," said Eileen Fogarty, director of the city planning. "The supply of housing in Alexandria is influenced by a number of factors, including interest rates, availability of money and the desirability of the region.

While Alexandria's imbalance between supply and demand shows signs of leveling off, the long-term trend of population increases show no sign of slowing. For City Councilman Rob Krupicka, the rapidly emerging needs of the region demand a sort of large-scale planning that is not currently being done.

"In the next 25 years, this region will add two million new people," said Councilman Krupicka. "We lack the kind of comprehensive regional planning that's needed to accommodate that kind of growth."

Krupicka would like to see a concerted effort between officials in Maryland, Washington and Virginia. He says that this kind of cooperation could help avert the kind of imbalances that have led to the recent spike in assessments, a trend that has dramatically increased the average homeowner's tax bill.

RESIDENTIAL PROPERTY TAXES are the city's largest single source of revenue, representing 33 percent of the city government's income. Every year, the city's Department of Real Estate Assessments appraises each parcel of real estate in the city to assess its estimated fair market value as of Jan. 1. The appraisals are then used by the Department of Finance to collect the real estate tax at a rate that is set by the City Council, which will be finalized on May 2.

To accomplish this task, city assessors employ mass appraisal methods to reflect changes in the market. In February, the city mails assessment notices to all property owners. The notices show the estimate of value as of the preceding Jan 1. Real estate taxes are billed in two installments — the first is mailed in May and is payable by June 15, the second bill is mailed in October and is payable by Nov. 15.

Larger residential taxes have created a windfall for the city government. In fiscal year 2004, the city collected $210 million. In fiscal year 2005, it will collect $236 million. In fiscal year 2006, the projected revenues for the city exceed $250 million.

"This is a time when local governments should not be influenced by easy money," said Fuller. "City Council members should be careful not to increase services beyond what can be supported during a downturn in the market."

THE LURE of available money is powerful, and the city's steadily increasing revenues have created an environment where the city manager proposed an 8-percent increase in yearly spending. The City Council advertised a property tax rate that would create a 6-percent increase in yearly spending. But many taxpayers are wondering why spending isn't growing at the rate of inflation, which is roughly 3 percent.

It's time for the city's budget to be managed like a family's budget," said Lou Cordia, organizer of Alexandrians for a 3% Compromise. "Families have to budget to pay for ever-increasing costs, so why can't the city government?"

Cordia has created a petition to persuade City Council members that three-percent growth should be enough. According to his calculations, this would create a tax rate of $0.86 for every $100 of assessed value. He hopes to get 5,000 signatures on the petition requesting this tax rate. His last petition effort, which sought to prevent a connector from the Capital Beltway to Duke Street, got 4,651 signatures. The effort to build a connector was tabled, and Cordia celebrated a victory. He thinks the petition asking City Council members for a $0.86 tax rate might also score a victory if it can get enough signatures to capture the attention of elected leaders.

"All we're saying is that after five fat years, the city should have a lean year," said Cordia. "We think that city spending should increase at a reasonable rate that's closer to the cost of living increase."

But not everybody agrees about how much city spending should increase. While inflation is one benchmark, Councilman Krupicka says that many other factors contribute to increased city spending: the cost of fuel, health care costs, unfunded mandates and the growth in population, all of which have been growing faster than inflation.

"When you take all that into account, I think the city's budget is growing at a rate that's adequate," said Councilman Krupicka. "Alexandria went a long time without investing in its roads, its sewers and its schools. These are important investments for our community to make."

While most homeowners recognize that rising assessments mean that their investment has increased in value, the short-term cost is that their tax bill gets bigger every year. Some homeowners find the prospect of paying $418 more — the average increase for the City Council's advertised rate — daunting.

"People's family incomes are not increasing," said Ginny Hines Parry, president of Alexandrians for Sensible Growth. "Just because a federal grant has run out doesn't give the city carte blanche to pick up the tab."

THE PROCESS by which the city created its budget is one that is being questioned by taxpayers. On March 8, the city manager proposed a tax rate of $0.955. Later that same day, the mayor proposed a tax rate of $0.915. When the City Council advertised the mayor's proposed rate, the city manager's two-inch budget treatise became an obsolete document full of out-of-date statistics.

"It's a political ritual that happens every spring," said Parry. "The city manager makes his proposal and then council gets to cut it even further."

Part of the petition that Cordia and others are circulating would encourage City Council members to examine the budget process.

"We are asking for a serious review of the tax and budget policies," said Cordia. "Why can't the City Council give direction to the city manager at the beginning of the process?"