Housing Slump Could Hurt Tax Revenue

County May Lose Up to $100 Million

By Bill Brubaker (Contact)

Sunday, October 14, 2007

Loudoun County could lose close to $100 million in tax revenue next fiscal year because of the ongoing residential real estate slump, county treasurer H. Roger Zurn Jr. said last week.

The shortfall could mean a drop in funding for Loudoun schools and public safety agencies in the fiscal year that begins July 1, Zurn said in an interview.

"In my estimation, this is going to be a very difficult budget year because we have an increasing student population," he said. "So we are going to have increasing budget needs, particularly from the schools and public safety, but we are going to have declining revenues. For budget purposes, this makes for the perfect storm."

Loudoun expects to collect $567.4 million in residential property taxes in the current fiscal year, Zurn said.

If the tax rate stays the same, those revenues will drop six to 10 percent next fiscal year because of lower assessments, Zurn estimated — a loss to the county of $34 million to $57 million. Real estate taxes are the county's largest source of revenue.

With the number of home sales dropping — and selling prices sagging, too — the county could lose an additional $40 million from grantor's and recordation taxes that would not be collected, Zurn said.

"The fewer sales you have, and the longer it takes to sell houses, the less revenue you have coming in," he said.

Zorn said the increased number of foreclosures in Loudoun has driven down the assessed value of some foreclosed homes, further cutting revenue. "And because foreclosures are exempt from recordation taxes, there's also an impact there," he said.

Loudoun County Administrator Kirby M. Bowers cautioned that the amount of shortfall would depend on the property-tax rate set by the Board of Supervisors for the next fiscal year. And a drop in residential property-tax revenue could be partially offset by increased revenue from taxes on commercial properties, he added.

"In general, the [assessed] residential values will be decreasing, but the commercial values still look good," Bowers said.

Bowers will propose new tax rates for the board to consider in February. "The board could come in and say, 'We want to keep the tax rates the same,' " he said. "But, then, the question has to be: What does that mean?"

Because of lower assessments, "that might mean for the average homeowner a 5, 8, 9 percent decrease," Bowers said. "But I don't know if that will be the case."

A new batch of home-sales figures released last week confirms that the housing slump is not over in Loudoun. The median price of a single-family home in the county dropped 3.3 percent last month compared with September 2006, according to Metropolitan Regional Information Systems (MRIS), which provides figures to the real estate industry.

Other jurisdictions in the Washington area also are facing revenue shortfalls because of lower residential property assessments. Fairfax County officials have predicted that their budget shortfall for the coming year could hit $120 million.

Zurn said some Loudoun supervisors and administrators didn't prepare for a housing slump even though he had predicted declining values about 18 months ago.

"There were people on the Board of Supervisors and county staff — and I'll leave them nameless — who felt this was just a little blip and felt that everything would remain stable," Zurn said.

If they had acknowledged the coming downturn, "they could have tightened their belts a bit versus adding more staffing [in county agencies] that was perhaps discretionary," he added.

Bowers said: "From a county administrator's point of view, I'm always looking ahead in terms of what we can afford to do down the line."

The median selling price of an existing Loudoun house was $425,500 last month, compared with $440,000 in September 2006, according to the MRIS data. The median is the point at which half the houses sell for more and half for less.

The number of homes sold in Loudoun also dropped — from 383 in September 2006 to 288 last month, the survey showed.

A recent newspaper ad for an Ashburn house summed up the gloomy marketplace for many sellers.

"Reduced AGAIN!!!!" the ad was headlined. The ad noted that the new asking price — $584,000 — was less than the assessed value of the property.

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