Renss Greene
February 16, 2023
A possible drop (in) the total value of Loudoun’s commercial real estate—driven not by the market but attributed to the General Assembly and Dominion Energy—along with the risk of an economic recession, have put constraints on the next county budget that are only expected to tighten in years to come.
County Administrator Tim Hemstreet’s budget proposal totals $4.2 billion across the county government and Loudoun County Public Schools. It is based on a two-cent cut to the real estate tax rate, although residential values grew enough that the average homeowner would still be expected to see a higher tax bill.
In 2022, Hemstreet reported, the average home value of $641,600 led to a $5,710 real estate tax bill. With a 2023 average value of $691,000, Hemstreet’s proposed tax rate would mean a $6,012 tax bill, a $302 increase. To reach the equalized tax rate, where the average tax bill would stay level, the Board of Supervisors would have to cut another 6.5 cents from the tax rate—requiring more than $84 million in cuts.
The budget does come with some breaks for taxpayers—this year the county will drop its personal property tax rate by five cents to $4.15 per $100 of assessed value. And car tax bills could get another cut beyond that. Hemstreet has prepared the budget anticipating that supervisors will authorize an assessment ratio, in effect only taxing a portion of a vehicle’s assessed value as car values remain elevated.
Hemstreet’s public notices advertised a tax rate of 89 cents, giving supervisors flexibility to consider tax rates up to that rate.
On the county government side, growth over last year’s budget includes $14.3 million in budget adjustments as the county’s costs and population grow year-over-year.
While population growth in Loudoun is slowing, it remains high, and population growth remains one of the biggest drivers of growth in the county budget as the government works to serve the needs of more residents.
The largest category of growth is $27 million in employee compensation, with $14.5 million toward 6% merit raises for county employees, $4.6 million for 6% average raises for fire-rescue system employees, $6.4 million for an average 9% raise for Sheriff’s Office employees, and $1.5 million set aside for hiring and retention incentives. Hemstreet said the public safety raises were in response to raises implemented in other jurisdictions.
His proposal also includes 45 new positions, five of which are expected to be funded through new revenues or reallocating existing funding. Thirty more positions are proposed to staff up the Leesburg South Fire Station when it opens.
Hemstreet also proposed funding a new School Resource Officer for a new middle school opening, along with more maintenance staff in the Department of General Services and seven positions to support the county’s capital budget and construction.
And, Hemstreet noted, this year $6.5 million in projected real estate tax revenues will go to the county’s Housing Trust Fund to help fund projects providing or preserving affordable housing.
Meanwhile, the county’s tax revenues are facing uncertainty from a range of sources.
Economic growth and employment are both still expected to be positive, but below the growth rates of last year’s economic rebound. While home values have slowed their growth from last year, they still remain above normal historical rates, Hemstreet said.
Much of the crunch in the budget is actually conservative budgeting in the face of uncertainty—Hemstreet’s proposal is based on the possibility of a recession and a worst-case scenario for data center revenues, keeping Loudoun County government in the black if those come to pass.
His budget proposal is based on assumptions that high interest rates will lead to slower residential construction and growth in values, along with a possible drop in commercial real estate values, long a sector that showed consistent growth in Loudoun.
That is driven by a forecasted 14% drop in the commercial real property portfolio, in turn driven by falling revenues from data centers, by far the largest source of commercial tax revenue in the county.
“One of the concerns that we have is the General Assembly action that was taken last year that changed the way that data center real property is to be assessed,” Hemstreet said. The effects of that change are still uncertain—the Commissioner of the Revenue has not yet been able to implement it because of a lack of data, he said.
As that information becomes available and assessments change, he said, the county budget staff expects those values and revenues to be lower.
“So we’ve made an adjustment so that we do not end up short in terms of the amount of revenue available to fund the budget,” Hemstreet said.
Additionally, news from Dominion Energy that its grid would not live up to its commitments are expected to impact Loudoun’s data center market through fiscal year 2027, Hemstreet said. And all of that couples with COVID-19 pandemic-era supply chain difficulties that meant data centers now go longer before upgrade to newer—and therefore more valuable—computer equipment.
“If we go back to say, circa [fiscal year 2019] or so, we were using refresh rates of every three years or so. More recently, partly due the pandemic and partly due to other factors specific to the industry, those refresh rates have slowed more towards five years,” Hemstreet said.
“I think what you’re, trying to tell us is, we may have a bit of a challenge this year, but we’re going to have a really big challenge in the next fiscal year beyond the upcoming one,” Supervisor Matthew F. Letourneau (R-Dulles) said. Hemstreet agreed.
The county could also find itself filling a gap in the school budget cause by a state accounting error that resulted in school districts being allocated $201 million less than expected in funding from the state.
Hemstreet’s budget proposal increases local funding for the school division by $69.1 million, $6.2 million short of the School Board’s request. But if the General Assembly does not act to fill the gap in expected state funding for schools created by the Youngkin Administration’s error, the Board of Supervisors and School Board could be looking for ways to fill a local $7.4 million shortfall. Altogether that would mean a $13.6 million difference between the School Board’s request and its funding.
Budget proposals have been made in both chambers of the state legislature to help fill some of that gap, although nothing has been decided.
“I would never gander as to what the General Assembly was going to do until they’re done,” Hemstreet said.
“The General Assembly and the governor are saying that they have a budget surplus of $1.94 billion,” County Chair Phyllis J. Randall (D-At Large) said. “I’m not quite sure why we’re having trouble covering $200 million.”
The Board of Supervisors will hold three public hearings on the budget.
On Wednesday, March 1, the county will hold public hearings at 3 p.m. and 6 p.m. in the Loudoun County Government Center, 1 Harrison Street SE, Leesburg.
On Saturday, March 4, the county will hold a public hearing at 9 a.m. in the Loudoun County Public Schools Administration Building, 21000 Education Court, Ashburn.
More information about speaking at public hearings is at loudoun.gov/signuptospeak.
Members of the public can also offer comment on the Board of Supervisors Comment Line at 703-777-0115; email loudounbudget@loudoun.gov; send mail to Board of Supervisors, P.O. Box 7000, Leesburg, VA 20177; or provide comment on the county government’s Facebook and Twitter accounts.
More information about the budget is at loudoun.gov/budget.