SUMMARY:  Fairfax County's commercial tax base has declined from 25.37% to 18.20% of the total real estate assessment base over the past five fiscal years, and will decline further to 17.36% this fiscal year. The result is an increased burden on homeowners, whose residential real estate taxes will carry more of the County budget load. he suggests that a good business environment in Fairfax County will go a long way to increase the value of existing commercial real estate and to encourage the construction of new commercial buildings. He offers five measures that will contribute to such an environment and help facilitate reasonable, controlled commercial growth.

Despite this year's cut in the real estate tax rate, the total amount of tax on each property went up – just as it has every year for the last five years. Meanwhile, as the tax burden on individuals increases, the county's commercial tax base continues to slide as a percentage of total revenue. Over the last five fiscal years, the commercial tax base has declined from 25.37% to 18.20% of the total real estate assessment base. Some of this can be attributed to the somewhat depressed commercial real estate market in the County's technology corridors, a market that is now recovering. However, the County's current land use priorities continue to focus on residential development, suggesting that commercial real estate's share of the tax burden is unlikely to increase significantly any time soon. The County projects that it will decrease to 17.36% in FY 2006. As a result, in FY 2006 the revenue from residential real estate tax will make up about 49% of the County's three billion dollar budget.

Why is commercial office space desirable? First, it is revenue-positive; it generates more tax revenue for the County than it costs the County to provide it with services (while residential property is often revenue-negative, especially where there are children whom the County must pay to educate). Second, the real estate tax on commercial office space isn't passed on to County residents, especially when it involves large tenants who do regional, national, or global business. Third, commercial office space does not generate weekend traffic to contribute to the greatly worsening weekend congestion. In fact, if office space is located throughout the County, particularly in areas where there is now little of it, commuting times for employees may be reduced – or employees could even walk or bike to work. And finally, commercial office space represents good, high-paying jobs for County residents.

Forward Fairfax advocates a return to those thrilling days of yesteryear when the Board actually supported commercial development. Recently, the current board has been re-zoning some prime commercial property to residential (or mixed, meaning mostly residential) use. An example of this is the July 11th Board decision to re-zone a commercial property in the Richmond Highway corridor to Planned Residential, Mixed Use (PRM). The developer had argued that there was no interest in office development for the site. Ironically, on the same day, the Washington Post reported that defense contractors were scrambling for office space in proximity to Fort Belvoir. It is highly doubtful that defense contractors doing classified work would be allowed to locate in a mostly residential complex, or that they would want to move into the 50,000 square feet of office condos to which the developer committed, even if they were permitted to do so. Also ironically, the October bus tour of Lee and Mount Vernon Districts which was conducted by the two District Supervisors for developers wanting to accommodate BRAC, passed by that property and others on Richmond Highway that were no longer available for commercial development.

The sales price of commercial real estate is based on the rent it can earn. Rent is based on the demand for space. A good business environment in Fairfax County will go a long way to increase the value of existing commercial real estate and to encourage the construction of new commercial buildings.

Forward Fairfax suggests the following:

• encourage commercial (particularly office) development in those parts of the County that are underserved by it.
  
  
• encourage a wide diversity of business types and sizes. The lesson of the technology bubble is that when bubbles burst or particular industries go into decline the County is left with many empty office buildings if it has put all its eggs into that one basket.
  
  
• encourage commercial office development in proximity to existing mass transportation, or in areas where traffic is less congested than, say, Tyson's Corner. The better the County does at solving its transportation problems, the more business friendly it will be.
  
  
• ensure that utilities make the fastest high speed connections available to businesses. "Business DSL" and cable internet access may be fine for homeowners, but are woefully inadequate for most businesses.
  
  
• create a tax-friendly environment in the County, particularly with the repeal of the BPOL tax, an administrative burden that raises little revenue as a percentage of the total budget.
  
  

Every 1% increase in the value of existing commercial real estate would produce an annual revenue of roughly $3 million for the County at current tax rates. Every 1% increase in the amount of commercial real estate through new construction would add another $3 million. Thus a 20% increase in current value and a 3% increase in amount would produce about $70 million for the budget.

Every decision made by the Board of Supervisors should take into account its responsibility to the taxpayers who continue to pay more and more each year. The Board should encourage expansion of the commercial tax base and discourage expensive high-density residential re-zonings.

Copyright Forward Fairfax and Doug Boulter, 2005