Henrico faces $20 million real estate shortfall next year
Published: October 7, 2009
Henrico County is facing a projected shortfall in real estate tax revenue of more than $20 million next year, but the county's top finance official is optimistic about the future.
Finance Director John A. Vithoulkas said yesterday that he expects a 6.5 percent decrease in county real estate tax revenues for the budget year that begins on July 1. The drop is likely to be steepest for commercial properties. He said up to one-third of the commercial office space in Innsbrook is vacant.
"Going back over 30 years, we have not seen anything like what we are seeing now in the real estate market," Vithoulkas said during a town hall meeting last night at Maybeury Elementary School in western Henrico.
At the same time, however, Vithoulkas said, the county has been buffered from much more severe economic problems because of a sales tax windfall of up to $8 million a year from its decision to change a number of ZIP Code addresses from Richmond to Henrico.
He also said the county protected itself by capping spending during financially flush times.
"Most localities spent up to their revenues, and this locality did not," Vithoulkas said in an interview yesterday. He is upbeat about where the economy is heading. "We're seeing some positive indicators locally," he said in the interview. The biggest wild card for Henrico and other local governments is how much state revenue they will lose under the budgets that Gov. Timothy M. Kaine will propose in December in his final address to the General Assembly before leaving office. Kaine announced in August that Virginia will cut about $1.5 billion in state spending, most of it in this fiscal year. Kaine will propose a two-year budget for fiscal years 2011 and 2012, as well as revisions to the current state budget.
Some localities, including Chesterfield County, are bracing for the worst. Chesterfield already has projected a $38 million shortfall in the next fiscal year, based on an estimated $20 million decrease in revenues and an additional $18 million in spending.
Henrico officials have been mum about the county's budget outlook until now. State funds represent about one-third of the county's revenues, and real estate taxes represent an additional one-third. The county's commercial real estate sector has been hit especially hard by the recession, with major corporations such as Circuit City Stores, LandAmerica and Qimonda going bankrupt and vacating their offices and operations in Henrico.
Vithoulkas expects an overall decrease in the tax base of more than $20 million, primarily in the budget that takes effect on July 1. The reduced real estate taxes also may affect the current budget, he said. The budget also could change based on changes in the state budget. "At some point, we may well have to revise revenues downward, but I don't see a significant budget revision," he said.
Contact Michael Martz at (804) 649-6964 or
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Reader Reactions
Randy—how do you plan to do this? Offer tax breaks? That won’t solve the immediate problem, it only makes the problem worse because of the up-front infrastructure cost to the county to support that development combined with deferred tax revenue. You may see a tax benefit in future years if the development is successful.
Furthermore, why would a business build new C&I facilities when there are plenty of vacant facilities? Yes, in some cases specialty facilities are needed, but it is usually cheaper and faster to renovate and upgrade existing facilities.
Businesses will look outside of Henrico, to areas where unemployment is high, and locate there because labor will be more plentiful and cheaper.
No bank is going to lend money for new C&I development when there are plenty of vacant facilities. The banks will lend to have existing facilities renovated—that is safer and in some cases will take a foreclosed property off the bank’s balance sheet.
What business leader will fund C&I development out of the company treasury when there are empty buildings and cheaper labor pools one or two counties away?
The sad truth is that businesses have become dependent on tax incentives and now ask for government hand-outs, just like mikeyt did earlier.
Identify ways to get people into houses, or to hang onto their houses because this downturn is not over. That will help reduce the inventory of empty homes, reverse the home price depreciation trend, and have beneficial second-order effects on the local economy through increased consumer spending, increased consumer confidence, and increased velocity of money in the economy. It is also a broader strategy—it can have effects across the region in a distributed fashion, whereas C&I development is creating pockets of economic activity, but not a broad impact.
Henrico needs more Commercial & Industrial development. That helps pay the tax load.
wpanak:
mikeyt—what good will it do to encourage residential developers to build more houses when the market is glutted with empty houses, home values are stagnant (and likely to remain so for another year) and the recent run-up in home sales will taper off in November once the $8000 federal tax credit to first time buyers expires?
Hint: Mikey’s a builder.
mikeyt—what good will it do to encourage residential developers to build more houses when the market is glutted with empty houses, home values are stagnant (and likely to remain so for another year) and the recent run-up in home sales will taper off in November once the $8000 federal tax credit to first time buyers expires?
Why would banks be more open to lending money if builders are suddenly building more homes in a stagnant market where unemployment will continue to rise through at least Q1 2010?
What you are describing is a government hand-out to home builders, and a misguided one at that. It would make the situation worse, not better. It would be a non-starter because developers need construction loans and the banks would reject those loan requests.
The correct move is to do whatever can be done to get families into available houses, so long as the benefits of those efforts are projected to be higher than the cost of those effort. It reduces the banks’ inventories of houses in foreclosure, reducing the cost of carrying that inventory and maintaining empty properties. Banks will be more likely to lend money on the purchase of houses in general when they are not looking at a stale foreclosure inventory on their own balance sheets.It reduces vandalism. It stimulates the local economy when new homeowners have to buy furniture and hardware and lawn maintenance equipment.
Most important, it depletes the existing inventory and moves us back toward a balance between buyers and sellers. That will help home prices to begin appreciating again, which will have an effect on tax revenues, consumer confidence, and help workers make more rational decisions about moving in or out of the area to pursue work.
All of these things will increase the velocity of money moving within the economy, which is what is needed to get us back to economic growth and prosperity.
You don’t do that by giving hand-outs to the builders who over-built in the first place. That would be no different that giving money to GM and telling them “build more SUV’s because we can use the sales tax revenue.“
Just like Bush and Trani, expect Hazelwood to retire before things really hit the fan. These guys have milked the system and left their constituents with unsustainable messes.
Is it the case that a commercial property owner is exempt from paying taxes if the property is vacant?
I believe that the assessed value takes a significant hit when commercial property is vacant. They still have to pay IIRC.
If the property goes into forclosure, is the bank exempt from paying real estate taxes even though they have taken possession?
No, the bank has to pay.
I’m interpreting this article as stating that tax revenues are down because of vacancies in commercial properties.
Is it the case that a commercial property owner is exempt from paying taxes if the property is vacant? If the property goes into forclosure, is the bank exempt from paying real estate taxes even though they have taken possession?
I want to know why it is necessary that law enforcement drive the muscle cars.
I thought regular police cars move faster than any car I drive.
We know the muscle cars are gas hogs.
mikeyt,
Henrico County isn’t a government, it’s a club. We’ve had the same 5 supervisors for 80 years. Other counties turn over their supervisors every 10 years or so. In Henrico, apparently, they are elected for life.
The county didn’t start making videos of their meetings until this year. What are they hiding?
Anon… you miss the point. Henrico has been preparing for times like this. It’s called a cash reserve. You build one to prepare for down times. That’s not overtaxing. That’s good government.
You want overtaxing? Overtaxing comes from government trying to do too much. Chesterfield not only is $20 million short on revenue, but it also has to find a way to cut $18 million in overspending. You overtax when you overspend. Then you get caught in a place like Chesterfield is caught.
Henrico has done a brilliant job during this bad economy, even finding $8 million more in revenue just through creating its own zip code. Now Henrico needs property tax revenue and it’s not going to come from commercial development. Much of it can come from residential development if the county will provide some temporary incentives to cut home building costs in east Henrico. The county knows lower building costs can help banks look at loans more favorably, meaning more development and more revenue. We’ll see what happens.
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