Summary

Optimism that the local economy is faring better than expected led the City Finance Director to raise projections for FY2027 meals and sales tax revenues. The Commissioner of Revenue also increased his projection for car taxes. As a result, an additional $700,000 was added to the City’s projected revenues for the year ahead.

The City Council voted to return $340,000 to property owners by reducing the real estate tax rate by a half cent to $1.18 in an attempt to help homeowners whose 2026 assessments have gone up much faster than those of commercial property owners.

The remaining $360,000 will be shared evenly with the School Board. The City’s share will be used to replace the funds from capital reserves that would have been drawn down to finance street maintenance, so the City’s proposed budget remains unchanged. The final transfer to the schools increases to 4.8% higher than it was in FY2026.

School staff will receive an average of 5.2% salary increase while City staff will receive a 4% increase. The one exception is for police officers who will see increases of 14-18% due to the competitive employment environment for their services in Northern Virginia.

Council members deliberated over how to fund street maintenance and other infrastructure and facility needs. There was consensus that identifying additional funding sources would require renegotiating the revenue share agreement between the general government and the schools. Council also wants to explore non-real estate tax options for raising revenue. These issues will be discussed further in the coming months.

Background

The FY2027 budget discussions began in December with preliminary revenue guidance from City Finance Director David So. Both the City and School Board then presented their proposed operating budgets to City Council in March. The budget proposals are summarized in three Pulse posts. The operating budget is summarized in Revenues From a 6.9% Assessment Increase Fund the FY2027 Budget and FY2027 Proposed Budget Expenditures Maintain Operations at Current Levels. The six-year capital improvement budget is described in the post $162M FY2027-2032 CIP Invests in Sewer and Stormwater Capacity Expansion, Delays Property Yard Replacement.

City staff held two town halls on the budget, and the City Council approved the first reading of the budget on April 13, 2026, with final consideration on May 11, 2026. The FY2027 budget year begins on July 1, 2026. This post covers the City Council budget discussion at its meetings from April 27 to May 11 when budget ordinances were passed to finalize the budget for the next fiscal year.

Finance Director raises tax projections based on improved economic outlook

With three quarters of FY2026 tax revenue data available and showing higher-than-expected receipts from sales and meals taxes, City Finance Director Soraised his projections for non-real estate tax revenues for FY2027. The result is an additional $700,000 in revenue for the FY2027 budget that is now finalized.

Commissioner of Revenue Tom Clinton boosted his projection for car taxes by another $230,000 (15.3%) to an overall increase of over $1 million from last year, the result of increased enforcement and education efforts. The meals tax projection was raised $410,000 (12.5%) based on better-than-expected revenue from the City’s restaurants, a few of which opened recently with the arrival of more eateries anticipated in FY2027. Projected sales taxes were raised $70,000 (9%).

Tax revenue projections increase — Non-real estate tax revenue projections. Source:April 27 Budget Update Presentation

What to do with $700,000 more tax revenue?

Half penny cut to the real estate tax rate	$340,000
School Board	$180,000
General Government (Street Maintenance)	$180,000
Total	$700,000

Since the City and the schools’ proposed operating budgets were based on the earlier, lower revenue projections, the question before the City Council was what to do with the extra funds available. Council members and City staff have heard from single-family homeowners who are upset with their double-digit 2026 assessment increases— some after similarly hefty increases in 2025, while commercial property owners saw much lower assessment increases. The burden of growth in the City’s budget has fallen more heavily on homeowners. Therefore, the City Council proposed to reduce the real estate tax rate by a half penny, totaling $340,000, and splitting the remainder of the increased revenue between the City and the Schools in accordance with their revenue sharing agreement.

City Manager Wyatt Shields recommended using the $180,000 to replace the use of $180,000 from capital reserves for street maintenance so that the street maintenance budget expense remains unchanged. As paving and other maintenance is an operating expense, it is preferably paid from operating revenues. Council members recommended that the School Board use the funds for one-time needs rather than staffing, because of the long-term budget implications of adding staff.

At the April 27, 2026, City Council meeting, Council Member David Snyder said that he favored the tax cut because of regional economic conditions and the “highest number of federal jobs lost ever.” He said, “We should be reducing taxes and tightening spending. … There are definitely people suffering in the community.”

Council Member Erin Flynn said she would like the rate cut to help residents but not benefit commercial property owners. She wants the City to impose a small C&I tax on commercial properties that could be used for transportation projects.

Mayor Letty Hardi spoke in support of the tax cut, saying that “even with their two-penny increase in the tax rate, [Arlington’s] median tax bill … is still lower than our $600. And it’s because their [assessment values] did not go up as much….I believe in…constraining our budgets in anticipation of leaner years ahead and holding ourselves to…what really is essential to fund.”

Falling behind on street paving and other facility needs

Council Member Arthur Agin objected to the tax cut, saying that the City needs to invest in its infrastructure. “Our tax rate is not the highest. Vienna, Herndon, Manasses, and Manasses Park are higher,” he said, while acknowledging that “Fairfax, Arlington, and Alexandria are lower.” (Note that Fairfax and Arlington Counties impose additional C&I taxes on commercial properties at 12.5 cents per $100 of assessed value.) He would like to see the extra revenue used to increase spending on street paving.

Ms. Flynn suggested that the City should set up a separate funding source for paving and that the logical choice to cover that cost would be personal property tax revenue. She proposed that the car tax could be removed from the revenue sharing agreement with the schools and dedicated to the operating cost of street maintenance, including paving. However, Council members acknowledged this could not be done for FY2027 as it would need to be negotiated with the School Board.

Staff presented data showing that a 20-cent increase in the personal property tax would raise $340,000. Council members decided this might be a future mechanism to set aside specific funds for paving and other street maintenance projects. For FY2027, the personal property tax rate will remain $4.80 per $100 of assessed value.

At the May 4, 2026, City Council meeting, Vice Mayor Laura Downs noted the many needs listed by various City department leaders. Among them, the Police Chief said the department’s fleet is not being replaced on a timely schedule. The Public Works fleet is also aging, and several mast arms, the long, horizontal steel poles that hold traffic lights, signs, or cameras over an intersection, need to be replaced. Ms. Downs said the City Council needs a list of the City’s equipment and infrastructure maintenance schedules for planning purposes. Staff responded that such an inventory isn’t readily available.

Staff provided the following information in the FY2027 Budget Q&A:

“DPW received a ‘Pavement Management Program’ memo from our consultant in late April of 2026. In order to maintain the current Pavement Condition Index (PCI) level of 69 and limit further deterioration, it would take $1.1M annually dedicated to Annual Paving. To get to a satisfactory level of 71 would require $1.25M annually for Annual Paving. An annual budget of $2.1M dedicated to Paving would support the City reaching an overall PCI of 81.”

The FY2027 budget for paving is only $700,000, and so is insufficient to limit further deterioration of the roads. If road conditions are allowed to deteriorate, the eventual cost to rehabilitate them becomes increasingly expensive.

City returns $174,000 to School Board control

The School Board proposed an operating budget in March based on preliminary guidance, requesting a $2.3 million increase in the City’s funds transfer to the schools. Subsequently, real estate tax revenue projections were raised so that an additional $174,000 was available to the School Board, based on its revenue sharing agreement with City Hall. City staff put that share into the School Capital Improvements Program (CIP) fund for future use. The School Board is currently awaiting a facilities assessment report that will identify their capital investment needs.

At the May 4 meeting, City Manager Shields said that staff’s intention was to begin to set aside some operating revenue for the School CIP each year, an action especially important now that the $10 million lease payment the City expected to receive from the West Falls Phase II development has been canceled.

Council Member Marybeth Connelly objected, saying that that money should be given back to the School Board as it goes against the revenue sharing agreement for the City to hold it. “If we’re in a trusting relationship with the schools, and we said these are the rules we’re following, then we should stick with the rules,” she said. “If we want to renegotiate the revenue sharing agreement, which I think everyone wants to do and the schools do, too, we should do that in June and start to really look at what those [capital] needs are.”

Her Council colleagues agreed, and the $174,000 will be transferred to the School Board to use as it sees fit. At the same time, the City Council wants the School Board to know that they are concerned that there will be large School CIP needs identified in the coming facilities assessment report as well as the growth in the school operating budget. At the May 11, 2026, City Council meeting, Mr. Shields reported back that the School Superintendent intends to use the additional funds for capital purposes.

Staff provided the following information in the FY2027 Budget Q&A:

Solar panels on the Community Center, not Mary Ellen Henderson Middle School

Representatives of the Falls Church Climate Action Network (FCCAN) spoke at the City Council budget meetings to urge the City to follow through on the City’s Energy Action Plan by funding solar panels for the Community Center ($180,000) and Mary Ellen Henderson (MEH) ($1 million) roof tops. They said time was running out to take advantage of federal tax credits.

At the April 6, 2026, meeting, Capital Improvements Program Coordinator Caitlin Sobsey said that staff could not justify the MEH solar panels as it would mean replacing the roof before its end of life. She also pointed out that there are 33 other higher priority competing projects to be funded. Deputy City Manager Andy Young was more direct, saying “We didn’t see a way we could set aside a million dollars in the CIP to pay for it when the roof doesn’t need to be replaced right now.”

At the May 4 meeting, Mr. Shields was hopeful that the Community Center roof could be fitted out with solar panels. He said that if Council wishes, the FY2026 year-end surplus could be used for the panels. The new roof, installed during the recent renovation, was designed for solar panels, although staff doubted they would qualify for tax credits. The payback period on the panels is estimated to be about 22 years.

Salary increases for City and school staff

A clearer picture on raises for City employees has emerged in recent weeks. School staff confirmed that the average salary increase for FY2027 will be 5.2%, including a 2.8% COLA. In FY2026, school staff received a 5% salary increase after contract negotiations.

City staff, excluding sworn police officers, will receive a 4% salary increase. In FY2026, City staff received a 5% salary increase to match the school staff salary increase. Police officers will get a 14-18% increase to ensure that the City is able to retain and recruit officers. Stiff competition from Arlington in particular has driven up law enforcement salaries in Northern Virginia. Staff provided data comparing the entry-level salaries of neighboring jurisdictions.

Police salaries across northern virginia table. — Entry level police officer salaries. Source: FY2027 Budget Q&A

The updated FY2027 Budget

The final FY2027 budget increased by $180,000 from the initial proposed budget due to the increase in transfers to the School Board. The general government operating budget was unchanged at a 3.4% increase from FY2026. With the additional funds discussed above, the school transfer increased by 4.8% from FY2026

Final votes and comments

At the May 11 City Council meeting, Mr. Agin once again reiterated that the City should use the extra funds for its many infrastructure needs rather than approve a tax cut. Other City Council members were also torn between the tax burden on City residents and housing affordability concerns and the City’s unmet needs. Vice Mayor Downsconcluded, “It has been quite a needle to thread.”

Ms. Flynn expressed her wish for the City to look at non-real estate tax revenue anew as sources for funding transportation needs, including personal property taxes and a C&I tax.

Ms. Connelly thanked Mr. Shields for this, his final budget. She and Council Member Justine Underhill said they look forward to revisiting the revenue sharing agreement with the School Board this summer.

Mr. Snyder appreciated that this budget treats the City’s employees and the schools fairly as the School Board has been a responsible partner in the budget process. He repeated his disagreement with the inclusion of the City Council raises and benefits package in this budget, given the City’s unmet funding needs. He further urged the City to pay attention to the concerns of resident taxpayers who are funding this budget.

Mayor Hardi spoke about the need to prepare for future 3-4% revenue growth instead of the 6-8% growth of the last few years. She said the budget discussions gave her a feeling of “deja-vu from 2017” when the City faced major capital needs and needed to find a way to fund them. The FY2027 budget and the half-cent real estate tax rate reduction were approved on a 6-1 vote, with Mr. Agin dissenting. The new real estate tax rate is $1.18 per $100 of assessed value. The other ordinances to raise the solid waste, stormwater, and sewer utility fees passed unanimously, as did the ordinance to raise the salaries of the City staff by 4%.