FY2027 Guidance: Budget Increase to be Financed by Higher Taxes from Single-Family Homeowners

Background

The City Council and School Board held a joint meeting at Meridian High School on December 1, 2025, to begin discussions on the FY2027 budget. Superintendent Terry Dade and his team presented their forecasts and preliminary request for an increase in the annual funds transfer from the City to the School Board. New City Finance Director David So provided FY2027 guidance on revenues.

City School Board requests 5% increase in FY2027 funds transfer

In FY2026, an 8.8% increase in the schools’ funds transfer request was justified by a projected enrollment increase of 157 students and a 5% increase in staff salaries. The final budgeted transfer was a 5.6% increase over the prior year. The increase in enrollment did not materialize; in fact, enrollment was flat. Even so, in the FY2027 guidance, the schools asked for a 5% increase, $2.8 million, in additional funding to support a 5.2% salary increase for staff. The salary increase is part of a recent collective bargaining agreement.

FY2027 guidance on general government expenses

Mr. So indicated that he expects health benefit costs to increase 10% ($380K) and City contracts with neighboring jurisdictions, including the Washington Metropolitan Area Transit Authority (WMATA), to increase 5% ($780K). He included a 1% increase in staff benefits that he said would need to be negotiated.

In FY2026, the City gave its staff the same 5% salary increase as school staff. For FY2027, City Manager Wyatt Shields would like City staff to also have parity with school staff. The Police Department currently has 15 vacancies – 25% of the force – that they have had trouble filling; salary has been cited as a reason. The revenue sharing agreement between the schools and the City ensures that any increase in the schools’ funds transfer is duplicated in the City budget.

Only single-family home assessments are projected to increase

Mr. So and Dr. Keith Waters, consultant to FCCPS from the Stephen Fuller Institute at George Mason University, both explained that Falls Church City has not escaped the economic turmoil in the region. Unemployment in the City increased from 3% in 2024 to 4.6% in 2025. This has affected sales and meals tax receipts. The economic downturn also depressed commercial real estate values.

Real estate taxes typically account for almost 70% of the City’s tax revenues, with single-family home (SFH) tax receipts accounting for 40% of that total. In Mr. So’s FY2027 guidance, only SFH assessments are projected to increase and will do so by about 6%. Assuming the tax rate is unchanged, this translates to a 6% increase in SFH real estate taxes.

The total assessment values for multifamily units and commercial properties are expected to be flat despite the completion of Modera Founder’s Row and West Falls. These projections continue the pattern of SFH assessments surging while multifamily assessments languish, so that SFH owners bear most of the cost of the City’s growth.

Of the non-real estate taxes, only personal property taxes (car taxes) are expected to rise by almost $1 million (12%) through better enforcement.

Mr. So also presented data from neighboring jurisdictions, shown below. He said that the new restaurants and new residents may help to maintain non-real estate taxes, e.g. sales and meals taxes, at the same level as last year despite an economic downturn.

Preliminary FY2027 budget projects a gap of $4 million

In his preliminary FY2027 guidance, Mr. So provided two additional forecasts to his guidance: a “low” forecast with non-real estate taxes coming in below forecast, and a “high” forecast with these taxes coming in higher than forecasted. Real estate taxes are known in advance because they are based on assessments to be determined and communicated to property owners in January or February 2026.

Any projected increase in tax revenues is equally shared between the City general government and the School Board, according to the Revenue Sharing Agreement. Based on this split, the funds transfer to the schools is increased by 50% of the projected tax increase, or $1.5 million. Mr. So projects a budget gap of $4.1 million.

Mr. So blamed the fall in investment revenues, included in “Other Revenue`” for the increased budget gap. The City’s cash balance and revenue forecasts have fallen as funds for capital improvement projects were deployed and interest rates are expected to be lower next year.

Tools for reducing the budget gap

Mr. So provided data on the impact of increasing various local taxes, shown below. The City Council can increase local tax rates to raise revenues, although that might affect the City’s competitiveness with surrounding jurisdictions in attracting businesses and customers for those businesses. Information on the Commercial and Industrial Tax (C&I tax) that other jurisdictions have imposed on commercial properties was included in the package but not discussed. (Additional speed cameras were not suggested as tools for closing the budget gap.)

City Council and School Board discussion

Vice Mayor Debora Schantz-Hiscott said, “I just wanted to talk a little bit more about the commercial assessed value. I know a lot about Arlington’s decrease in its assessed value, and I understand that we’re flat, but we’ve brought in so much more business, even if we are flat as a [growth] percentage…, why aren’t we seeing more revenue?”

Mr. So responded that the City currently does not have a real estate assessor and that work is being contracted out. He expects a new assessor will join the City soon and be able to review commercial assessments. For his guidance, Mr. So has assumed that the commercial assessed value will stay the same. He acknowledged that commercial assessments could be revised and increase before the budget is approved.

 “Just to make sure I’m understanding this correctly. That budget gap assumes the 6% [assessed value] in growth is residential [property],”  Council Member Erin Flynn said. “If we had median home value of a million dollars and that million-dollar home had a 6% growth, that taxpayer’s annual taxes would increase by $711, even if we kept the tax rate equal [to what it is today]. So, the budget gap that we are seeing assumes the taxpayer is paying the additional $711.”

School Board Member Bethany Henderson also questioned the flat forecast for commercial properties. “We have all these new buildings coming online. Help me understand why we’re forecasting the other revenue going down, not up, even just by virtue of the number of new restaurants coming online, new grocery stores coming online in the next six to 12 months,” she said.

Mr. So responded that it is difficult to predict where we are going to land in FY2027 with the increase in unemployment and uncertainties in the economy. Ms. Henderson replied, “Right now, what you’re projecting is essentially the new businesses coming online are what is keeping us roughly flat.”

Mayor Letty Hardi added, “Our demographics in terms of [federal] workers is actually pretty similar to Arlington. … Arlington actually is pretty negative on sales, meals, and other taxes that are indicators of consumer behavior. If we weren’t seeing the growth that we had in all those new businesses, we’d probably look more like Arlington.”

References

• December 1, 2025 City Council/School Board meeting. YouTube video.
• December 1, 2025 City Council/School Board meeting. This official video will not display properly on a small screen as it contains the agenda.
• FCCPS FY 2027 Fiscal Forecast Presentation 12.01.25
• FY2027 Preliminary Revenue Forecast at Joint Meeting Dec 1, 2025.