General Fund Revenue Overview $130,999,646 3.0% Total ...

General Fund Revenue Overview

SUMMARY OF GENERAL FUND REVENUE AND TRANSFERS IN

Category

FY 2018 Actual

FY 2019 Adopted Budget Plan

FY 2019 Revised Budget Plan1

FY 2020 Advertised Budget Plan

Change from the FY 2019 Revised Budget Plan

Increase/ (Decrease)

Percent Change

Real Estate Taxes - Current and Delinquent Personal Property Taxes - Current and Delinquent2

Other Local Taxes Permits, Fees and Regulatory Licenses Fines and Forfeitures Revenue from Use of Money/Property Charges for Services Revenue from the Commonwealth and Federal Government2

Recovered Costs / Other Revenue

Total Revenue Transfers In

Total Receipts

$2,651,840,881 $2,790,371,574 $2,790,371,574 $2,890,593,420 $100,221,846

622,435,842 526,923,911 52,721,959 12,178,390 43,523,165 82,474,118

623,280,032 521,305,877 53,009,977 12,178,536 49,159,119 81,868,225

628,621,232 522,515,580 53,305,534 12,438,697 69,585,705 82,845,373

637,770,970 527,746,118 53,559,013 12,583,545 82,283,249 83,305,683

9,149,738 5,230,538

253,479 144,848 12,697,544 460,310

136,763,218

133,833,796

136,909,664

139,699,660

2,789,996

17,405,819

16,636,952

16,883,193

16,934,540

51,347

$4,146,267,303 $4,281,644,088 $4,313,476,552 $4,444,476,198 $130,999,646

10,068,651

10,173,319

10,173,319

9,081,414 (1,091,905)

$4,156,335,954 $4,291,817,407 $4,323,649,871 $4,453,557,612 $129,907,741

3.6%

1.5% 1.0% 0.5% 1.2% 18.2% 0.6%

2.0% 0.3% 3.0% (10.7%) 3.0%

1 FY 2019 revenue estimates were increased a net $31.8 million as part of the FY 2018 Carryover Review and the fall 2018 review of revenues. Explanations of these changes can be found in the following narrative. The FY 2019 Third Quarter Review may contain further adjustments as necessary.

2 The portion of the Personal Property Tax reimbursed by the Commonwealth as a result of the Personal Property Tax Relief Act of 1998 is included in the Personal Property Tax category for the purpose of discussion in this section.

As reflected in the preceding table, FY 2020 General Fund revenues are projected to be $4,444,476,198, an increase of $162,832,110 or 3.8 percent over the FY 2019 Adopted Budget Plan. FY 2019 revenue estimates were increased a net $31.8 million in a number of revenue categories as part of the FY 2018 Carryover Review and the fall 2018 review of revenues. As a result, the FY 2020 General Fund revenue reflects an increase of $130,999,646 or 3.0 percent over the FY 2019 Revised Budget Plan. The increase is primarily the result of a $100.2 million increase in Real Estate Taxes based on rising assessments. In addition, Personal Property Taxes are projected to increase $9.1 million due to an increase in vehicle and business levy; Revenue from Use of Money and Property is projected to increase $12.7 million primarily because of rising interest rates, and Other Local Taxes are expected to increase $5.2 million on projected growth in Local Sales Tax, Transient Occupancy Tax, and Business, Professional, and Occupational License Tax.

Incorporating Transfers In, FY 2020 General Fund receipts are anticipated to be $4,453,557,612. The Transfers In to the General Fund total $9.1 million and reflect $2.8 million from Fund 40030, Cable Communications, $2.9 million from Fund 69010, Sewer Operation and Maintenance, $1.1 million from Fund 40100, Stormwater Services, and $2.3 million from various other funds for indirect support provided by the County's General Fund agencies.

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General Fund Revenue Overview

The following chart shows General Fund revenue growth since FY 2011. Revenues rose at an average annual growth rate of 3.0 percent in the period from FY 2011 to FY 2016. General Fund revenue in FY 2017 increased 5.43 percent primarily as a result of a 2.98 percent rise in real estate assessments and a 4-cent increase in the Real Estate tax rate. FY 2018 revenue increased 2.15 percent as a result of a 1.89 percent rise in real estate assessments, as well as modest growth in other revenue categories. In FY 2019, General Fund revenue is projected to increase a 4.03 percent growth primarily as a result of a 3.59 percent rise in real estate assessments and a 2-cent increase in the Real Estate tax rate. Revenue growth of 3.04 percent is projected in FY 2020.

Economic Indicators The U. S. economy expanded at rates of 4.2 percent and 3.4 percent in the second and third quarters of 2018, respectively, and economic growth likely remained robust in the last quarter of 2018. As the economy continued to add jobs at a solid clip throughout 2018 and the beginning of 2019, with 304,000 jobs added in January, the unemployment rate dipped to levels not seen since 1969. The current economic expansion, buttressed by strong consumer spending thanks to rising wage growth and strong labor market gains, is the second longest in history at 116 months. Economists expect a slowdown in growth in 2019 due to tighter financial conditions and a fading fiscal stimulus from the federal tax reform approved in 2018. With continued strength in the labor market and economic activity rising at a healthy rate, the Federal Reserve raised the federal funds rate four times throughout 2018. The rate now stands at a range of 2.25 percent to 2.5 percent and the Fed has indicated that two interest rate hikes are possible in 2019. The Federal Open Market Committee, which sets the rates, assured that it will "continue to monitor global economic and financial developments and assess their implications for the economic outlook."

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General Fund Revenue Overview

After a slow recovery from the Great Recession and sequestration, Virginia's economic performance picked up the pace in 2018. The increase in federal government contract spending as a result of the Bipartisan Budget Agreement of 2018 bodes well for Virginia's economy in the short-term. In addition, attracting Amazon's HQ2 to Northern Virginia is expected to provide a boost to the region's economic performance, spur innovation and further diversify the economy away from federal spending dependency.

Employment gains in the Washington region were above the historical average in 2018. Three sectors ? professional and business services, education and health services, and leisure and hospitality ? outperformed their historic job growth pattern in 2018. In Fairfax County, the unemployment rate fell to 2.2 percent as of November 2018, down from 2.8 percent in November 2017. According to estimates from IHS Markit, the County's Gross County Product (GCP), adjusted for inflation, increased at a rate of 2.1 percent in 2017, and growth accelerated to an estimated 2.7 percent in 2018.

The region's economic outlook for 2019 became a lot more uncertain due to the 35-day partial government shutdown in the beginning of the year. According to Dr. Stephen Fuller, a George Mason University professor, 40 percent of the region's 360,000 federal workers were furloughed or worked without pay and 25 percent of the federal contractor workforce was laid off during the shutdown. While the full impact of the shutdown in the long-term is unclear and hard to quantify, it did impact the economy negatively in the short-term as a result of reduced spending by federal workers. Some of the costs were also transferred to local governments in the form of higher public assistance expenditures and lower tax revenues. Further headwinds for the local and national economy during 2019 include the decelerating global markets, higher interest rates, increased market volatility and trade policy uncertainty. In addition, what adds to future uncertainty is a divided Congress that will need to tackle the expiration of the debt ceiling suspension on March 1, 2019 and the return of the sequester-level discretionary spending caps on October 1, 2019.

Local Housing Market Based on information from the Metropolitan Regional Information System (MRIS), the average sales price of homes sold in Fairfax County rose 1.9 percent from $567,829 in 2017 to $578,723 in 2018. Home prices continue to increase primarily as a result of tight inventory of homes for sale. Since 2009, the average home sales price has risen 38.7 percent, or an average annual growth of 3.7 percent.

MRIS also reported that 15,683 homes sold in the County in 2018, down 2.6 percent from 2017. Homes that sold during 2018 were on the market for an average of 52 days, down from 61 days in 2017.

Local Nonresidential Market According to the Fairfax County Economic Development Authority, the direct office vacancy rate at yearend 2018 was 14.9 percent, down from 15.5 percent at year-end 2017. The overall office vacancy rate, which includes empty sublet space, was 15.5 percent at year-end 2018, down from 16.3 percent recorded at yearend 2017. The amount of empty office space fell to 18.4 million square feet. Industry experts expect vacancy rates to remain relatively stable through 2019 as tenants monitor economic conditions and the direction of the federal budget.

At year-end 2018, office development continued around Metro stations in the Silver Line corridor and in other areas of the County as well. Six office buildings totaling more than 1.5 million square feet were underway in three submarkets in December 2018. The amount of new space delivered in 2018 ? more than 1.5 million square feet ? exceeded the roughly 870,000 square feet delivered in 2017.

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General Fund Revenue Overview

Office leasing activity topped 9.6 million square feet by the end of 2018. As has been the case for the past several years, the overwhelming majority of leasing activity during 2018 involved renewals and consolidations. Lease rates for new space are adjusting to market conditions as many tenants are taking advantage of favorable rates, and others are looking to capitalize on market conditions by consolidating operations in newer space near Metro stations. Submarkets along and near the Silver Line ? Tysons, Reston and the Herndon area ? are especially well-positioned to take advantage of this trend. More than 54 million square feet of new office space is in the development pipeline countywide. Revenue In FY 2020, current and delinquent Real Estate Tax revenue comprises 65.0 percent of total County General Fund revenues. FY 2020 Real Estate property values were established as of January 1, 2019 and reflect market activity through calendar year 2018. The Real Estate Tax base is projected to increase 3.60 percent in FY 2020 and is made up of a 2.45 percent increase in total equalization (reassessment of existing residential and nonresidential properties), and an increase of 1.15 percent for new construction. The FY 2019 and FY 2020 General Fund revenue estimates discussed in this section are based on a review of Fairfax County economic indicators, actual FY 2018 receipts, and FY 2019 year-to-date collection trends. Forecasts of economic activity in the County are provided by IHS Markit and a variety of national economic forecasts are considered. Based on analysis of projected trends, revenue categories are expected to experience moderate growth through FY 2020.

FY 2020 Fairfax County Advertised Budget Plan (Overview) - 86

General Fund Revenue Overview

MAJOR REVENUE SOURCES

The following major revenue categories discussed in this section comprise 98.7 percent of total FY 2020 General Fund revenue. Unless otherwise indicated, comparative data are presented relative to the FY 2019 Revised Budget Plan. The revenue estimates for all General Fund Revenue categories are shown in the Summary Schedule of General Fund Revenues in the section of this volume titled "Financial, Statistical and Summary Tables."

Change from the FY 2019 Revised

Budget Plan

Category Real Estate Tax - Current

Personal Property Tax Current2 Paid Locally Reimbursed by Commonwealth

FY 2018 Actual

FY 2019 Adopted FY 2019 Revised

Budget Plan

Budget Plan1

$2,641,900,635 $2,781,410,559 $2,781,410,559

FY 2020 Advertised Budget Plan

Increase / (Decrease)

$2,881,632,405 $100,221,846

Percent Change

3.6%

606,998,834

608,539,553

613,380,753

622,530,491

9,149,738

1.5%

395,684,890

397,225,609

402,066,809

411,216,547

9,149,738

2.3%

211,313,944

211,313,944

211,313,944

211,313,944

0

0.0%

Business, Professional and Occupational License Tax-Current

Local Sales Tax

162,298,747

160,086,487

164,733,228

167,204,226

2,470,998

1.5%

182,172,429

185,686,835

186,726,741

191,394,909

4,668,168

2.5%

Recordation/Deed of Conveyance Taxes Gas & Electric Utility Taxes Communications Sales Tax Vehicle License Fee

31,960,941 45,883,971 12,856,026 27,227,944

31,193,902 45,533,698 10,528,299 27,464,107

28,488,338 45,533,698 8,366,196 27,464,107

28,488,338 45,533,698 5,688,439 27,464,107

0 0 (2,677,757) 0

0.0% 0.0% (32.0%) 0.0%

Transient Occupancy Tax Cigarette Tax

22,129,369 6,502,880

22,120,618 6,561,630

22,682,603 5,976,682

23,249,668 5,916,915

567,065 (59,767)

2.5% (1.0%)

Permits, Fees and Regulatory Licenses Investment Interest Charges for Services

52,721,959 41,438,317 82,474,118

53,009,977 46,992,592 81,868,225

53,305,534 67,403,726 82,845,373

53,559,013 80,017,523 83,305,683

253,479 12,613,797

460,310

0.5% 18.7% 0.6%

Fines and Forfeitures

12,178,390

12,178,536

12,438,697

12,583,545

144,848

1.2%

Recovered Costs / Other Revenue

17,405,819

16,636,952

16,883,193

16,934,540

51,347

0.3%

Revenue from the Commonwealth and Federal

Government2

136,763,218

133,833,796

136,909,664

139,699,660

2,789,996

2.0%

Total Major Revenue Sources

$4,082,913,597 $4,223,645,766 $4,254,549,092 $4,385,203,160 $130,654,068

3.1%

1 FY 2019 revenue estimates were increased a net $31.8 million as part of the FY 2018 Carryover Review and the fall 2018 review of revenues. Explanations of these changes can be found in the following narrative. The FY 2019 Third Quarter Review may contain further adjustments as necessary.

2 The portion of the Personal Property Tax reimbursed by the Commonwealth as a result of the Personal Property Tax Relief Act of 1998 is included in the Personal Property Tax category for the purpose of discussion in this section.

FY 2020 Fairfax County Advertised Budget Plan (Overview) - 87

General Fund Revenue Overview

FY 2018 Actual

$2,641,900,635

FY 2019 Adopted

$2,781,410,559

REAL ESTATE TAX-CURRENT

FY 2019 Revised

$2,781,410,559

FY 2020 Advertised

$2,881,632,405

Increase/ (Decrease)

$100,221,846

Percent Change

3.6%

The FY 2020 Advertised Budget Plan estimate for Current Real Estate Taxes is $2,881,632,405 and represents an increase of $100,221,846 or 3.6 percent over the FY 2019 Revised Budget Plan estimate. The increase is the result of the rise of the Real Estate tax base of 3.60 percent. The proposed FY 2020 Real Estate tax rate is $1.15 per $100 of assessed value, the same as in FY 2019.

The FY 2020 value of assessed real property represents an increase of 3.60 percent, as compared to the FY 2019 Real Estate Land Book, and is comprised of an increase in equalization of 2.45 percent and an increase of 1.15 percent associated with new construction. The FY 2020 figures reflected in this document are based on final assessments for Tax Year 2019 (FY 2020), which were established as of January 1, 2019. In addition to the revenue shown in the table above, the projected value of one-half penny on the Real Estate Tax rate ($12.8 million) is allocated to The Penny for Affordable Housing Fund and $5.5 million is allocated to Fund 70040, Mosaic District Community Development Authority. Throughout FY 2020, Real Estate Tax revenues will be adjusted as necessary to reflect changes in exonerations, tax abatements, and supplemental assessments, as well as any differences in the projected collection rate of 99.70 percent.

The FY 2020 Main Assessment Book Value is $255,191,954,950 and represents an increase of $8,857,622,800, or 3.60 percent, over the FY 2019 main assessment book value of $246,334,332,150.

From FY 2005 through FY 2007, the assessment base experienced double digit advances. Deceleration began in FY 2008, when the assessment base rose just 4.15 percent, and continued in FY 2009 with a modest increase of 0.51 percent. Following the financial crisis and a general decline in economic conditions, the FY 2010 assessment base declined 9.95 percent, which was the largest drop on record. The assessment base decreased for a second consecutive year in FY 2011, declining 9.20 percent. Since FY 2012, the assessment base has experienced an average annual growth of 3.49 percent through FY 2020.

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General Fund Revenue Overview

The following chart shows changes in the County's assessed value base from FY 2011 to FY 2020.

Percentage Change in Real Estate Assessed Value FY 2011 - FY 2020

8%

6%

5.77%

4%

3.27% 3.27% 3.40%

3.46% 2.98%

3.59% 3.60%

1.89% 2%

0%

-2%

-4%

-6%

-8%

-10%

Equalization Res NonRes

Growth TOTAL

-9.20% 2011 2012

2013

2014 2015 2016 Fiscal Year

2017

-8.98% -5.56

-18.29 -0.22% -9.20%

2.67% 2.34 3.73 0.60% 3.27%

2.53% 0.71 8.21 0.74% 3.27%

2.63% 3.50 0.14 0.77% 3.40%

4.84% 6.54 -0.10 0.93% 5.77%

2.40% 3.39% -0.60% 1.06% 3.46%

1.94% 1.64% 2.87% 1.04% 2.98%

2018

0.97% 0.68% 1.85% 0.92% 1.89%

2019

2.58% 2.17% 3.79% 1.01% 3.59%

2020

2.45% 2.36% 2.71% 1.15% 3.60%

The overall change in the assessment base is comprised of equalization and normal growth. For reporting puTortpaloses, ind2iv5i.8d8u%al pr-o6.p08e%rties a2r.7e0i%dent1i3fi.6e4d%as bei1n5g.14in% either12t.h48e%equ1a2li.0z4a%tion ca2t3e.g49o%ry or 2t2h.e70g%rowth category, but not both. Equalization properties are those whose values change due to market fluctuations. Growth is a category of properties whose value changes are also influenced by new construction, remodeling or rezonings. Once growth factors are identified, the entire property value is shown in the growth category, even though the property is also influenced by equalization. The FY 2020 assessment base reflects a total equalization increase of 2.45 percent and an increase of 1.15 percent associated with the growth component. As a result of changes in equalization and growth, the residential portion of the total assessment base decreased from 73.81 percent in FY 2019 to 73.30 percent in FY 2020. The following table reflects changes in the Real Estate Tax assessment base from FY 2014 through FY 2020.

FY 2020 Fairfax County Advertised Budget Plan (Overview) - 89

General Fund Revenue Overview

Main Real Estate Assessment Book Value and Changes

(in millions)

Assessed Base Change Due To:

FY 2014

Equalization % Change

$5,259.4 2.63%

Residential Nonresidential

3.50% 0.14%

Normal Growth % Change

$1,550.4 0.77%

Residential Nonresidential

0.42% 1.79%

Total Change % Change

$6,809.8 3.40%

Total Book

$207,073.1

FY 2015 $10,026.1

4.84%

6.54% (0.10%) $1,922.0 0.93%

0.51% 2.13%

$11,948.1 5.77%

$219,021.3

FY 2016 $5,269.7 2.40%

3.39% (0.60%) $2,318.0 1.06%

0.51% 2.74%

$7,587.7 3.46%

$226,609.0

FY 2017 $4,401.5 1.94%

1.64% 2.87% $2,362.6 1.04%

0.56% 2.54%

$6,764.2 2.98%

$233,373.1

FY 2018 $2,269.9 0.97%

0.68% 1.85% $2,148.1 0.92%

0.36% 2.61%

$4,418.0 1.89%

$237,791.1

FY 2019 $6,140.1 2.58%

2.17% 3.79% $2,403.1 1.01%

0.57% 2.29%

$8,543.2 3.59%

$246,334.3

FY 2020 $6,032.5 2.45%

2.36% 2.71% $2,825.1 1.15%

0.68% 2.47%

$8,857.6 3.60%

$255,192.0

Equalization, or reassessment of existing residential and nonresidential property, represents an increase in value of $6,032,548,910, or 2.45 percent, in FY 2020. Both residential and non-residential property values rose in FY 2020. Growth in non-residential equalization has been higher than that of residential equalization in the last four years. Overall, residential equalization reflects a 2.36 percent increase in FY 2020, compared to a 2.17 percent increase in FY 2019. Nonresidential equalization rose 2.71 percent in FY 2020, compared to a 3.79 percent increase in FY 2019. Changes in the assessment base as a result of equalization are shown in the following graph.

Real Estate Assessed Value Associated With Equalization FY 2010 - FY 2020

15% 10% 5% 0% -5% -10% -15%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Fiscal Year

FY 2020 Fairfax County Advertised Budget Plan (Overview) - 90

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