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The Challenges of Economic Development in Arlington County

At the monthly meeting of the Arlington County Civic Federation on Tuesday evening, March 3, 2015, delegates heard the chair of Arlington County Economic Development Commission, Sally Duran, discuss "the importance of a flourishing business community which will substantially benefit Arlington taxpayers." The slides from her PowerPoint presentation are available here. The Civic Federation website provides additional, related information as well.

The importance of maintaining Arlington's strong commercial tax base is depicted in the third slide that compares Arlington's 2014 tax base to the regional average. Last year, Arlington's tax base was 51% residential and 49% commercial, which compares to the regional average which is 70% residential and 30% commercial. In Arlington, the average residential payment last year was $5,278; by comparison, it's estimated the average residential tax payment would have to be $7,259, a difference of 38%, if the tax base split was similar to the regional average.

Another of the commission chair's slides showed that Arlington's office rents are less competitive than in the past. For example a difference of $12.64 between comparable office space in Arlington and Tysons. She also noted  that federal lease holdings have declined by 2.4 million square feet from 2011 to 2014.

There were four major takeaways, or challenges ahead, from the Economic Development Commission chair's presentation:

  • Office vacancy is 21.8%  -- above its 15-year historical average.
  • An increase of 10% in office occupancy would represent $34 million annually in local tax revenues.
  • 4.4 million square feet (s.f.) of office space must be filled for the vacancy rate to reach 10%.
  • The entire region is projected to add 3.6 million s.f. per year over the next two years.

That's the challenge. Now let's take a look at how county management would meet that challenge, a look that involves the department of economic development in the County Manager's proposed FY 2016 budget.

A week later, on Tuesday morning, March 10, the Arlington County Board and the County Manager held a budget work session to discuss several departmental budgets, including economic development. "At a glance," the department's budget shows:

  • Proposed budget totals $11.0M

A 1% decrease from FY 2015 due to: Reduction in one-time funding ($275,000) for (a) Tourism Promotion: $200,000; (b) Non-Profit Capacity Building: $45,000; and, (c) Arts Grants: $30,000

  • Total FTEs: 63.67

But it looks as if the newly-appointed economic development director had a surprise. Slide #13 of the generally standard set of slides referred to a "separate slide deck," which was entitled "The Way Forward." -- available here. The new director proposes a goal to:

"Reduce office vacancy by half and diversify the Arlington economy over the next 36 months."

The work effort, he says would fill 1.5 million square feet per year, or 125.000 square feet per month, or 29,000 square feet per week. By comparison, the Pentagon has "3,800,000 square feet for offices, concessions, and storage, according to InfoPlease.com. Furthermore, the challenge, according to one of the slides in The Way Forward presentation is that "net (office) absorption" was only "2.6 million square feet over the last 36 months."

To accomplish that, three options are offered, a 100% solution, a 50% solution, and a 25% solution. The 100% solution would require an "additional investment of $3.95 million per year for the next three years," including:

  • $1,200,000 Business Development (10 FTE’s)
  • $600,000 Marketing Investment
  • $350,000 Tandem NSI
  • $400,000 Tourism Promotion
  • $1,400,000 Incentives Fund

The "annual return on investment" for that $3.95 million? According to the 100% solution, it would be:

  • 1,350,000 square feet leased
  • 4,000 jobs
  • $20.6 million local revenue

The 50% and 25% solutions would, obviously, require fewer resources and show lower returns on investment.

Scroll up to those four 'takeaways' from the commission chair's presentation to the Civic Federation. Consider also that in the most recent economic outlook by the Congressional Budget Office, the economy, as measured by the gross domestic product (GDP) is projected to grow no more than 2.2% through 2025. By comparison, GDP growth from 1982 to 2001 was 3.2% and from 2002 to 2014, GDP growth was 2.1%. Now who would be willing to invest in that 100% solution, let alone a 50% or 25% solution? Note also in "The New Way Forward" plan is there any mention of addressing Arlington's less competitive market and the $12.64 difference in office rents. Consider also that any significant effort undertaken by Arlington County will certainly be matched by competitors in the region.

So how should the county respond to the challenge of economic growth and increased economic freedom? The Kansas Policy Institute (KPI), a free-market think tank, features a study by the National Federation of Independent Businesses showing that small business is more concerned about taxes, regulations, and low sales rather than more government. Speakers at a 2012 KPI conference also generally advocated tax and government cuts as being better than public incentives for spurring growth.

In a study from North Carolina's John Locke Foundation, John Hood suggests that state and local officials adopt a strategy that keeps "overall tax and regulatory burdens as low as possible."

Instead of increasing the bureaucracy, Arlington's economic development department should develop a plan that involves ways of reducing the tax and regulatory burden for the Arlington County business community, including recommendations by which the Virginia General Assembly can partner with the County Board in those reductions.

To see other FY 2016 budget presentations considered by the Board at their March 10 work session, see here. More detailed information about the department of economic development can be found in the Manager's proposed FY 2016 budget.

Growls readers who are Arlington County taxpayers are urged to write or call the Arlington County Board to tell them it's time to reduce the tax and regulatory burden of Arlington's business community to ensure their competitiveness with neighboring jurisdictions. Tell them they also need to control spending so that the FY 2016 budget can be adopted with a lowered tax rate of $0.974 per $100 of assessed value. Just click-on the link below:

  • Call the County Board office at (703) 228-3130.

And tell them ACTA sent you.

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