Leila and members of the RCC Board of Governors—
I enjoyed attending this afternoon’s strategic planning session and listening to the free flowing discussion on RCC’s progress and plans. It was a rich discussion that was especially enlightening to this Reston resident and probably to the new members of the BOG. From my own experience in either leading or participating in such discussions in both government and the private sector, I think it was well managed, fully participatory, candid, complete, and constructive. And, as was said, provides a good foundation for your discussions tomorrow.
As a long-time Reston resident (not as a spokesperson for RCA or Reston 2020), I would like to provide a few comments on the recreation center issue—especially in the context of a couple of the “threats” identified in your SWOT analysis this afternoon: (a) economic uncertainty and (b) competition for resources. I will also make a couple of comments about the implications of B&D market analysis.
The current national economic uncertainty is unlikely to improve through at least this decade, and possibly the next. In particular, there is little evidence that the gridlock in Congress resulting in uncertain and constant, if not shrinking, federal spending will change anytime soon no matter how much we may wish it to. The consequence will almost certainly be slow, even limited, job growth and, therefore, limited housing and broader economic growth for some years to come.
This general economic uncertainty will be aggravated by major changes in the demand for office space (comprising more than three-quarters of Reston’s current and prospective business space) and housing. I say this based on my work with the Reston Master Plan Task Force and my research into these issues. While the arrival of Metrorail will be a relative stimulus to development compared to parts of Fairfax County not served by rail, the impact will be less than most—including the County—anticipates. The key reason is that office workspace and urban dwelling units are shrinking, especially office space.
The “Shrinking Office” Market
The “shrinking office” is a universal global trend and one that is readily apparent in the Washington area according to a wide variety of academic, industry, and journalistic resources. This extensively documented trend is driven by cost (efficiency), technology (telework), work environment (collaborative), and other considerations. Indeed, I have written a series of letter to Chairman Bulova expressing my concern that the Task Force is assuming each office worker will require much more office space than will actually be the case. Right now, the Task Force and County staff assume each worker will require 300 gross square feet (GSF) of space while industry experience is that, in 2012, some 250 GSF (or ~170 usable SF) of space was the global average and this number is expected to drop to about 150 GSF (100 usable SF) or HALF the space requirement the County currently assumes.
I have tracked the growth of office space in the County from 2004-2012, the latest period for which complete and authoritative data is available. In that period, a regression analysis of the year-over-year incremental growth in gross square footage per office worker (GSF/OW) has shrunk from about 360 GSF to about 160 GSF—more than half!
Why is this important? Whatever office employment growth occurs in the Dulles Corridor is likely to require one-half to two-thirds the office space the County currently assumes it will need. Moreover, the office market is already going through a period of retrofitting office space to fit more workers in existing office buildings. This in largely part accounts for the one percent growth in leased office space since the floor of the Great Recession despite a nearly six percent increase in office employment. We can expect more retrofitting of existing office space for several years to come and subsequent growth to be at reduced rates.
That reduced level of office space growth means reduced growth in County property tax revenues absent politically unappetizing increases in all property tax rates. In fact, “cap rates”—the basis of business development tax assessments (vice “comparables” for our homes)—will remain low as office vacancy rates remain high despite an improving local economy.
Residential Studio Units (RSUs)
Largely reflecting the fact that future younger families will likely be smaller and, on average, less well-to-do than their parents’ generation, the County Planning Commission is preparing a new zoning ordinance amendment for very small apartments for lower income households (less than 60% of the Area Median Income) that is now going through a public meeting period. Here is how the County website describes these RSUs:
The proposed Zoning Ordinance amendment establishes a new use of Residential Studios that will consist of efficiency (zero bedrooms) multiple family dwelling units of not more than 500 square feet in size and for not more than 75 units in a development, or as further limited by the Board. The residential studio use would be allowed with the approval of a special exception in most of the residential, commercial and industrial districts or as part of a rezoning or by approval of a special exception in all of the planned development districts. The amendment proposes a number of additional standards to address factors related to the operation of the development and compatibility of the use at the specific development site, among others.
The County staff report on this proposal provides extensive background and analysis, noting most importantly that RSUs would provide an important housing opportunity at the lower end of the workforce housing program that is not currently available. The notion of “housing for all” is totally consistent with Reston’s vision, values, and planning principles.
Meanwhile, the Reston Task Force assumed that new urban dwelling units (DUs) around Reston’s Metro stations would average 1,200 GSF. It is not clear exactly how much the passage of this zoning ordinance would reduce that assumption because no one has done the analysis. Nonetheless, the size of DUs is likely to shrink and the implications for development growth, real estate values, and County tax revenues are very similar to those for office development.
Competition for Resources (aka Tax Revenues)
As the previous section infers, resources—especially tax dollars—are likely to be substantially more constrained in the future, and RCC will be competing with other more important needs for Restonians’ tax dollars despite the independent taxing authority of STD#5.
First, as the above section highlights, the County is not likely to garner the property tax revenues it may expect from development in Reston because (a) job and household growth is likely to be less than assumed, and (b) what growth occurs will occur in less space resulting in lower tax revenues. After all is said and done, that will likely require the increasing of County property tax rates, creating a greater burden for all Restonians.
Second, the anticipated growth in jobs and households will require a substantial County investment in local infrastructure, the largest investment being in our transportation infrastructure. The same problem is even more significant in Tysons where the County recently created a Tysons-wide tax service district to provide the bulk of the funds. The residents and businesses in Tysons will have to pay an additional $.09/$100 valuation in 2015 following a transition rate increase of $.04/$100 valuation in 2014 to help defray the cost of transportation improvements. This is in addition to other special taxes for developing the Phase 1 Silver Line stations in Tysons ($.22/$100 valuation) that business owners have agreed to pay.
Reston 2020’s Transportation Working Group (TWG) suggested in its 2010 report to the Task Force that the transportation infrastructure costs in Reston would run about half those in Tysons ($3 billion in current dollars, $6 billion in future dollars, not counting bond interest). These costs would be led by the three planned new crossings of the Dulles Corridor to accommodate huge increases in station area traffic. It has not even been discussed how these and other transportation infrastructure costs might be paid for. If Reston follows the Tysons example, its Corridor area business and residences may be subject subjected to a similar special tax running about half the rate experienced in Tysons. A broader, Reston-wide special tax district would probably see a two or three cent increase in tax rates per $100 valuation. All this has yet to be determined.
Finally, Reston 2020’s calculations based on the cost analysis completed by B&D suggest that the tax rate for STD#5 will have to increase from $.047/$100 valuation to about $.075/$100 valuation—a 60% STD#5 tax rate hike—to cover the costs of building and operating a new recreation center as described in B&D’s latest update. (In this regard, we would note again that the RCLCo Reston tax base forecast is based on hopelessly out-of-date—and hopelessly optimistic—data from GMU’s Center for Regional Analysis that even CRA has backed away from twice. It would be malfeasance to use it in assessing likely STD#5 tax revenue streams even for a short period of time.) That rate could subside over time with community growth, but probably not at the rate previously experienced by RCC given slower growth than officially forecast.
Yes, there is a tremendous competition for tax dollars within the County, the least important of which is the building of a recreation center in the face of likely tax rate increases for Reston’s transportation infrastructure and continuing general county tax rate increases as costs and obligations grow more quickly than the local tax base.
The Recreation Center Market Analysis
The relative unimportance of using Reston tax dollars to build a recreation center is accentuated by B&D’s market analysis that infers such a facility would be highly unlikely to be “successful,” that is, recover all operational costs through fee/activity revenues.
In a public recreation center such as the one being proposed, B&D says success is achieved in most cases when the operating revenues reach 80%-90% of operating costs, that is, a recovery rate of 80%-90%, with the rest of the costs being subsidized by taxes. Here is what B&D’s latest report specifically says on the topic (p. 3.8):
In B&D’s experience, most of the successful recreation public facilities are able to cover 80-90% of operating costs with the remaining expenses subsidized by various public monies. . .
Its 2009 report uses exactly the same wording to describe “successful” recreation centers, except that it omits the word “public.”
B&D’s most recent report adds the following for perspective on the issue:
. . . In the case of Fairfax County, all of the recreation facilities operate at break-even or better. The ability to assess fees close to rates of these pubic facilities and generate revenue through a comprehensive menu of programs provides the opportunity to achieve financial stability.
Nothing in any of the several B&D reports indicates that it is likely for a Reston recreation center to reach operational breakeven given the guidance it had when those reports were prepared.
- B&D’s May 2009 report forecast recovery rates of 74-80% for three alternative recreation center options—all of which were considerably larger than any option now being considered.
- Its May 2013 update report forecast recovery rates ranging from 59-71% after ramp-up for a small (52.2K SF) facility and 65-80% recovery for a larger (84.9K SF) facility.
- Its November 2013 presentation indicated a 50-71% recovery rate for a recreation facility of 87,600 SF.
None of these come close to breakeven, much less the 114% average recovery rate experienced at all the other County recreation centers for which B&D provided data in its 2009 report.
A Reston recreation center is not economically feasible under these circumstances and imposing additional taxes on Restonians to pay for a knowingly underperforming recreation center would be public misfeasance, even if an ill-informed and overwhelmed public voted for it in a referendum.
Now is the time for the RCC Board of Governors to lead and say “No” to this long-percolating ill-advised idea.
Thank you for listening. I apologize for the late hour and for any errors, substantive or editorial, in this e-mail. I look forward to seeing you in the morning.