City of Alexandria, Virginia
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MEMORANDUM
DATE: DECEMBER 5, 2018
TO: THE HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL
FROM: MARK B. JINKS, CITY MANAGER /s/
DOCKET TITLE:
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Introduction and First Reading. Consideration. Passage on First Reading of an ordinance to repeal Section 3-2-190 (Tier II Potomac Yard Metrorail Station Special Tax District) in Division 1 (Real Estate) of Article M (Levy and Collection of Property Taxes) of Chapter 2 (Taxation) of Title 3 (FINANCE, TAXATION, AND PROCUREMENT) of the Code of the City of Alexandria, Virginia, 1981, as amended.
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ISSUE: Should the Tier II Special Tax District be repealed?
RECOMMENDATION: That City Council approve on first reading, set for second reading and public hearing on December 15, 2018, the approval of the repeal of the Tier II Potomac Yard Special Tax District.
BACKGROUND: When the 2010 Potomac Yard Metrorail Station financing plan was developed, there were four main financing sources: incremental increases in the real estate tax base in Potomac Yard, developer contributions, and two Special Tax Districts (the Tier I District and Tier II District). The Tier I Special Tax District, with at 20-cent add-on real estate tax rate, encompassed North Potomac Yard and the commercial elements of South Potomac Yard, and the Tier II District, at a 10-cent add on real estate tax rate, encompassed the fee ownership residential blocks of South Potomac Yard. A map of the two districts is attached. The Tier I District’s taxation was effective in 2011, with the Tier II District taxation not planned to start until the calendar year after the Metrorail Station opens. Based on today’s construction schedule, the Tier II effective taxation start year would be 2023. The residential areas of Potomac Yard to the east of the rail tracks (Old Town Greens and Potomac Greens) were not included in either of these two special tax districts.
Many of the residents of South Potomac Yard, where no development had yet occurred when the Tier II District was established, have long objected to the Tier II Tax District. Their argument has been that they were not present to express their views when the Tier II tax district was created (because their homes had yet to be constructed) so they had no voice in that decision. Their second argument is that they will be already paying higher taxes because of their location near the proposed Potomac Yard Metrorail Station will trigger higher property tax assessments. The counter argument is that when the South Potomac Yard residents purchased their homes, the future Tier II Special Tax District was an adopted City ordinance and disclosed in their purchase documents. Given the uncertainty of timing and cost of the Metrorail station in recent years, the decision on whether or not to keep or eliminate the Tier II district was deferred until station costs were better known and station design was finalized. The costs are now known ($320 million), and the station design is scheduled for public hearing and City Council action on December 17.
Earlier this year when it appeared that Virginia Dominion was going to propose using City right-of-way largely in the Potomac Yard area for a 230kV high voltage underground line, City Council approved a condition to eliminate the Tier II District and replace the some $15 million planned to be collected over the life of the Tier II District with an equal amount of Dominion right-of-way fees. Dominion indicated earlier this fall that it will not need the City’s right-of-way to improve its 230kV electrical distribution, so no right-of-way fees will be available to replace the Tier II tax revenues.
With the recent announcement by Amazon that they will be creating at least a 25,000 person headquarters operation north of Potomac Yard in Arlington, and with Virginia Tech having proposed to create an Innovation Campus with a $1 billion investment on the Oakville Triangle site adjacent to the southern end of Potomac Yard, it is highly likely that increased appreciation of townhouses and condominiums in the Tier II District area will more than equal to what the Tier II District would have generated with its 10-cent add-on tax rate over its life. It would take only a 9% additional increase in appreciation of the real estate value of Tier II properties for that financial offset of the Tier II taxes to occur. Given the recent announcements, it is near certain that at least 9% additional appreciation will occur due to Amazon and Virginia Tech. Higher taxes will accrue to the City as the one limited real estate product which will not be replicated in the Amazon neighborhood in Arlington, and not likely replicated in Potomac Yard will be fee simple townhouses and stacked townhouses. Given the limited supply of this housing type and the larger forthcoming demand, a 9% appreciation assumption in the Tier II area is reasonable.
During the preparation of this Tier II abolition ordinance, it was realized that in the Tier I District one development area in Landbay I (between Swann Avenue and Bluemont Avenue), which had been converted from their original commercial state to a condominium building plan remains in Tier I. Staff will be studying this issue in the next few months and developing a recommendation(s) for Council, as to whether or not to keep this one development area in
Tier II.
FISCAL IMPACT: It is projected that the added appreciation in South Potomac Yard will more than compensate over about a 30-year period for the $15 million in revenues that the Tier II Special Tax District would have collected over that time period.
ATTACHMENT: Proposed ordinance to repeal the Tier II District