Alexandria faces tightest budget in years with less than 1% revenue growth
City projects just $5.2 million in new revenue for fiscal 2027 as federal uncertainty, declining consumer spending threaten services
Alexandria confronts its most challenging budget in recent memory as city officials project revenue growth of less than 1% for fiscal year 2027, forcing difficult decisions about services and potential tax increases.
The city expects just $5.2 million in new revenue next year compared with $25 million in growth during the current budget cycle, according to presentations at Saturday’s budget retreat. The dramatic slowdown stems from federal government uncertainty, declining consumer spending and a cooling real estate market that provides 58% of city revenue.
“We’re very tight. We’re not in a negative situation, but what we have directed all of our staff and partner agencies is that we’re very tight,” City Manager James Parajon said during the retreat at Del Pepper Community Center.
The shortfall could force Alexandria to raise property taxes, cut city services or reduce funding increases to schools — choices that will directly affect residents’ tax bills and the services they receive.
The revenue constraints create an immediate $8 million shortfall when factoring in $9 million in capital improvement program increases and guidance to Alexandria City Public Schools before addressing any city operations costs.
Revenue forecast shows dramatic slowdown
Morgan Routt, director of management and budget, emphasized the scale of the challenge during the presentation to City Council.
“The current estimate for fiscal 2027 based on what we’ve seen so far is $961.6 million,” Routt said. “It’s a $5.2 million increase over the current budget, which is less than 1%, about half of a percent.”
Real estate assessments, the city’s largest revenue source, show growth slowing to 1.59% for calendar year 2026 compared with 2.54% the previous year. The city bases property tax bills on Jan. 1 assessments, meaning slower growth directly reduces available revenue.
Laura Gates, deputy director of finance, said vehicle tax revenue growth has leveled off at 2% for fiscal 2026 based on actual October receipts. Sales tax and consumption tax revenues also show flat growth, reflecting declining consumer confidence.
Federal uncertainty hits hard
Federal government uncertainty creates additional economic pressure throughout Alexandria. Consumer spending dropped more than 4% in recent months as federal employees and contractors face job uncertainty.
The city has received increased requests for tax payment plans, with roughly 60 federal workers applying for vehicle tax payment plans and three requesting real estate tax payment arrangements, illustrating the financial strain on residents.
“The uncertainty, how that’s affecting us, we are seeing more projects asking for extensions coming forward to council,” Parajon said. “The capital markets, it’s hard to invest millions of dollars in a project when there’s uncertainty around how much it will cost to build because of the uncertainty in tariffs.”
The Dr. Stephen Fuller Institute at George Mason University temporarily suspended economic forecasting due to a lack of federal data, but indicated the regional economy is contracting across multiple indicators. The institute’s analysis of six proxy indicators suggests continued contraction into the foreseeable future.
Institute researchers noted a rapid increase in active single-family home listings in the region, coinciding with declining price growth, attributed to federal workforce uncertainty. City officials expressed concern the trend may not reverse until spring 2026, with Jan. 1 assessments potentially capturing the weakest point in the market cycle.
To address budget constraints, city departments must identify 1% savings in base services, totaling approximately $4.5 million. Any new departmental requests must include potential offsets for funding.
“We’ve asked departments to identify savings which would total about $4.5 million,” Routt said. “We’ve also asked departments that are asking for anything new to identify potential offsets to fund those.”
The city directed partner agencies to limit growth to 1.5%, though that guidance still allows Alexandria City Public Schools a $4.2 million increase. The school system faces a $15.1 million budget gap when accounting for all operational needs, equivalent to approximately 120 positions across the 2,400-employee system.
“I don’t think there’s a scenario where we can commit all of our growth to one partner,” Mayor Alyia Gaskins said during retreat discussions about competing budget pressures.
Tax increases on the table
The minimal revenue growth comes as more than half of Alexandria’s approximately 2,500 city employees are now covered by collective bargaining agreements. Negotiated contracts lock in compensation for three-year periods, significantly reducing budget flexibility.
Councilman John Chapman emphasized the structural nature of the challenges and calculated the magnitude of potential tax increases needed to address funding gaps.
“I think we’re talking 3 to 4 cents on the tax rate if we’re just being honest about it,” Chapman said. “And I don’t. That’s tough for this community and tough to understand that that’s the beginning. As we talked about with the assessments, the assessment picture does not get better next year. This is not a one-year bump.”
The city’s real estate tax rate stands at $1.135 per $100 of assessed value. Each penny increase generates approximately $7 million in annual revenue, meaning a 3- to 4-cent increase would raise $21 million to $28 million annually.
The meals tax currently stands at 5%, with each 1% increase projected to generate $6.5 million, though officials cautioned that the projection may prove optimistic given current economic conditions.
Gates outlined the city’s flexibility on tax rates during the retreat presentation.
“Real estate, these are essentially the tax rates that are not at the cap or not capped by state code, with one exception, our sales tax, which is at the maximum,” Gates said. “So real estate, vehicle personal property, business personal property, meals tax, those are all items. Transient occupancy. Those are all items that either have no cap or are not at the cap.”
Routt emphasized procedural requirements for any rate changes would necessitate early action.
“We also have requirements that we have to advertise, introduce ordinances and advertise the rate,” Routt said. “If we were to consider any of these avenues, that’s the kind of thing that requires community engagement, that we need more time than just a late date.”
City officials stressed no decisions have been made regarding tax increases, with officials preferring to address budget challenges through expenditure management first.
State funding advocacy planned
Both city and school officials emphasized the need for increased state funding. Virginia provides only 20% of Alexandria City Public Schools’ funding compared with a 55% state average, due to the city’s high property values under the state funding formula.
City officials revealed Alexandria taxpayers provide approximately $35 million in annual supplements to positions partially funded by the state. The city’s Budget and Fiscal Affairs Advisory Committee recommended a multiyear joint advocacy strategy between the City Council and the school board to pursue increased state funding.
“They poked us in the eye last year when they said they have $4 billion left,” Chapman said, referring to Virginia’s state surplus. “We shouldn’t have to go up in local taxes because you just said you had a $4 billion surplus.”
The city manager will present the proposed budget in late February, beginning a three-month public engagement process. The city has launched an online public comment portal at alexandria.gov/budget, active through April.
Council members emphasized the importance of transparent communication regarding the difficult choices ahead.
“We might have to do big things like challenge the WMATA compact. I’m not saying that’s a thing, but in years that could be,” Chapman said. “Let’s be very honest about where we are and what happens if we fall further back.”
The budget process continues through spring 2026, with final adoption scheduled for May. The fiscal 2027 budget takes effect July 1, 2026.