Cities To Take Hit As Property Taxes Drop

As the economy dives and housing values plummet, revenue from property taxes is expected to fall over the next few years, making things tough for many cities.

"In the current recession, real estate values are plummeting, foreclosures are rising and huge numbers of taxpayers are disappearing from tax rolls. 'The property tax,' says Guy Griscom, past president of the International Association of Assessing Officers, 'is the primary source of revenue for localities. Right now, it's threatened.'"

"Whatever the law may be in a given jurisdiction, it's inevitable that when assessed values fall, the tax base ultimately shrinks. There is less money to spend for public purposes. 'We are still in phase one of what is likely to be a several-year cycle of property tax revenue declines for locals,' says Chris Hoene, of the National League of Cities. 'We've only just entered the woods.'"

"Whatever the law may be in a given jurisdiction, it's inevitable that when assessed values fall, the tax base ultimately shrinks. There is less money to spend for public purposes. 'We are still in phase one of what is likely to be a several-year cycle of property tax revenue declines for locals,' says Chris Hoene, of the National League of Cities. 'We've only just entered the woods.'"

"And for many homeowners, the woods will be full of unpleasant surprises this year. For example, every state sets an assessment date for establishing the value of property in the coming tax year. In many states, that date is January 1. Property owners receive a notice of the evaluation and of what their property tax will be some three or four months later. If the value of a house drops between the assessment date and receipt of the tax bill, that downward change is rarely reflected in the bill. The gut reaction of the homeowners is often vitriolic. They see themselves as being taxed on an unrealistic and unwarranted value. This is especially true right now."

"'What taxpayers might not understand,' Griscom says, 'is that they are going to pay taxes at the end of 2009 based on the value levied at the beginning of the year.'"

Full Story: A Break in the Levy

Comments

Comments

Michael Lewyn's picture
Blogger

The biggest problem with property taxes...

is that because they are so visible and so unpopular, a city that relies on property taxes will often have its tax base crushed every few years by state-imposed caps. So in a city with a weak tradition of local autonomy (such as Florida, where localities are basically slaves of the state) better to rely on sales taxes as much as possible, and just raise them when things get tough. (Of course, this is easier said than done, since often state authorization for this sort of thing is necessary).

depends on state

The effect on cities of fewer property tax dollars will vary depending on the state. I live in Ohio - here, property taxes make up a fairly small portion (about 10%) of the municipal budget in relation to income taxes, which can account for 60% of the budget. 80% or more of property tax revenue here goes to local schools, which will really bear the brunt of the foreclosure crisis in Ohio. Municipalities are mostly concerned with maintaining and attracting jobs in order to get more income tax revenue.

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