Property taxes have traditionally been viewed as recession-proof channels for local revenue, but first the Great Recession, and now the pandemic depression, are proving to be exceptions to the rule.
"Cities and counties are predicting a drop in their property tax revenues over the next year, a phenomenon that’s rare in recessions and never in the modern era has it occurred so quickly," reports Liz Farmer.
"Among counties, 27% reported reduced property tax collections through the first half of this year and even more — 43% — expect shortages to surface over the next year, according to a National Association of Counties survey."
Farmer also pulls data from the National League of Cities report released last week, which expects property tax revenues to decline over the next two years.
Together: "These expected declines are contributing to what is expected to be a $202 billion impact to county budgets and a $360 billion impact to city budgets over the next three years," reports Farmer.
Farmer adds some perspective for the dire government revenue news: property tax revenue declines are rare in the history of recessions. "That’s mainly because municipalities reassess properties every few years and if the local real estate market heads south, it takes a few years to show up in assessed values, if at all. That lag gives municipalities a chance to raise property tax rates up and keep revenue relatively flat on a lower total property base."
While property taxes have been considered, in the past, recession-proof forms of government revenue, the Great Recession, with its waves of foreclosures, proved an exception to the rule.
Another reason for surprise is that all reports are that housing prices are mostly rising during the pandemic, as buyers rush to move to take advantage of low interest rates, or to take advantage of new flexibility in working from home. But that same activity in the residential market is balanced by uncertainty in commercial markets, as companies respond to the same economic dynamics.
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