As housing prices decrease, tax assessments decrease as well. More property owners are challenging their tax assessments and succeeding given the declining economy. But this raises questions about the ability of local governments to collect the revenue necessary to provide essential services like police and fire protection, road and sewer maintenance, trash collection and the other housekeeping activities local governments perform.
The tax appeals and reassessments present a new budget nightmare for governments. In a survey conducted by the National Association of Counties, 76 percent of large counties said that falling property tax revenue was significantly affecting their budgets, said Jacqueline Byers, the association’s research director.
Officials in some states say their property tax revenue is falling for the first time since World War II.
The recession has already taken a significant toll on states’ budgets, as rising joblessness, a weak business climate and a drop in consumer demand have cut sharply into receipts from taxes on sales, personal income and business earnings.
The pain at the state level is trickling down to county and local governments. To compensate, about 10 percent of large counties are raising the tax rates associated with home values to minimize the revenue loss, the county association said.
Two consequences seem to follow from this, neither good for the still declining economy. As cities cut costs they will cut workers -- or the hours they work, which contributes to the worsening unemployment rate and the accompanying drain on services that comes with it. And as tax rates increase, money that could circulate in the local economy will instead go to local government.
But the dilemma is that if services are cut, the infrastructure that allows the local economy to function efficiently will crumble, which also contributes to an increasingly declining economy. Recessions are not fun.
For informational purposes, this paragraph does a great job of outlining one of the difficulties the American federal system has in establishing a coordinated strategy for dealing with the problem. It is not a coordinated system to begin with:
Property taxes are meted out by a disparate patchwork of cities, towns, counties, and school and fire districts, all with their own rules. Because tax formulas vary widely county to county, not every decrease in assessed values automatically lowers a household’s property taxes.
