The plague of foreclosures, compounded by mounting job losses, has translated into declining property tax revenues which is stressing state budgets across the nation. With the majority of US properties over-valued — often assessed at the market’s peak — struggling tax-payers are facing an additional burden, while states implement measures to limit assessments and provide means of appeal. For more on this, see the following article from Housing Predictor.
Forty-eight of all 50 U.S. states are in economic turmoil as a result of the housing bust and the financial crisis. States have laid-off employees, slashed budgets and cut back on services, including schools and emergency services such as police and fire department personnel.
“Forty-eight states are in budget crisis,” according to New York Governor David A. Patterson. In large part the crisis has been triggered by major reductions in real estate tax collections, but it has also been caused by reductions in local sales taxes and businesses paying less tax as a result of the recessionary economy. Few were complaining when the housing market was booming, but as homeowners lost equity in their homes and other property the crisis is making a huge impact on communities.
The foreclosure epidemic may be blamed for only part of the problem. Rising unemployment and higher taxes than many people can afford at present income levels are also part of the problem.
In some cases, federal bail-out monies have been used to save jobs and sustain services, but the pipeline of funds has been limited as communities scramble to get a handle on the crisis.
In the last decade property taxes have increased at twice the rate of inflation placing a burden on property owners, according to the National Taxpayers Union. The rise in per capita property taxes was 51.7% between 2000 and 2007, the latest figures available.
The long running rise in property taxes has been a major issue for cities and state governments to deal with as rising foreclosures and job losses reduce the number of property owners able to pay. Some states have passed legislation to limit the amount of property taxes that can be assessed like California, which passed the Jarvis-Gann initiative 20 years ago.
The real estate downturn has taken a toll on re-sale values. Homeowners are appealing property tax bills in rising numbers. Florida and New York states have opened new programs to appeal tax bills as property values deflate in the housing downturn.
The rise in home sales has given hope to millions of homeowners ushered in by the federal governments first time home buyers tax credit, lower prices and low mortgage rates. A large number of homeowners are still paying taxes based on assessments that were made at the peak of the real estate boom.
An estimated 60% of U.S. properties are overvalued, according to the National Taxpayers Union, leaving the majority of Americans paying more than their share. The figure is expected to move higher as communities get a handle on what the true value of their properties are.
Real estate is reassessed on an annual basis in some states, while others re-assess homes and land every two or three years, adding to the confusion and problems that belie local county and state governments.
U.S. Census Bureau data shows that over a three year period, from 2006 to 2008, homeowners in New York and New Jersey counties paid the highest property taxes in the nation. Louisiana parishes paid the lowest. The median property taxes paid over the period was more than 7% of household income compared to the national median of 2.85%.
This article has been republished from Housing Predictor. You can also view this article at Housing Predictor, a real estate analysis and forecasting site.