Falling Home Values Mean Budget Crunches for Cities
December 28, 2011
The country has been mired in a housing crisis for the past five years; and the worst may still lie ahead for local governments, because of the time it takes for property assessments to reflect home depreciation.
The bust that began in 2007 has just started to ravage tax revenues in communities across the country -- a problem that is expected to linger for years. Many local governments weathered the early years of the financial crisis partly because the property tax revenues they so heavily depend on held steady or actually rose due to assessments that still reflected inflated residential values. In their latest assessments, though, a growing number of municipalities are being forced to recognize the collapse in home prices and the shrinking tax base that comes with it.
Andrew Reschovsky, a professor of public affairs and applied economics at the University of Wisconsin at Madison, has studied the effects of the recession on city finances. He observes, "We'll see, over the next few years, the real impact of the recession and housing crisis on local governments. I think the case can be made that we have not yet seen the worst of the impact on local governments." This fall in Chicago, for instance, Mayor Rahm Emanuel proposed closing police stations, hiking water and sewer fees, and reducing library hours to help close a budget gap.
Thomas Fitzpatrick, an economist at the Federal Reserve Bank of Cleveland, wrote in a recent report: "If creative ways to make up for this lack of revenue are not found, local governments may face the undesirable choice of either raising property taxes or reducing funding for essential services."
Source: "Falling Home Values Mean Budget Crunches for Cities," Washington Post (12/26/11)
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Updated: November 30, 2020