State budget deficits are finally starting to ease thanks to upticks in collections of personal income and sales taxes. But just in time, municipalities face declines in property tax revenues, as housing price declines finally drive down assessments. I wrote about this coming problem back here, noting that:
Property taxes--the main source of revenue for many municipalities--actually kept rising during much of the 2008 and 2009 downturn, reflecting multiyear assessments that still included robust economic years...But collections are starting to plummet. That drop could continue for a while..
Now USA Today has a good story running the latest numbers on the slowing in collections after the continuing increases earlier in the recession. It notes that on a real basis property tax collections declined last year for the first time since the economic meltdown, after a 17 percent gain.
What the story doesn't add is that this flattening out of property tax collections comes even as municipal budgets remain under strain from cuts in state aid and in continually rising employee costs. Compensation makes up 70 percent to 80 percent of local budgets, and localities are struggling to restrain health care costs, especially in places where union contracts forbid making cuts in plans, while pension tabs keep growing. The long and short of this is that local budgets will be under strain for some time to come.
What the story doesn't add is that this flattening out of property tax collections comes even as municipal budgets remain under strain from cuts in state aid and in continually rising employee costs. Compensation makes up 70 percent to 80 percent of local budgets, and localities are struggling to restrain health care costs, especially in places where union contracts forbid making cuts in plans, while pension tabs keep growing. The long and short of this is that local budgets will be under strain for some time to come.
Wow, what a fantastic post. Informative article that gives useful information and explaining the relation between property tax and nation local budget, thanks for sharing this view.