The tax revolt of 2010 (cont...)

By Fester:

People are in pain right now. Twenty million homeowners are underwater, a systemic debt reduction effort is underway, the employment picture now just sucks instead of horrendously sucking, any productivity and compensation gains are getting eated up by health care premiums and energy prices have bounced back up after an easy first half of the year.

In November 2007, I thought one of the dynamics that we would be seeing in 2009 and 2010 would be a property tax revolt. Property owners in bubblicious areas would see their homes go underwater as values and the regional economy that was built on bubble building deflated, and these property owners would be in pain and in a political position to do something about some of their pain:

People who are stuck with mortgages and houses that they can not sell, refinance or service will be looking for help. They will be looking for refinancing deals, special breaks, holds on foreclosures, delays on credit reporting, and most significantly at the local level, assistance on minimizing the quasi-fixed costs. That means support for more heating and energy assistance, lobbying for lower insurance limits for flooding and hurricanes in disaster prone areas with the hope of either dodging the bullets, or shifting those costs to someone, somewhere else, and most importantly, constant and downwardly revising re-assessments without concurrent increases in millage rates...

Homes are the primary asset for most people, and right now homes are under systemic threat as a symptom of a greater problem. People want to make that pain go away without the costs of fixing the greater problems, and engaging in a local government financial death spiral and micro-local education arbitage seems like a decent short term fix, so we'll see a full scale tax revolt in 2010 or no later than 2012 as the last round of housing bubble junk Option ARM mortgage resets will be hitting in 2010/2011 --- what we are seeing now is just the tip of the iceberg

We have seen refinancing deals, special breaks, and holds on foreclosures as federal policy. These efforts have probably brought marginal relief but they have not addressed the systemic problem of way too much debt and not enough carrying capacity. Local governments are just starting to get slammed as the combination of a decent first half of FY 2009 on revenue collection and short term reserves have made the FY-09 budgets austere but not dramatically shrunked. Those reserves are no longer in place for most states as they face massive budget deficits. Balancing those state budgets will often mean school and local jurisdictions that rely on state funds will see a significant hole in their budget that can either be filled by new taxes or spending cuts.

Local taxing authorities will want to maintain assessed values from the bubble peak years and fight like hell against appeals for lower, closer to market values. Politically it is easier to have a low millage rate on an artificially high base than to have a high millage rate on an accurate base. The New York Times reports on this fight:

Homeowners across the country are challenging their property tax bills in droves as the value of their homes drop, threatening local governments with another big drain on their budgets....

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....

The revenue losses are coming as homeowners prod towns for new assessments, and as municipalities conduct regular revaluations of their real estate. While declining residential values weigh heaviest on many governments, the value of commercial real estate is also sliding as businesses shut down and move out of storefronts or shopping malls....

Mr. Kramer, the assessor in Contra Costa County, said homeowners started swamping his office with requests for new assessments in December. As many as 500 people would call in one day. His voice mail message now begins: “If you’re calling to request an informal review of your property value due to the declining real estate market.”

Contra Costa has now reduced the recorded value of more than a third of the 350,000 privately owned properties in the county....

I still think that there is a significant political opening for demagogues who call for tax cuts uber alles as that will seem to alleviate some of the pain for a little while and when people are getting beaten down, a breather and a break is a very attractive promise.

Comments

[anderson]

"Politically it is easier to have a low millage rate on an artificially high base than to have a high millage rate on an accurate base."

Actually, I think both are politically untenable and, of the two, it is especially irksome to home "owners" to being a tax rate on an artificially high assessment. I know in Baltimore, there was an huge push by residents to have properties reassessed once prices started dropping. Baltimore was always behind the national real estate boom and the city was slow in reassessment as prices were rising. In fact, there the reassessments came almost as the national bubble was already showing signs of popping, which infuriated many home owners who watched their property tax increase even as their house values were sliding.

People will complain about high tax rates -- at least it is transparent -- but what they really hate is paying taxes on property value that no longer exists. The message there is that the city/county can and will assess your property to be whatever they say it is, and that surely pisses people off.