2nd Round of the Housing Bust

By Fester:

The first round of the housing bust has produced numerous losers.  Home owners who are facing foreclosures, homeowners who are facing decreased or negative equity, investment banks that believed their own sales jobs, and then the second order impacts of banks contracting, construction contracting and aggregate demand for everything but gasoline contracting.  Most of these impacts are immediate impacts.  There are minimal lags.

However we may be entering the second round of lagged impacts as property values decrease, local government tax bases decrease.  Kat notes that Tampa Bay is seeing an epidemic of overdue taxes:

More Tampa Bay property owners than ever before failed to pay their real estate taxes this year.

The
surge is unprecedented, officials say, and the reasons are clear: a
slumping real estate market, stagnant wages, growing unemployment and
the rising cost of energy, goods and services....

In Pinellas, those numbers rose nearly 23 percent this year, coming on top of a 37 percent increase last year. Other counties saw even bigger increases this year: 27 percent in Hernando, 30 percent in Hillsborough and 33 percent in Pasco. 

Statewide
figures are not available, but counties around Florida have seen, on
average, about a 20 percent hike this year in the number of unpaid
property tax accounts...

Unpaid taxes are a small but growing problem.  Most taxes are still being paid on time and the expected value of collection efforts are still high so most municipalities are not threatened by a rash of unpaid taxes.  However the big problem is a reduction in the tax base as property values first stagnated and then declined for several years in a row.  Most local governments' assessments services lag the market for a few years.  In normal times, homeowners like this as normal appreciation is not taxed for a couple of years, they get a freebie.  However in times of a declining market, homeowners want to have the government reassess every year if not every week as they want their tax bill to follow the market downwards. The  Cleveland Plains Dealer is seeing this happen:

The overall value of Summit County homes dropped 1 percent
in this year's reappraisal - making it the first
county- wide decrease in recent Ohio history.

That means a small part of most homeowners' tax bills
will decrease. But there are bigger implications for some
school districts: They will collect less money from recently
passed general levies, or they will never see the increased
revenue they expected.

"It's just never happened," said Scott
Ebright, spokesman for the Ohio School Boards Association.
"Property taxes have always increased."....

Cuyahoga Treasurer Jim Rokakis estimates a 10 percent
reduction in assessed property values would cost Cleveland
$10 million in revenue and its school district $3 million.

Most communities in this country will be facing either zero growth or significant declines in their assessable tax base over the next few years.  Projects that made sense to fund with the assumption of inflation based growth no longer will make sense; service expansions that were viable with no changes in the millage rate will no longer by viable, and the maintenance of current services may only be sustained by increasing millage rates or finding new revenue sources.

I think stories like this will open the way to the tax revolt of 2010 as the pain will be too strong.  As I wrote last December:

it is easier to assemble a narrow coalition to protect fixed slices of
the pie. And as an intermediate term strategy this is a good way to
reap a tax revolt within the next couple of years as the politics of
pain will be too strong and the pallative of short term relief will be
tempting; thus the symptoms of the underlying problems of short term
pervese incentives, decreasing cutting edge productivity, loose credit
and perpetual debt will be addresse without actually changing the
actual structure of these trends.

I wrote in November that the local politics of housing and taxes will get increasingly nasty as there is a significant concentration of pain......

Significant local pressure will be brought to maintain services, improve the schools, at least comparatively, and cut tax rates and tax bills all at the same time.  This will not happen as services and schools require money.  But this will be the local political dynamic as governments will be forced between revenues and services or low taxes and no services.  Local politics across the country will get very nasty in the near future as the fundamental revenue planning assumption of always increasing property taxes will have been smashed during this budget cycle and one time fixes are used up.