By Dave Anderson:
In 2008, I predicted that school districts would see a revenue squeeze as a combination of reassed values decreased the property tax base and home owners (who are more likely to vote in local elections than non-owners) won't approve overrides or re-elect school committees that raised millage rates.
Kat, via e-mail asks a very good question:
What's going to happen to public school budgets when property tax valuations on all those McMansions in the 'burbs are reset in line with current actual property values?
When that happens, school districts will see a reduction in their local revenue by thirty to forty percent which means severe program amputations will occur. The cutting will most likely be targeted at non-intuitive but highly valuable programs and politically popular but ineffective programs will be comparatively protected. . To avoid multiple limbs being cut off, school districts and school boards will seek ways to decrease the decreasing revenue flows. This basically means some combination of activity fees (pay to play for school athletics for instance), increasing the tax rate on a decreased base, or fighting to maintain the 2005 or 2006 assessment as the tax base.
The last two steps are almost guaranteed to produce a tax revolt in the next couple of years
This is beginning to occur.
The Pittsburgh Post-Gazette has an article on real estate values in Fox Chapel. Fox Chapel is the toniest suburb in Pittsburgh and it is the home of the oldest money around. It is the core of an excellent consolidaetd school district. The school district is facing the pressure of declining real estate values.
Last year, for the first time in more than two decades, average home values here did not appreciate but declined, according to a study conducted by RealSTATs, a local real estate information service.
Last year, for the first time in more than two decades, average home values here did not appreciate but declined, according to a study conducted by RealSTATs, a local real estate information service.
The hardest hit community of all by dollar value was Fox Chapel, a wealthy enclave in the city's northeastern suburbs. While average property values in the Pittsburgh metropolitan area fell by $3,000 last year, the average Fox Chapel home lost a staggering $85,645 in market value from 2008 to 2009, based on sales data from those years.
If Allegheny County had a functional assessment system, this would be a devastating blow to the Fox Chapel Area School District. At the current millage rate of 2.078%, the average tax bill would be $1,800 higher than justified by the market value of the homes in the community. If assessed value equaled calculated market value, the district would see a $3.3 million dollar revenue decline just from Fox Chapel property taxes. That is a 4.4% revenue decline from just one of the six communities in the district, albeit the richest one by far.
Thankfully, Allegheny County does not have a functional assessment system (yet), so the current assessed values are 2002 values which are probably reasonably close to current market values.
However, most other units of governments across the country are not as messed up as Allegheny County and thus assess their values more frequently. They are entering a period of declining real assessed values and thus smaller tax bases where they have the choice of raising rates or dramatically reducing services. The political dynamic will be to cut services in the hope that things will return to 2005. That won't happen, but the short term incentives line up for a tax revolt.
Since 2007, I thought there would be a significant property tax revolt by the end of 2010. The elements were clear, decreasing propety values, slow re-assessment and a lot of pain among stuck home-owners who were not seeing either capital gains in their homes or increasing income to buttress their life styles. At that point, reducing fixed costs and playing bugger they neighbor politics becomes mighty attractive in the short term.
We're there.
As the next weeks and months unfold into the fall elections it will be interesting to monitor concerns about "taxes" in the generic sense. Among the contradictory, irrational themes of the Tea Party insurgency, taxes is the only glue holoing it all together.
ReplyDeleteRarely, though, do I hear anyone making distinctions among the many categories and designated uses of taxes. Your post comes across as an intelligent analysis becaused it is focused on local property taxes as they relate to local (typically school) needs.
In addition to property taxes (both residential and commercial) we pay sales taxes, income taxes (federal and many states) and payroll taxes. Invoking the "SS and Medicare are broke" meme almost always overlooks the fact that it is payroll taxes, not income taxes, by which both those programs are funded. The average person is so ignorant that he cannot explain in simple language the distinctin between Medicare and Medicaid. Nor do most working people know that there is an annual cap on that portion of their paychecks which they will never see because they will never be in that better-paid population (the ones most able to pay more taxes). And the income disparities between the very rich and the rest of us are even less well-known.
With local, state and federal revenue streams drying up during this recession and deficit spending being as critical to the economies as trips to a pawnbroker, populist anti-tax screaming goes hand-in-glove together with Republican fear-mongering to further protract recovery.
How and when Democrats catch on to this theme and do something to defeat it remains a mystery. It's been going on since the end of WWII and seems to have become part of our national political fabric.
Dave, keep in mind that many homeowners in Fox Chapel don't have school aged kids, and the ones that do send their kids to Shady Side Academy, rather than FCHS. Many who DO send their kids to Fox Chapel only do so through grade 5, because they don't like the commute to SSA's Point Breeze elementary school. The parents sending their kids to Shady Side could give a crap if Fox Chapel's public schools have to cut programs, while resisting tax increases. The kids who will suffer the program cuts are the ones from the less affulent areas served by Fox Chapel Schools, like Aspinwall, Blawnox, O'Hara, and Sharpsburg (although those neighborhoods aren't exactly inner-city)
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