Mar 30 2007
Municipalities Facing Headwinds on Property Taxes and Benefit Costs
In the last five years, municipalities that tax real estate values have experienced a boon in tax receipts. That’s because in many cases, when a property is sold at a higher value, the assessed value tracks upward to the sale value. With growth in property values in markets nationally far exceeding the pace of inflation, municipalities have found it far easier to meet their obligations.
But that might be about to change. Now that property values are starting to drop, municipalities may be faced with the dilemma of home owners challenging their old assessed values causing a decline in heady tax receipts.
In Allegheny county (Pittsburgh, PA) the problem is already rearing its head (albeit under slightly different circumstances), much to the chagrin of the local Authorities. Courts are ruling in property owners’ favors.
If such a trend continues, Municipalities are facing some serious problems. Over the last twenty years that pressure has dramatically accelerated. For example, major employers in the automotive and airline industry are being forced to severely restructure benefits and employment contracts. Private sector unions have had no choice but to accommodate the reality that if they don’t give ground to help employers become more efficient, their members will likely find themselves without a job. Non unionized shops have been well ahead of the curve in adjusting to the new economic realities.
Governments, on the other hand, being quasi monopolistic in nature, have largely grown immune to the ordinary cost cutting pressures felt by private U.S. businesses. Taxpayers are always the dupes in the process as strong unions, from teachers to various subsets of government employees, protect their own jobs through massive lobbying efforts.
The winds of change are converging on this comfy status quo.
Clearly the unwinding of the housing bubble presents a serious problem for many taxpayers who will be having a hard enough time meeting their own frothing mortgage payments as ARM mortgages start to pop, taking away the 1-3 year teaser rates amid a severe contraction of lending in the wake of the loose policies over the last decade that culminated in the current sub-prime meltdown. In the face of dropping house prices, which fell 2% in 2006, I’ll bet more than a few taxpayers will be quick to point out that they’re overpaying their taxes.
Simultaneously another more substantial change is readying to smack around municipalities nationwide, and it is one that is long overdue. Since time immortal, deliberate gaps in accounting requirements have provided substantial cover for fat wages and benefit packages common to government jobs vs. the private sector. That ends in 2008, when governments must disclose on their balance sheets the current net present value of all benefits promised to their employees. In other words, excessively generous health care and retirement benefits cannot be pushed off onto some future time, when present day politicians and employees are long retired (and presumably in hiding). Instead, taxpayers will see, front and center, the current cash flow problems they are being saddled with. No more gimmicks and political gymnastics enabling the cover up.
