Saturday, May 29, 2010

“House Prices Down, Property Taxes . . .Up?” plus 2 more

“House Prices Down, Property Taxes . . .Up?” plus 2 more

House Prices Down, Property Taxes . . .Up?

Posted: 28 May 2010 01:15 PM PDT

One of the worries as house prices began their now three-year plunge back in 2007 was the affect of falling values would have on budgets of cities and other local governments, which rely heavily on property taxes. Well it turns out, property tax revenue is far more resilient than people thought.

The strength of the property tax was the main driver of the small positive growth in overall state and local taxes for the fourth quarter of 2009.  This was a theme in many of the presentations.  New research by Byron Lutz, Raven Malloy and Hui Shan illustrates that house value declines don't necessarily lead to lower property taxes, and when they do, it can take a while. With luck, by the time property taxes do dip, sales and income taxes will be recovering. The good news is that if property taxes could stand up in this recession, which was both deep and caused by a housing collapse, they can stand up to most crises.

The fact that property taxes held up despite the housing bubble bursting has ramafications for tax policy in general. Here's why:

First of all, it is just interesting that property taxes held up despite the real estate recession. In fact, property tax revenue has held up better than any other of the general ways states and local governments raise money. Sales and individual tax revenue were both down sharply in 2009. Property taxes, on the other hand, were up. Why is that? The professors said that was mostly the result of the fact that local governments tend to offset declines in house prices by raising taxes. Or they just don't lower the assessment on houses when property values fall, which essentially does the same thing as raising tax rates.

Here's why I find this interesting and why it says something about the tax code in general. A favorite argument of people who believe we should cut taxes or are against taxes in general is that higher tax rates don't produce higher tax revenue. In fact, they often argue that higher tax rates cause revenue to drop because as rates get higher people put more energy into dodging taxes, either through loop-holes or just working less, or being less productive.

Well with the test case of property taxes, that seems to be not how things work out. In fact, higher rates did seem to have a positive affect on property tax revenues. Raise taxes and you will get more government revenue. The question is how high did those rates have to go to get that positive affect. The tax-haters argue that that is their point. No matter how high you raise the rate you don't get much more. Eventually we will be at a 90% tax rate, and no one will want to own or do anything.

Well if you look at the states individually, most didn't have to raise their rates very much to generate more property tax revenue. If you look at California, Ground Zero for the housing crisis, the state's small mandated property tax increase was enough to keep revenue stable.

Again, people will say that local property taxes are not a good study of tax policy. City governments game assessments and set tax rates to a level that they know will generate the right amount of income to match spending, or at least come close. OK. But maybe that's what we should do on a national level. Instead of keeping our income tax rates the same level every year, and trying to change spending around to reflect that. Maybe income tax rates should float based on the government's spending needs. Deficit commission, the ball is in your court.

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Emerald Isle seeks 1-cent tax hike

Posted: 29 May 2010 09:36 AM PDT

Special to Tideland News

Emerald Isle commissioners have decided on a 1-cent property tax increase in fiscal 2010-11.

The funds will be used to help pay for storm water mitigation projects. Discussion on the town's budget proposal came during a special meeting May 18. The public will have a chance to comment on the proposed budget items during a public hearing June 1. The hearing will begin at 6 p.m.

The budget totals $9.4 million. State law demands that local governments have budgets in place by July 1, the first day of the fiscal year.

Under the current proposal, the new tax rate would be 8 cents per $100 of assessed value. Currently, the rate is 7 cents per $100.

"It meets the demands for storm water projects on Coast Guard Road … and it stabilizes future years' tax rates," Frank Rush, town manager, said of the 1-cent hike. In Emerald Isle, each penny of tax rate generates about $400,000.

The storm water projects would be aimed at reducing flooding in subdivisions along Coast Guard Road, according to Rush.

In spite of the explanation, the tax hike did not sit well with Commissioner John Wootten.

"We're talking about a penny of tax going to storm water," Wooten said. "I'm not comfortable with that. That's $400,000."

However, other commissioners believe the increase was necessary.

"We have cut and cut and cut," Commissioner Floyd Messer said. "We have a problem and we need to fix it."

Penne Keady of Emerald Isle, who lives in the Land's End a subdivision on Coast Guard Road, spoke during the budget meeting. She said homeowners in the subdivision would like to work with the town and were prepared to share some of the costs of pumping storm water.

Rush told commissioners that efforts have been made to keep expenses low. Positions that were cut last year have not been filled and expensive vehicle replacements are being delayed for another year.

The planning department is still working well with three employees instead of four and the town has only budgeted two vehicle replacements out of the four that were requested, according to Rush.

He also said that, because of the nation's economic trouble, the town had seen a $400,000 loss in sales tax revenues. If that hadn't happened, the town wouldn't have needed the tax increase.

Along with the regular tax rate, Emerald Isle will retain a beach tax of 16.2 cents per $100 of assessed property for oceanfront property and 1.1 cents for non-oceanfront property. These revenues will pay off bonds used for beach nourishment projects.

During the public comment session, commissioners heard from some residents who consider the beach tax to be unfair.

Rush said that in 2002, the tax was 48 cents for oceanfront and 3 cents for non-oceanfront properties. The town changed to the current rates in 2007, a revaluation year, because it would generate the same amount of revenue.

Furthermore, fiscal 2010-11 will be the last year of the current beach tax rate before the beach tax will end, Rush said.

However, officials say that funds for future nourishment projects will be needed. Whether the beach tax is retained, and if so, at what rate, will likely be determined in budget deliberations for 2011-12./>

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Business owners appeal tax bills to stay afloat

Posted: 29 May 2010 12:32 AM PDT

A record number of Michigan property owners are appealing their assessments to the Michigan Tax Tribunal, a wave that could bring relief to thousands of property owners -- but one that also could decimate the budgets of local governments, schools, parks and libraries.

From small-claim homeowners to high-stakes commercial and industrial corporations, everyone is looking for relief in a down economy. The deadline for larger appeals -- those of more than $20,000 -- is Tuesday. New case filings more than doubled between 2006 and 2009, and the current case load is 32,000 for claims of less than $20,000 and 11,100 for larger cases.

"Since Proposal A was adopted, this is the highest we've ever been," said Patti Halm, chairwoman of the Tax Tribunal. Proposal A, passed by voters in 1994, limited the annual increase of taxable values to 5% or the inflation rate, whichever is less.

Some legislators want to speed the appeals process so property owners don't have to wait -- in some cases three years or more -- to learn whether they won.

"These waits are unacceptable," said state Rep. Kevin Daley, R-Lum, sponsor of a bill to require a hearing within one year of an appeal. Others say arbitrary deadlines could trample due process rights.

Business owners search for relief

As the auto industry imploded, Frank Bianco worked hard to save Proto-Plastics, the Troy company his family has operated for 42 years.

He laid off employees, cut wages and benefits, sold two large presses and converted half of his 100,000-square-foot manufacturing facility to Bianco's World of Cars, a showcase for classic cars. His search for savings also led him to appeal his property tax bill to the Michigan Tax Tribunal.

Bianco said he has nothing against paying taxes but that he couldn't sell the place for nearly what the assessor claims it's worth.

"We're not looking for miracles," said Bianco, 57. "We want to stay in business, and we want to stay in Troy. We're looking for any relief we can get."

Michigan businesses, large and small, are doing the same thing in record numbers. More than 11,000 commercial and industrial property owners are waiting to have their cases heard by the tribunal, the state agency that hears tax disputes. Tuesday is the deadline for such appeals.

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