The story below is happening across the country in every township, municipality, and county in America. It will take years to play out. The implications of the largest housing bubble in history, created by the Wall Street criminal syndicate, are far reaching and will affect the country for a decade. It is now five years since the bubble popped and prices are still falling. The false MSM storyline of housing recovery is growing stale. The false boom created by the criminal Wall Street banks led to massive inflows of property taxes and transfer taxes into the coffers of localities across the land. The boneheaded bureaucrats who run your towns believed these tax revenues were permanent and would keep flowing in forever. They built new municipal buildings, built bridges to nowhere, bought more cop cars and fire engines, while signing gold plated union contracts with their teachers and municipal workers.
Now the chickens have come home to roost and your friendly dumbass bureaucrats are dealing with this crisis of overspending by doing what they do best – raise taxes. My county commissioners – in Montgomery County, PA – decided the best thing to do in the midst of a recession was to increase taxes on its citizens by 17%. This is how every government bureaucrat thinks. They fail to recognize a three standard deviation bubble in housing prices (they join Ben Bernanke in this club) and base their budgets upon this bubble staying inflated for all eternity. When reality sets in and their budgets explode in their faces, rather than accept responsibility for their dreadful fiscal management, they raise taxes on citizens who have already seen their home prices fall 30% and are being ravaged by job losses, no wage increases, zero interest rates on their savings and double digit inflation for food and energy.
This is what is happening in the real world to real people. Meanwhile, the Wall Street shysters will go on CNBC this week and predict the stock market up 10% to 15% next year, just like they predicted last year, and the 10 preceeding years. As local communities implode due to a housing bubble created on Wall Street, these big swinging dicks will distribute $20 billion in bonuses for a job well done this year.
Falling home values mean budget crunches for cities
By Brady Dennis, Published: December 25
The nation’s housing crisis is five years old, but for local governments across the country, the worst of the reckoning might only now be at hand.
Because of the time it often takes for property assessments to reflect falling home values, the bust that began in 2007 has just begun to ravage tax revenues in communities from coast to coast. The problem is unlikely to subside soon.
For instance, Baltimore collected $815 million in property taxes during the most recent fiscal year, according to Bill Voorhees, Baltimore’s director of revenue and tax analysis. Next year, the figure is predicted to shrink to $803.5 million. The following year, $773 million. The year after that, $735.7 million. The year after that, $729.4 million.
Only in 2016 do city officials anticipate tax revenues increasing again.
“I don’t see any quick fixes over the next four or five years, to be honest,” said Voorhees, noting that Baltimore already faces a budget deficit of more than $50 million next year. “Obviously, it means we have much lower revenues than we had in past. It’s creating gaps in our budget. . . . It’s a very large problem.”
Because many states require officials to reassess properties only every so often — the laws vary widely, but a common time frame is every three years — communities generally see a significant lag time before property taxes reflect the true value of a home.
That’s good news for homeowners during boom times, when their tax bills typically don’t immediately reflect skyrocketing values. It’s not so great during the unprecedented bust of recent years, when many homeowners have protested that their taxes haven’t fallen as rapidly as their property values. But in many places, the assessments are beginning to fall now.
State governments, which rely heavily on sales and income taxes, saw massive hits to their bottom lines early in the crisis as unemployment skyrocketed. But those revenues have begun, ever so slowly, to recover.
Meanwhile, many local governments weathered the early years of the financial crisis in part because the property tax revenues they rely upon so heavily held steady or actually increased as a result of assessments that still reflected inflated prices. Many municipalities are now being forced to recognize the collapse in home prices and the shrinking tax base that comes with it. At the same time, they are seeing state and federal aid dry up.
“We’ll see, over the next few years, the real impact of the recession and housing crisis on local governments,” said Andrew Reschovsky, a professor of public affairs and applied economics at the University of Wisconsin at Madison who has studied the effects of the recession on city finances. “I think the case can be made that we have not yet seen the worst of the impact on local governments. . . . That seems to be accelerating.”
Tighter municipal budgets
Recent statistics provide a window into the ongoing struggles in many cities. Local governments have lost more than half a million employees since the financial crisis hit in September 2008. Through November, local governments had shed an average of 9,300 jobs each month this year, offsetting some of the job growth generated by the private sector.
A survey of city finance officers conducted by the National League of Cities found that more than 40 percent said their city was cutting services, such as parks and libraries. More than a third reported altering employee health-care benefits to save money. Nearly three-quarters said they had instituted hiring freezes, and a third had been forced to lay off workers.
“The fiscal condition of cities continues to weaken,” a report by the National League of Cities concluded in September. “Cities are continuing to cut personnel, infrastructure investments and key services.”
For example, even after Las Vegas instituted a four-day work week for city employees, cut hundreds of positions and won concessions from labor groups, the city faces millions in projected budget shortfalls in coming years. Officials in Schenectady, N.Y., have continued to dip into the city’s “rainy day” fund to stave off steep budget cuts or tax increases. A sheriff in Marion County, Ohio, recently handed out layoff notices to nearly half his deputies. This fall in Chicago, new Mayor Rahm Emanuel proposed cutting library hours, closing several police stations and raising water and sewer fees to help close a budget gap.
As a whole, the Washington region has fared better than many others, thanks to below-
average unemployment and a housing market that has remained relatively stable.
That said, losses in property values have caused shortfalls in some local budgets. Prince George’s County, for instance, continues to wrestle with the fallout from shrinking property values, and officials there have been searching for ways to rein in spending.
Local governments, much like homeowners themselves, long assumed that property values would at worst stay steady over time. Many states, including California and Florida, long ago adopted provisions that cap the amount that a homeowner’s property taxes can rise in any given year as a way to shield taxpayers from rapidly escalating tax bills during times of growth.
“Storm has not yet hit”
Even when prices did level off or decline in the past, housing itself usually led the way from recession to recovery, and local tax revenues barely felt a bump in the road. But the sharp and sustained losses of recent years have resulted in a harrowing situation for many municipalities.
Thomas Fitzpatrick, an economist at the Federal Reserve Bank of Cleveland who co-authored a recent study called “Municipal Finance in the Face of Falling Property Values,” said many cities will have little choice but to make deep cuts. He added that “you will see it most for firefighters, police and teachers.”
“It appears that the dramatic fall in property values across the country will accelerate the financial distress of municipalities in the wake of the Great Recession,” he wrote in the report. “If creative ways to make up for this lack of revenue are not found, local governments may face the undesirable choice of either raising property taxes or reducing funding for essential services.”
Municipalities are using various approaches to make up for dwindling tax revenues, not to mention cuts in state and federal funding. Simply raising local millage rates could offset the falling appraisals, but the idea of tax increases gets about as chilly a reception on Main Street these days as it does on Capitol Hill.
Instead, towns across the map have relied on an array of maneuvers to cut costs — renegotiated pensions, furloughs, salary freezes, hiring freezes and layoffs. Many also are charging higher user fees for garbage pickup, recreation centers and other services. And many cities have explored entering into shared service agreements with one another to save money.
The worst may be yet to come.
“That storm has not yet hit,” Frank Alexander, a professor and housing law expert at Emory University, said of the looming decline in property tax revenues, which he and others agree will last years. “It’s beginning in 2011, but it’s really going to hit in 2012 and 2013.”
AKAnon says:
Alaska, or at any rate, my neck of the woods, did not experience the housing “boom” to the degree that many places in the Lower 48 did, and correspondingly, has not (yet) suffered the “crash” to any significant degree. I re-fied my house a couple years ago, and I was re-appraised (by the same outfit) a couple grand higher than the appraisal I got in 2006 (near the peak-oops) when I bought the place. Would have been down a few K, but I had put some sweat equity into it, making it near a draw. I haven’t appraised lately, but based on prices I see locally, I am probably holding steady.
I was talking with a shooting buddy at the highpower match last weekend-he is full of gloom for Alaska. He and his entire family moved here in the ’60s (pre-Prudhoe Bay oil boom), and he is the last one still here-and looking to move to Lower 48. He is a contractor, and says his future looks bleak. The high cost of living, especially energy, drove his father & siblings south.
There is a “critical mass” to keep the Trans-Alaska Pipeline viable, and without more oil coming on-line, it will reach the tipping point in four years or so. Local fuel comes from refining a small percentage of the pipeline’s flow, so if the pipeline shuts down, it could mean the end to locally produced gas, diesel, aviation fuel & heating oil. I have not lived here pre-pipeline, but I was here during the mid ’80s, when oil was down, lots of homeowners were upside-down on their mortgages, and things were not pretty. Many folks just walked away. I dread seeing that again, especially with no hope for local fuel.
Sorry for the rambling, just thought it might be interesting. I have been a proponent of Alaska in the past. I love it here, and I’m not moving, I will do whatever it takes to get by. I have heated with wood before I can do it again if need be. I just don’t want AK represented as the “land of plenty” erroneously.
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26th December 2011 at 11:22 pm
Thunderbird says:
Typical boom & bust cycle; only on a grand scale. Plenty of greed to blame here in many people. I watched the boom take place in amasement as people I knew were buying and flipping houses like there was no tomorrow. Yes; plenty of blame to go around. And greedy city councils made up of real estate agents were also in on the take with new increased taxes coming in, they were creating all types of deals in their own interests. Yes, bankers took advantage by giving out loans to unqualified people who have since lost their houses, but these same people bought a house to tap it like an ATM and flip the house in five years even raking in more money. A sad story only getting worse for those that could not stay out of the frenzy. All of us have friends that could not avoid the frenzy and have had to claim bankruptcy and lose their house to boot.What a way to distract the people from two unjust wars that had to be paid for from borrowed money; money created from the housing boom. Wonder where the money went? Now public funds have been taken to bail out the banks. Talk about underhanding the public. Start two wars and a housing boom at the same time to pay for the war then when the banks cry they are bust bail them out with public money. And now one war is lost with the other one failing so what have we gained? Nothing but debt and dead & wounded soldiers. I say it is time to hold people accountable; not corporations. Fictions do not make bad deals and create wars; flesh & blood people do. It is time for real accountability.
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26th December 2011 at 11:59 pm
Zombieman says:
Merry Fucking Christmas!
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26th December 2011 at 1:22 am
Stan says:
Cities and counties where there are still jobs to be had are the lucky ones. If a city still has good paying jobs they can ride out the storm , at least for a litle while.
I am noticing that in my line of work, people are still able to get credit. Loans for home improvement are still being made. People get new siding or windows for their home, they can get it financed. A new addition can be financed. Almost at 100%. I expect that to dry up soon.
Also, how long can interest rates stay this low? How much longer? You can only raise property taxes so much before it cripples the ones who are barely making mortgage payments already.
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26th December 2011 at 5:19 am
Welshman says:
AKAnon,
Thanks for the imput, found you comments interesting. Not too many people living in rose gardens these days.
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26th December 2011 at 6:05 am
Nonanonymous says:
Unemployment is still the crux of the recovery, or lack thereof. You can’t pay taxes or repay loans without a job.
The question is how high will unemployment rise? It doesn’t look to be receding. Something has to give, and thus far it’s been the middle class.
Sovereign and individual debt, greed and corruption, and peak everything is creating a perfect storm, it’s only going to get worse.
Not to mention retail may as well put up a Going Out of Business Sale sign now that the holidays are over. Happy F*****g New Year.
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26th December 2011 at 7:30 am
Wyoming Mike says:
Sears did today, announced over 100 store closings. All is well.
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26th December 2011 at 11:09 am
TeresaE says:
This is Michigan’s tenth year in our “recession,” though if you talk to politicians at the state level we are in recovery.
In 2005/2006 nearly every city in the state was forced to re-evaluate budgets and perks, mainly because the state has done a bang up job of slaughtering small business while gifting tax exemptions to the Fortune 500, which pocketed the money, let the layoffs and plant/office closings fly and are shrinking as we speak.
Many of these budgets still gave raises to the city workers, they just guaranteed them down the road. Road is ended now, yet, they are mainly deciding to continue pretending that all this disaster is temporary and any day now, things will return to “normal.”
We left a “normal” economy back in the mid-90s under Clinton. The less than 3% unemployment rate (and then associated mainlining of visa applicants) was NOT normal and was 100% caused by Y2K and, to a lessor extent, dotcom. The feds decided to use terrorism and cheap credit to paper over the holes created by the calendar changing to Jan. 1, 2000 and, of course, the day that reality returned and everyone figured out that companies with negative cashflow and no profits could not possibly be worth a billion dollars on Wall Street.
We haven’t seen anything yet. I’ve had a rough few days personally and the thoughts of just how bad things will become sure as hell isn’t helping.
But, reality is reality even if it sucks.
And our combined future reality sucks hard. So hard.
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26th December 2011 at 11:30 am
Muck About says:
My Dad, in the ’70s opined that the USA was on a downhill slope and wondered how long things could hold together with Americans flipping hamburgers and selling each other pizza’s. This was at the very earliest times in the “Fear King Kong Japan” decade as the Japanese appeared to be buying up everything.
I think we’re about to find out.
MA
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26th December 2011 at 11:37 am
DaveP says:
The opening was good til you got to this… ‘Meanwhile, the Wall Street shysters will go on CNBC this week and predict the stock market up 10% to 15% next year, just like they predicted last year, and the 10 preceeding years. As local communities implode due to a housing bubble created on Wall Street, these big swinging dicks will distribute $20 billion in bonuses for a job well done this year.”
The fucking has occurred. The horse is out of the barn. But the suggestion seems to be–let’s lament over what happened, rather than take the LOCAL(where they ain’t owned by a corporation) bulls by the horns and shake them into reality. YOU CAN’T KEEP DOING WHAT YOU WERE DOING WHEN TIMES WERE GOOD. My duughter just told me that her town is about to approve a bond referendum to put up a brand spankin new $104 million dollar high school.
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26th December 2011 at 12:27 pm
Thinker says:
Today’s Case-Shiller Index report shows even lower home prices in the 20-cities tracked for the index. They note that, now that banks can move forward with foreclosures after the federal investigation completed, prices are likely to fall much further.
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26th December 2011 at 12:29 pm
Kill Bill says:
I dont think the borrowcraps actually think – they react as the strings dictate.
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26th December 2011 at 1:11 pm
Turfguy says:
I wondered when this topic would hit the site. Here in Mecklenburg County, NC the year long struggle over property tax revaluation continues to grind. For those not familiar with Meck Co., the Democratic Convention will be held here in Charlotte, the capital of “The New South”.
To the point the last revaluation was in 2003. By law all property must be revalued at least every eight years. Officials had put it off claiming the reccession would cause a distortion and it was best to wait until the recovery had progressed to get a more true assesement of values. Glad to have a government so concerened about the economic well being of its citizens. Incidentally nearly every county that could postpone revaluation past 2011 has done so. It does not hurt the counties so much to postpone since much of the base was revalued around the height of the bubble. See how officials are concerned about their citizens.
My wife’s property rose nearly 20%. She joined the reported 4,100 households in lodging a protest. The county claims this represented 12% of the revaluations and was anticipated. This was announced in March and as the year draws to a close the hearings are still being held. You be the judge as to whether this seems reasonable.
I argued on behalf of my wife before The Board of Equaliation and Review. Before my appearance she was contacted and told the staff would be recommending a reduction in the increase to nine percent over the 2003 level. Since the decrease was based on reasons other than outlined in our complaint we choose to still have our hearing. The basis of our argument was the valuations were arbitrary. Land values on opposite sides of the road near her property were 10 to 15 thousand dollars lower.
The outcome of the hearing was to allow the reduction based on staff recommendation and they did not address the basis of our position which would have resulted in no increase from 2003 levels. We have appealed to the State Board which is behind in hearings up to 60 days. I not certain it would serve any real purpose other than a matter of principle at this point and understanding the total appeal process. This insight may prove useful as I appeal my property revaluation.
I own a piece of vacant land that went from, in round numbers, $ 190,000 and taxes of $ 2,500 to
$ 810,000 and taxes of $ 10,200. Of course this includes a 2011 rate increase. You can imagine the angst caused by receiving this bill in the mail. I can assure I did not think about the drag on the local economy due to my increased tax bill. I am bolstered by my success at getting my wife’s property lowered . My target is to get the same bill as 2010.
I will end this with one interesting finding from my research. Mecklenburg County appraised building value is based on the REPLACEMENT VALUE of your structure MINUS DEPRECIATION. There are other minor variables included relating to location. The DEPRECIATION figure never falls below 30 to 35 percent. Is this a good deal for the county or what? Talk about stabilizing your cashflow. Anyone facing a similar battle, GOOD LUCK.
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26th December 2011 at 2:42 pm