How the Current Economic Crisis Will Affect You and Your Community

Homeowners should get ready for property tax increases even as the value of their home is falling.

USA Today reports that "home prices in July fell 5.3% compared with a year ago and have receded to October 2005 levels." The result of this decline in values means that states and communities are going to experience some pernicious effects from the current economic downturn. Even with federal government intervention there will be a fall in the value of homes and real estate, which will in turn affect tax assessments and property tax. Does that mean your property tax will decrease? An examination of the potential problem may provide some insight into local issues that will no doubt become contentious in the coming months.

Every citizen that has children in school or ever had children in school recognizes that the single biggest community expense is the funding of local schools. The tax money used to fund schools in virtually every community throughout the nation comes from property tax. A reduction in home and real estate values could cause a reduction in revenue to fund schools and other community infrastructure if tax revenue is decreased. Will that be acceptable?

Faced with this possibility, what can one expect? Certainly any reduction in the amount of local or state property tax paid cannot be expected. There will be many different local political decisions made on how assessments are determined. If property values decrease, then one can expect a higher tax assessment which will result in at least the same amount of tax revenue flowing into the local coffers. However, education costs are generally not stagnant, so the end result is that even if your home or real estate is worth less now than several years ago, one can expect an increase in property tax.

For those who's employment income may not be affected by the economic downturn, some belt tightening will be required simply to deal with this almost certain property tax increase. Local communities will have to balance out school and infrastructure costs with the potential for decreased revenue and the resultant conversations about increasing property tax or curtailing expenditures will be the subject of much community debate.

Taxpayers in the past have generally have accepted higher property tax assessments because the value of their homes has been increasing. Will higher property tax assessments remain acceptable as the value of homes and real estate is decreasing? One can expect considerable debate on this issue in the coming months.