States, Cities Revise Strategy as Homeowners Protest Rising Levies.

Falling home values and rising property taxes in many parts of the country are generating the loudest complaints about property levies since the 1970s, forcing state and local officials to address the outcry even as the housing-market slump eats into many sources of their revenue.

Indiana residents held public protests this summer against a surge in property taxes and acted on their frustration by ousting the mayor of Indianapolis. Florida voters will decide next month whether to adopt massive property-tax cuts, in a debate that has pitted part-time residents against full-time Floridians.

In California, thousands of homeowners are having their assessments reduced under a decades-old state law, and lower tax revenue due to the weaker housing market is likely to force an emergency budget session.

Falling real-estate prices and turmoil in the mortgage market are expected to reduce property values for U.S. homeowners by a total of $1.2 trillion next year, according to Global Insight Inc., a research-and-consulting firm in Lexington, Mass.

Unless tax rates are changed, California could lose $2.96 billion in property taxes over several years because of the housing bust, the firm predicted. New York could lose $686 million; Florida, $589 million.

My Comment: California is indeed in serious trouble. I talked about this recently in Turn out the lights California, the party is over.

“In many cases, incomes were growing faster than property-tax bills in the 1990s,” Mr. Prante says. “Recently, property-tax bills have grown faster than incomes, on average.”

State and local property-tax collections increased 50% from 2000-06, according to Census Bureau data. During the same time period, the median household income rose 15%, before adjustment for inflation.

My Comment: This is one reason that helps explain massively rising foreclosures. Another reason is “skew”. The distribution of wage increases was massively concentrated on the very upper end of the scale. The masses have been getting hit twice.

In Indiana, a spike in real-estate tax bills for Marion County, which includes the state capital of Indianapolis, caused a backlash this summer. In some neighborhoods, property-tax bills as much as doubled. Residents staged a rally at which they dunked a giant tea bag in a canal — a reference to the Boston Tea Party — and a July 4 protest outside the governor’s mansion.

“I was holding a microphone and saying, ‘I’m right there with you,’ ” said Michael Rodman, Marion County treasurer, who joined protesters after seeing his property-tax bill jump 80%.

In October, the governor released a plan that would cap homeowners’ property taxes at 1% of assessed value, shift the full cost of school and child-welfare operations to the state, and require voter approval of major building projects. But voters could face a rise in the state sales tax to 7% from 6% under the plan, which the state legislature has discussed in committee hearings this month.

My Comment: Property taxes are blatantly unfair especially to those on fixed incomes. I suggest total elimination of property taxes as well as total elimination of interest rate deductions.

Heck, for that matter, I suggest balanced federal budgets, a totally flat income tax (or income/consumption tax), and elimination of all deductions period. This would allow the removal of at least 90% of IRS personnel. These ideas would likely have to be phased in over time but the sooner we start the better.

Despite efforts to address voter outrage, Indianapolis Mayor Bart Peterson, considered a shoo-in before the revolt, was defeated in a Nov. 6 election by Greg Ballard, a little-known Republican challenger whose campaign, as of mid-April, had reported less than $10,000 in cash on hand.

My Comment: I do not know enough about either the incumbent or the challenger to comment specifically, but if this is the start of a nationwide revolt against property taxes, I am all in favor of it.

In Florida, where the falling housing market has gouged the state’s economy, residents are debating massive property-tax cuts that will be voted on Jan. 29. Implementing the proposed changes would require amending the state’s constitution. The plan, which strongly favors longtime homeowners over new buyers and part-time residents, has sparked opposition.

In Washington state last month, legislators held a special session to reinstate a cap on property taxes that would limit the growth in property-tax revenue from the existing tax base to 1% annually. Earlier in November, the state Supreme Court threw out a 2001 referendum on the cap, saying voters weren’t adequately informed about what they were choosing.

Across the U.S., concerns about property taxes have reached levels not seen since the passage of California’s Proposition 13 in 1978. That landmark law capped property taxes at 1% of assessed value and said the base assessment on a home couldn’t increase more than 2% a year until it is sold. A companion initiative, Proposition 8, allows homeowners to get assessments temporarily reduced during a weak housing market, until home prices recover.

My Comment: Bring on the tax revolt.

In several states, there has been a push against sharp property-tax reductions. The most extreme plan was floated in Georgia, where House Speaker Glenn Richardson last month proposed eliminating all property taxes. But after touring the state to get feedback from residents, he has scaled back his plans and hopes to eliminate property taxes over time, starting with a few measures that he presented to the state House last week. He would offset the lost revenue by eliminating sales-tax exemptions on lottery tickets and groceries, and by adding taxes to consumer services.

My Comment: This is hopeless reporting. There was no sharp push against property-tax reductions. Rather there was a push to phase in the idea of elimination of property taxes.

Tax Squeeze

In the interest of fair reporting, I feel obligated to point out that I live in a horrendous area as far as property tax burdens fall. However, what’s fair is fair. No one should get a break. Elimination of mortgage deductions need to go as well. In fact all deductions should be eliminated. There should neither be an incentive nor a disincentive to own vs. rent. Going one step further, there should not be government incentives or disincentives on any economic activity. Rather there should be a fair playing field for everyone.

Mike “Mish” Shedlock
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