Property taxes are rising across the USA despite the steepest drop in home values since the Great Depression.
Home values dropped 17% in the third quarter compared with the same period in 2007, reports the S&P/Case-Shiller Home Price Index. At the same time, property tax collections across the USA rose 3.1%, according to the U.S. Bureau of Economic Analysis.
State and local governments are on track to collect more than $400 billion in property taxes this year, the most ever. One reason: Laws in most states that prevent big tax hikes when property values soar also block big tax drops when values sink.
The housing market collapse has caused a recession that’s hurt sales and income tax collections.
But property taxes — collected mostly for public schools — have escaped serious damage. As a result, public education is one of the few sectors of the economy still adding jobs.
“Property taxes aren’t always popular, but they are a very stable tax, even in tough times,” says Thomas Gentzel, executive director of the Pennsylvania School Board Association.
Property taxes haven’t fallen since 1934, the BEA says.
What’s keeping property taxes up while home prices fall:
• Property tax limits. Most states cap how fast taxes rise in boom times. In bad times, the same laws keep taxes from falling and even permit modest increases on most homes.
Arizona, California, Florida and Nevada — the four states hit hardest when overheated real estate markets crashed and triggered waves of foreclosures — all have tax laws that work this way.
Tonight Show host Jay Leno’s property taxes on his Beverly Hills home will increase $1,500 this year to $54,000, even though home values in the area fell by one-third since last year, California public records show. Reason: His mansion is taxed based on the $2.5 million purchase price in 1987, plus 2% annual increases.
Nevada schools will collect $730 million in property taxes this year, up 5%, says Nevada deputy school superintendent James Wells. “Property taxes are a bright spot. Sales taxes are the problem,” he says.
•Delayed appraisals. Most states are slow to change the assessed value of homes. Some Pennsylvania counties haven’t done major reappraisals for decades. Elsewhere, homeowners must pay taxes on peak values for years before new assessments reflect plunging prices.
Colorado residents will pay taxes in 2010 and 2011 based on what their homes were worth in the first half of 2008. “The time lag can help you or hurt you, ” says Mark Lowderman, tax assessor in El Paso County, Colo., which includes Colorado Springs. “Nobody complains when prices are rising.”