Are You the Hostage or Donkey?

Something remarkable happened to property taxes in America while housing lost 31% of its value from 2006 to 2009: they went up by $100 billion (27%).  Equally remarkably, as we can see from this U.S. Census Bureau data on state and local tax revenues, property taxes went up even when housing slumped in the early 1990s.

So though U.S. housing continues losing value, U.S. home prices declined in January, continuing a downward trend that began in August, with average U.S. home prices retreating to summer 2003 levels, according to the S&P Case-Shiller Home-Price Indexes, while property tax revenues continue their inexorable rise. 

See, the ultimate tax hostage is you, the property owner.  You county that you live in know it, probably better than you do.  The business owner can pull up stakes and leave, the wage earner can transfer or get another job elsewhere, and the consumer can restrict his/her consumption (or buy online) to lower the burden of sales taxes.  However, you, the property owner, are the perfect tax donkey, because the transaction costs of selling are so prohibitive.

With approximately 11 million homeowners in America owing more on their mortgage than their house is worth, then selling is no longer an option unless the bank accepts a short-sale, which lenders are not that eager to do.  Now, given that there are about 48 million mortgaged homes in America, then those 11 million represent about 23% of all homeowners, who are probably paying the same property taxes today that they did in 2009.  The difference, of course, is that property is only worth 69% of its 2009 value.  Where is your tax relief?  Imagine, if your income taxes rose by 27% even as your income declined by 30%, what would you do?

Ok, what should one do?  I recommend you visit your local county assessor and ask for the following data:

1. What are the assessed valuations for residential properties since 1997?
2.  What is the real property assessment rate?  (In my county, real property is assessed at 19% of the assessed value in #1.)
3. What are the real property tax rates since 1997?  (In my county, the real property tax rate is 4.03% for 2010.  For example, let’s assume the assessed residential valuation is $56 million.  Take the $56 million and multiplier it by .19, which equals $10.6 million.  Now, take the $10.6 million and multiplier it by the tax rate of 4.03%, which is $427,000.  That is the real property tax amount generated.  The objective is to trend the dollar amount for each year since 1997.)
4. What are the market values of residential properties since 1997?  You assessor may not have this information.  If not, contact a local realtor for assistance these valuations.

The objectives of this exercise are two-fold: (1) to trend the property market value to the actual real property taxes collected, and (2) to imply to the assessor’s office that you, and hopefully your friends in the community, are going to be the "Real Estate Watchdog” overseeing property taxes.