As Property Values Plunge, Tax Bills Might Not Follow
Friday, December 26, 2008
Homeowners whose property values have plummeted as much as 40 percent are unlikely to see a corresponding drop in their real estate taxes next year, and some might face a tax increase as the counties surrounding the District struggle with huge budget shortfalls.
Nearly every county in the region is deep in red ink, with some of the most populous jurisdictions looking at overwhelming budget gaps: Fairfax County faces a $650 million shortfall; Montgomery County, $450 million; and Prince William County, $190 million.
Most county officials are signaling that they will make dramatic service cuts, invoke salary freezes and furlough workers to balance their budgets. But many have been forced to take those steps already to plug gaps in the current budget year.
As officials face the most challenging budget season in recent memory, independent analysts say the projected shortfalls next year are too steep to be solved by cost-cutting alone, leaving little alternative to increasing tax rates.
"They're going to have to bump up the tax bills. It's a question of increasing the [tax] rate or cutting services, and I think you're going to see a little bit of both," said Greg Leisch, chief executive of Delta Associates, an Alexandria-based real estate analysis firm. "The politicians . . . are going to be in agony. The cost of government hasn't declined. If anything, it's gone up. Services are going to have to be slashed, but there's only so much they can cut."
County elected officials are weighing those options as they await word of the current value of real estate in their jurisdiction. Once they receive that report from tax assessors, they can calculate the tax rate required to meet their budget needs.
Throughout the region, the once red-hot housing market has cooled so much that property values have declined virtually everywhere. With property taxes based on the value of residences, the only way county governments can take in the revenue needed for services -- after any cuts -- is to raise the rate. That might mean property owners' tax bills stay the same, but it also means a tax rate increase nonetheless. And depending on the rate and how individual assessments come out, some property owners' tax bills could go up. Arlington County is already considering a rate increase.
A tax rate increase is also on the table in Prince William, whose real estate market has been particularly hard hit because many risky subprime mortgages were made in the county.
"It's those loans that are failing and dragging down home values," Dan Fulton, president of Fulton Research and Consulting, said of the Prince William situation. "You are going to see a tax increase against a lowered [property] value."
Thus far, Montgomery officials have ruled out raising the tax rate, and Prince George's County has a law making such increases difficult.
The independent analysts say the dawn of the new year, however, might require a rethinking.
In Virginia and the District, the values of all residential properties are adjusted each year. In Maryland, one-third of homes are reassessed each year. This month, 700,000 Maryland homeowners statewide will receive reassessment notices.