An update on the coming tax revolt of 2010

In 2008, I predicted that school districts would see a revenue squeeze as a combination of reassed values decreased the property tax base and home owners (who are more likely to vote in local elections than non-owners) won’t approve overrides or re-elect school committees that raised millage rates. 

Kat, via e-mail asks a very good question:

What’s going to happen to public school budgets when property tax valuations on all those McMansions in the ‘burbs are reset in line with current actual property values?

When that happens, school districts will see a reduction in their local revenue by thirty to forty percent which means severe program amputations will occur. The cutting will most likely be targeted at non-intuitive but highly valuable programs and politically popular but ineffective programs will be comparatively protected.  .   To avoid multiple limbs being cut off, school districts and school boards will seek ways to decrease the decreasing revenue flows.  This basically means some combination of activity fees (pay to play for school athletics for instance), increasing the tax rate on a decreased base, or fighting to maintain the 2005 or 2006 assessment as the tax base. 

The last two steps are almost guaranteed to produce a tax revolt in the next couple of years

This is beginning to occur.

The Pittsburgh Post-Gazette has an article on  real estate values in Fox Chapel. Fox Chapel is the toniest suburb in Pittsburgh and it is the home of the oldest money around.  It is the core of an excellent consolidaetd school district. The school district is facing the pressure of declining real estate values.

 If Allegheny County had a functional assessment system, this would be a devastating blow to the Fox Chapel Area School District.  At the current millage rate of 2.078%, the average tax bill would be $1,800 higher than justified by the market value of the homes in the community.  If assessed value equaled calculated market value, the district would see a $3.3 million dollar revenue decline just from Fox Chapel property taxes.  That is a 4.4% revenue decline from just one of the six communities in the district, albeit the richest one by far. 

Thankfully, Allegheny County does not have a functional assessment system (yet), so the current assessed values are 2002 values which are probably reasonably close to current market values. 

However, most other units of governments across the country are not as messed up as Allegheny County and thus assess their values more frequently.  They are entering a period of declining real assessed values and thus smaller tax bases where they have the choice of raising rates or dramatically reducing services.  The political dynamic will be to cut services in the hope that things will return to 2005.  That won’t happen, but the short term incentives line up for a tax revolt. 

Since 2007, I thought there would be a significant property tax revolt by the end of 2010.  The elements were clear, decreasing propety values, slow re-assessment and a lot of pain among stuck home-owners who were not seeing either capital gains in their homes or increasing income to buttress their life styles. At that point, reducing fixed costs and playing bugger they neighbor politics becomes mighty attractive in the short term.

We’re there.