Civic property tax revenues started to decline in 2010 after years of growth, according to a report released by the National League of Cities on Wednesday. Cities expect property tax revenues to fall by 1.8% in 2010, after rising by 4.2% in 2009. This drop lagged the housing market collapse because property tax bills are based on assessments, which are slow to adjust to market value changes. But the worst is yet to come, according to the league’s report. The full brunt of the housing bust won’t be felt until 2011 and 2012 as more property values are reassessed. And commercial real estate values may dive in 2012, exacerbating the problem. Though income taxes are expected to rise 1.8% this year, relatively few cities have income levies. Instead, sales and property taxes dominate their revenue streams.
And that means a double whammy: Sales taxes are budgeted to drop 5% in 2010. Overall, the league projects a 3.2% decline in cities revenues in 2010 — the largest downturn in the report’s 25-year history. It is also the fourth year in a row that total revenues have dropped. Nearly 8 in 10 cities are expected to eliminate staff in 2010 — for a total of 480,000 jobs lost — on top of the 67% of cities that handed out pink slips last year. Nearly 75% of cities are instituting hiring freezes; 54% are mandating salary reduction or freeze; and 22% are requiring furloughs.
Some 17% have cut health care coverage while another 7% have trimmed pension costs, though these are harder to do. Some 69% of municipalities are delaying or canceling capital projects, while 34% are modifying health benefits. A quarter of cities are cutting public safety, which is usually among the last areas cities like to touch. A year ago, only 14% were slashing spending on public safety.
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