Real Estate Tax Bomb

A couple of weeks ago I paid my property tax bill with a smile. Why? It was 25% lower than it had been the year before. Then I realized that this wasn’t just the case for me, but for every homeowner in my area. We know all too well how much property values have fallen over the last few years. On the plus side is that homes are more affordable allowing more people to be homeowners – if they still have a job. Mortgage rates are near all-time lows adding to the ability of those who still qualify to purchase. Of course the economic slump has sharply curtailed the ability of many people to purchase regardless of price or interest rates. Unfortunately things may get a lot worse before they get better.

So many municipalities are facing a crisis of their own. In good times they created program after program, seemingly without regard to fiscal common sense. Now those governments are scrambling to cover shortfalls. The declining real estate values factor in quite heavily here. Property assessments have fallen sharply, taking tax revenue down with it. All across the country cities, counties, and towns are scrambling for cash.

Austerity Measures

There is an old adage that says, when you find yourself in a hole – stop digging! Unfortunately many of these government entities can’t do that. They are required by law to provide certain services and are bound by civil service union contracts to provide raises for cost of living, longevity, and merit. You can certainly argue the wisdom, or lack thereof, with which these contracts were negotiated, but the fact remains that they exist.

Services are being cut back, hiring freezes put in place, and costs cut wherever possible. Rarely is that sufficient. What next? The next logical step is to get the unions to renegotiate the contracts if at all possible. Surely some unions understand that to protect jobs they have to make concessions but that doesn’t mean they will give up without a fight. The role of any union is to protect the rights and jobs of their members. When the concessions aren’t enough the layoffs follow.

Trickle Down Effect

When you get a property tax bill that is significantly lower than the previous year your first instinct may be to celebrate your good fortune. For sure that gives you more money to spend, invest, or pay down debt and that helps the overall economy. While that’s all a good thing, there is another side to that coin. More people employed in government will join the ranks of the unemployed or underemployed. So in that regard the economy suffers because of reduced government spending. The reason that’s a problem is because more people than ever are dependent on government money.

Government had become so bloated and, unlike the private sector, they don’t have the ability to adjust, adapt, and reset, to survive and ultimately thrive. With the mid-term elections only a week away things are poised to change again, at least as far as the makeup of congress goes. Will that make a difference? Probably not. Can you imagine a government that actually lives within its means? Neither can I.

This country has come to feel the same when Congress is in session as when the baby gets hold of a hammer. – Will Rogers

Photo Credit: G & A Sattler

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.