(Reuters) - Local property tax revenue fell 0.9 percent in the first quarter of 2012 versus a year ago and likely will keep sliding in the coming quarters, a report said on Monday.
Local property tax revenue, often the most important source of income for local governments, had firmed during the previous two quarters, the Albany, N.Y.-based Rockefeller Institute said. It noted that it can take at least three years to factor in a downturn in housing prices.
The fall in property tax revenue is much sharper with inflation taken into account. It was down 2.8 percent in the first quarter of this year versus a year ago, the sixth straight quarterly decline, the report said.
Any more declines in this vital source of revenue will hit localities especially hard, the report said, as property taxes accounted for about 74 percent of their revenue in 2009.
The costs of a wide range of programs, from education to retiree benefits, are rising just as the federal government is considering deep cuts in domestic programs.
“The housing bust that helped trigger the Great Recession was deeper and broader than any housing decline since the Great Depression,” the report said.
Prices of single-family homes peaked in the first quarter of 2007, on a nominal basis, and then dropped 16.7 percent through the first quarter of 2012, the report said, citing a Federal Housing Finance Agency index.
Property tax collections naturally rise and fall with assessments. If assessments fall, revenue will drop unless the tax rate is increased.
Although state and local property tax revenue fell more deeply after the 1973 recession, they are taking longer to recover from the last downturn. “Property taxes are clearly trending downward and are likely to fall further in the coming quarters,” the report said.
In contrast, personal income and sales tax revenue - which fell much more swiftly during the recession, have rebounded as the economy has recovered modestly.
The performance of property tax revenue largely followed the pattern of the worst excesses of the housing bubble.
Citing 2009 property tax data, the report said: “The drop-off in collections growth was particularly acute in Florida, the District of Columbia, Indiana, Hawaii, Alabama, and California.”
In contrast, collections “soared” in Texas, Alaska, Maryland, and Michigan.
About 15 states, in addition to many local governments, raise money through property taxes. They collected a total of $424 billion in 2009, the report said.
The Northeast and upper Midwest rely more heavily on this source of revenue than the South and Southwest. For 13 states, property tax revenue accounts for more than 90 percent of local taxes: Maine, Vermont, New Hampshire, Massachusetts, Rhode Island, Connecticut, New Jersey, Mississippi, Michigan, Wisconsin, Minnesota, Montana and Idaho.
The District of Columbia had the highest property taxes on a per capita basis in 2009 - $2,985 - followed by New Jersey at $2,671. The state with the lowest levy was Arkansas at $294.
Reporting by Joan Gralla, Editing by Tiziana Barghini and Dan Grebler