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Economic Tidal Wave: Cities React to Dropping Property Values

Mary Ann Pekara

If there's an overwhelming theme about the financial crisis of 2008, it would probably be interconnectivity.

Most financial analysts say that the problems started with the housing market and subprime loans. Those problems then exposed the financial manipulation that had been occurring on Wall Street for years. Those combined problems contributed to many banks to come close to total failure.

The United States' close financial collapse caused international shockwaves. Countries like Iceland and Pakistan may wind up filing bankruptcy. Banks across the globe have seemingly imploded.

There's been a worldwide domino effect.

And it's trickling down to people who had nothing to do with Wall Street or subprime loans.

Some American cities are starting to feel the heat too.

For example, take Manatee County, Florida, which is a county on the east coast of the state that has a population of about 313,000 people, according to data from the U.S. Census Bureau.

Some of the town officials are rethinking the city's spending plans after the Manatee County Property Appraiser's office declared that the taxable values of properties have dropped in the three months since they were first reported, according to a Bradenton Herald article.

"We've had a housing crash," Charles Hackney, the Manatee county property appraiser told the newspaper.

Hackney continued to say that on July 1, 2008 his office notified city governments in Manatee County of the taxable property values in their respective jurisdictions, which established how much the cities would collect in taxes.

Many cities then planned their budgets accordingly.

But, in fact, a lot has happened since July 1.

"In those three months we've made most of the reductions [of property values] based on people coming into the office and discussing their issues," Hackney told the newspaper. "Most of the adjustments were to large properties, such as a subdivision with houses sitting idle, or [foreclosed properties]."

Hackney said these adjustments have greatly affected the property values and how it's appraised for tax purposes.

In other words, cities will have to re-examine what they think their incomes will be-and they'll likely be lower than expected.

"Property values are continuing to go down," Greg Owens, a local Florida realtor told the newspaper. He said that the values are falling because of the increasing number of mortgage foreclosures and short-sells.

"Distressed sales are driving the market right now," he said.

Readjusting Budgets

Like most state law, Florida law allows city officials to readjust their budgets (which are typically approved in September) if there's more than 1 percent change in property values.

Many cities in Manatee County-and around the nation-have experienced a more than 1 percent drop.

In Bradenton Beach, a small island community in Manatee County, property values dropped about $6 million-a 1.0727 percent change. That drop resulted in a $51,000 deficit in the general revenue budget that the city's officials approved in September.

The city decided to cut spending and not raise taxes. No one who's paid by the city will get a raise this year, either.

While no one in that city lost their job because of the decrease in revenue, other cities may decide to cut jobs or raise taxes in order to make up for the loss of revenue.

Just another unfortunate trickle down effect-cities cut jobs and many families suffer; cities raise taxes and many families suffer. It's a story like this that begs the question: When will this downward spiral end?