As home values sink, tax appeals soar

By MarketWatch

Communities are feeling the sting of tumbling property values as more taxpayers appeal their assessments and successfully lower their tax liabilities.

Take the Las Vegas area, which has been hit hard by home-price declines. More than 6,000 taxpayers -- both residential and commercial property owners -- filed appeals in Clark County, Nev., after receiving notice-of-value cards in December, up from nearly 1,400 appeals received the year before, said Michele Shafe, the county's assistant director for assessment services in Clark County. Of the 6,000 who filed appeals this time, more than 4,500 received reductions to their assessed value, she said.

"That's about a 76% success rate for all the appeals that were filed," she said. Many of the reductions were in the 30% to 40% range, she added.

That represents a substantial hit for local taxing bodies that have already suffered due to a sharp decrease in sales tax revenue as consumers scale back their spending. One way Clark County is making up for it: Departments will be required to cut 5% out of their budgets as fewer funds make their way into government coffers, Shafe said.

And what is happening in Vegas isn't staying in Vegas. Many local governments around the country are experiencing similar revenue declines -- especially those hardest hit by the housing downturn.

"The property tax is the main source of revenue in a lot of these places," said Chris Hoene, the director of policy and research for the National League of Cities. "So any hit to the property tax means that there will be some cuts in services somewhere."

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Communities are trimming budgets for libraries, parks and special events, he said. Many also are instituting hiring freezes in response to lower revenues. And Hoene said that this is only the first or second year of a three- to four-year cycle of declining revenues for local governments.

Many communities aren't raising taxes to combat the shortfalls at least in part due to the political fallout that would come with it, Hoene said.

"The majority are not raising taxes, simply because it's a difficult time to do so," he said. Instead, he says he's seeing a bigger use of fees, which are "much smaller and more incremental . . . and much more politically palatable to the public."

Why now?

While some areas reassess property values annually, others do only a portion of homes each year, said Jacqueline Byers, the director of research for the National Association of Counties. So some homeowners may still have assessments that reflect earlier values, say from 2007 -- and the discrepancy is evident in rapidly declining markets.

"They're watching the value of their property go down, and their assessment is on a 2- or 3-year-old value. That's why they're appealing," Byers said. "People are waking up to it and trying to save money."

California's system is somewhat unlike the rest of the country; reappraisals for property tax purposes typically occur when properties change owners or when substantial improvements have been made. But in Los Angeles County, the assessor's office has done a proactive review of assessed values, based on market trends in the area -- a process that also cuts down on the number of appeals, said County Assessor Rick Auerbach.

Continued: What you can do

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