As if it weren't bad enough that Michele Cetta's home value is plummeting, she's also facing a property-tax increase.
"The value of the house is going down, but the property taxes are going up," says the mom from Staten Island, one of the suburban areas of New York City. She anticipates adding several hundred dollars to this year's nearly $7,000 property-tax bill. "People already can't afford to buy in the neighborhood, and this makes it worse."
Homeowners see the same troubling trend across the nation. Despite a nationwide drop in home values of more than 6% -- and as much as 30% in some areas -- many homeowners are seeing their property taxes ratchet up, as state and local governments try to cope with revenue shortfalls caused by the economic downturn.
'Everything's tough now'
The proposed increases are generating stiff opposition from community leaders who worry that higher taxes will force struggling homeowners into foreclosure, accelerating the downward spiral in local economies. In New York, several community leaders filed a lawsuit Nov. 18 in hopes of forcing the city to send out property tax rebates, promised earlier in the year.
Residents forced out of homes?
Officials say they have little choice but to raise rates. Rising unemployment, declining business revenues and falling home prices -- which can reduce a home's taxable worth -- have left communities short of the cash they need to pay higher energy, infrastructure and employee-related costs, such as health care premiums.
How do your taxes compare?
On average, U.S. cities saw spending jump 3% in 2007, while tax revenues remained flat, according to the National League of Cities' annual report. Nearly two-thirds of city officials polled by the league expect revenues to take a larger hit this year, as tax bases continue to shrink and businesses contract.
"Any form of government that has a heavy reliance on property tax is going to face massive budget shortfalls," says Matt Moon, a spokesman at the Tax Foundation, a nonprofit tax research group.
New York City, home to many battered financial institutions, has been hit particularly hard by the economic downturn. Municipal officials are calling for a 7% property-tax increase and the elimination of a planned $400 tax rebate to help bridge an expected $4 billion spending gap. Though Mayor Michael Bloomberg has also proposed firing 3,000 workers, he says layoffs can't solve all of the city's problems.
"Cost cutting alone won't be enough," Bloomberg said in a Nov. 9 radio address outlining his proposed budget. "Unfortunately, we've also got to raise revenues."
In New Jersey, where homeowners pay the nation's highest property taxes, government officials have begun paving the way for additional increases. William Dressel, the executive director of the state's League of Municipalities, has called on New Jersey officials to increase a 4% cap on annual increases in property-tax bills. Some towns, such as Cherry Hill, N.J., face tax spikes as big as 17% under proposed 2009 municipal budgets.
"Nobody wants to increase property taxes, especially in the current crisis," says Jon Moran, a legislative analyst at the league, which counts all of New Jersey's 566 towns and cities as members. "But . . . everything hangs by a thread."
Many homeowners say their financial security is just as precarious. In interviews with half a dozen New York City taxpayers, many said higher food costs, stagnant wages and tighter credit restrictions have left them unable to withstand larger property-tax bills.
"The middle class has been hit hard as it is," says Josephine Restivo, a 14-year Staten Island resident who expects to see her taxes go up despite declining area home values. The median home price on Staten Island has fallen 6% in the past year to $400,000, according to real-estate tracker Trulia.com.
Some taxpayer groups argue that property-tax increases will worsen local governments' fiscal woes. They argue that homebuyers will be reluctant to pay higher prices for homes -- or to buy at all -- should tax rates jump. Further, they say, already-struggling homeowners will be left with even less income for mortgage payments, making them even more vulnerable to losing their houses.
"In some areas of the country, this could push homeowners into foreclosure -- it's as simple as that," says Pete Sepp, a spokesman for the National Taxpayers Union. "For cities to cancel property-tax relief is bad enough; for them to go in the reverse would be unconscionable."
Staten Island City Councilman Vincent Ignizio, a Republican, was among several lawmakers to sue the mayor's office to force the delivery of the previously promised property-tax rebates.
"You can never tax your way out of an economic downturn," Ignizio says. "This could break the back of people."
Some homeowners argue the federal government should use bailout funds intended for banks instead for property-tax relief.
"The aid shouldn't go to the banks and corporations; it should go to the working class and public works," says Alyce Sparandero, a registered nurse and New York City homeowner facing a property-tax spike.
The federal government has set aside some property-tax aid for homeowners. The American Housing Rescue and Foreclosure Prevention Act, passed earlier this year, gives first-time homebuyers a refundable tax credit of up to $7,500 that can be paid back over 15 years. The program is targeted at low-income housing and homeowners who do not itemize tax deductions. So far, the federal government has stopped short of providing widespread property-tax relief.
New York City officials explain that they have no solid alternatives to property-tax increases. Businesses are already under strain, they say. And officials fear that raising sales taxes would only further dampen consumer spending, making the downturn worse. Cutting services might depress home prices even more, not to mention putting residents at risk.
"We will not let our city return to the dark days of the 1970s, when the fiscal crisis all but destroyed our quality of life," Bloomberg said in his Nov. 9 radio address.
Michele Cetta sees it differently. She believes her quality of life may be destroyed by higher property taxes.
"Homeowners are hurting as it is," Cetta says. "This is not good."
Produced by Darragh Worland/Graphics by Joe Farro
Published Nov. 24, 2008
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