Fed Analysts: Falling Property Values May Amplify Municipal Budget Crises

The impact from the Great Recession is not completely over, especially at the municipal government level.

The dramatic fall in home prices is shrinking the property tax base, contributing to a sharp decline in municipal tax revenues, says a study by Federal Reserve Bank of Cleveland researchers Thomas Fitzpatrick IV and Mary Zenker.

Using Cuyahoga County, Ohio, as an example, Fitzpatrick and Zenker say that differences between market and county estimates of property values from 2008 through 2010 imply that when property values are reassessed in 2012, they will be between 11 percent and 18 percent lower than the 2010 county estimates. This suggests that after reappraisal, the county tax base will be at least $1.1 billion lower than it was in 2010.

The impact has been felt most strongly in Cuyahoga County's central city (Cleveland) and its inner-ring suburbs, which may see property values fall 38 to 45 percent and 26 to 30 percent, respectively.

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