Property Tax Appeals Reflect Dire Economic Situations

Those of you who were around during the late-1980s/early-1990s real estate boom/bust will surely remember all the homeowners who requested that their property taxes be reduced after home values declined. The situation seems much more dire this time around as detailed in this story in the New York Times and codified in the caption for the photo below.
What struck me as very surprising, something that, here on the West Coast, falls into the category of "unthinkable", were the exorbitantly high tax rates in places like New Jersey.

I've long heard of people fleeing to Pennsylvania to escape property taxes to the east, but the figures for Ms. Tombro's tax situation detailed below are just mind-boggling.

New Jersey, which has the nation’s highest property taxes, has been besieged by tax appeals from homeowners like Peggy Tombro, whose rambling home in Bound Brook is assessed at a value of $1.8 million but is languishing on the market with an asking price of $1.3 million. Her taxes are increasing to $53,000 a year.

“I don’t know what else to do,” said Ms. Tombro, 63, who has gone back to work selling antiques to pay her tax bill.

She's going to have to sell a lot of antiques...

With entire neighborhoods populated by million dollar homes quickly vanishing, the days of plentiful $25,000 a year property tax bills also appear to be numbered, boding ill for the spendthrift ways of many local and state governments.

Surely, the case of New Jersey property taxes is an extreme one.

For example, in California, the tax bill that comes after the purchase of a $1.3 million home would be around $16,000 rather than an amount that approaches the national median household income.

Of course, the State of California also has a bit of a budget problem these days, so maybe that's not the best example to use.

Perhaps even more intriguing than the ongoing adjustments being made by typical Americans as a result of the new economic reality that has arrived on all our doorsteps will be the changes that state and local governments are forced to undergo, kicking and screaming all the way, most likely, a process that has just begun.

Naturally, the biggest and baddest adjustment of them all will someday come at the Federal government level where spending beyond one's means has not only become accepted practice, but a way of life.

That too will change someday...

Comments

[John Galt:]

When prices were going up it was very easy for the government to slap a price increase onto your property taxes, but how easy will it be for home owners to fight that they are being billed for more than their house is worth?

Are states going to be willing to reduce your tax bill when they are faced with such budget constituents? Are they going to cut services and benefits to constituants?

New Jersey is a funny state. They have the higest property taxes, they charge you money to go to the beach ( do any other states do this?), they have a huge toll road streaming up and down the state, and then you have high state taxes. Where does this money even go?

It's no wonder a huge population cash out when they retire and move to Florida or North Carolina.

Jul 06 08:36 AM

[TeresaE:]

In Michigan we have been living through a "recession" for over 8 years.

In many areas of the state, property values (ie the ACTUAL sales prices) started to fall in '03/'04 as the job market left, especially in the rural areas.

During those same years, many small cities & towns approved larger and larger contracts for their workers and indebted the local citizens to millions in programs they do not need (nor can afford).

Now that the proverbial shit is really hitting the fan, dire comes to mind.

Yet, the small power grubbers continue to increase costs & unnecessary services, continue to add levels of management, continue to build schools & other government buildings our broken (and departing) citizenship does not need and have NO way to pay for.

This country has spent the past 100 years creating programs we can't afford with the "glory" going to the current politician and the bill being shoved onto the next poor sap's term.

We have nearly reached the end of the push forward.

Yep, the piper is here and demanding payment.

Just more green shoots.

Regretfully, the green shoots are a portend of our ultimate destruction.

Jul 06 09:25 AM

[Jason Rines...:]

The result will ultimately be that the pay to play system of politics will end and a lot of angry people expecting there entitlements will either make the political changes at the voting booth or the fact may be that this empire will continue it's communism march and supress dissent. It's certainly not a time to be a value investor going long. Too much risk.

Jul 06 12:03 PM

[Accuriz:]

Tim, the property tax issue really is not a surprise. What is a surprise is how long it took for the news media and analysts to pick up on it.

Our reports in 2008 indicated that the underlying risk of the housing crisis would be increased property taxes, even as property assessments declined. The reality is that every government, from federal to local has to balance their budget. Yes the Fed can print more money and float bonds to provide solutions today with revenues from the future. But this can only last so long.

Local property taxes are a function of taking the total assessment of a community and developing a tax rate based on total budgets at the county, town, village, school, fire district etc. levels.

Unless expenditures are cut, taxes will keep going up. The million dollar question should be, why is government continuing to spend when everyone else if forced to cut. If the government cut waste, expenditures could probably decrease 10% and taxpayers would feel some sense of relief. But than again politicans would not have bacon with their eggs anymore.

Jul 06 12:48 PM

[Samsung:]

nice article

Jul 06 02:16 PM

[jimmy46:]

3 years ago Nevada passed a law saying property tax couldn't go up more than 3% a year.
Combined with other laws this leads to a property tax of about
1/2 of 1% of <depressed> market value.

Best deal I know, and part of the reason Nevada has been the fasting growing state for 10 years+

Jul 06 02:21 PM

[conceptwizard:]

California is in serious financial trouble. Mortgages 90-days past due average 7.6%. Foreclosures continue to climb, as residential and commercial real estate plunge in price. Unemployment is the worst since 1940. In almost two years close to 860,000 jobs have officially been lost, of which officially 740,000 were lost in the last year. Real U6 unemployment is more than 20% and 2-years from now could be 35% or more. Layoffs could reach beyond 100,000 state employees. The state’s credit rating is headed lower. Next is the dumping of California’s municipal bonds due to credit rating downgrades. Over the next two months the state may not be able to meet its payroll. It is probable that in time California will default.

All of these problems will affect the entire economy of the country. There is big trouble on the way.

When all these properties are resold at their 40% reduction in value, property taxes will decrease as well about the same percentages. This will have a major effect on all states depending on revenue from property taxes.

Jul 06 02:31 PM

[jhartz:]

California will be forced to make draconian cuts in state spending. The state is being run in ways that defy either rhyme or reason.

People with businesses, jobs, or personal wealth are finally so fed up with the 'something for nothing' crowd that controls state and local governments in California.

We will no longer support, with our tax dollars, a system that is rigged against those that earn more than they spend. Our public school systems and our hospitals are beyond being strained because of having to provide services to those who don't pay for them.

California is bankrupt, and they are going to have to start acting like it.

Once they cut spending to live within their means, they'll still have to address their system of preferments and entitlements that seem only to provide undeserved services to illegals and other, non productive parasites, whose sole intent seems to be sucking the lifeblood out of our once great state.

California is the precursor to what is taking place in our whole country.

Jul 06 03:27 PM

[donzelion:]

Unbearable taxes are a symptom of a serious problem - but one needs to look further to understand the causes. We're just starting to pay the toll for 3 decades of "beggar thy neighbor" policies adopted by thousands of municipalities. It's going to hurt - a lot, but it will hurt even more if the beggar thy neighbor policies continue.

What policies come to mind? Many suburbs/exurbs limited the number of schools in their zoning plans, favoring 1-2 "super-performer" schools over 5-7 "mediocre" schools (helps keep up property values - and if most kids suffer, well, tough). They demanded extensive, expensive road, sewage, and power grids for their residents, local police and fire units, while forsaking basic infrastructure upgrades to more efficient central systems. They favored strip malls and parks over factories. They wanted specialist hospitals and clinics (but not community hospitals which poor people might come and use). They wanted prisons, but wanted others to pay. And on and on...

Such "beggar thy neighbor" planning is feted during booms, and during busts, the planners readily shift blame elsewhere (Chinese/Arabs/Japanes... But if such blameshifting continues unabated, the result is always and everywhere an even greater anguish.

Jul 06 04:43 PM

[Old Trader:]

I realize that tax laws and procedures vary from state to state, but I wonder, if at some point down the road, we're not going to see tax seizures adding to the glut of unsold homes. Certainly not something we need.

Jul 06 07:31 PM

[Northstar10000:]

If you want a real tea party. Go in mass to your Tax ass. office.
Go the class action route when they tell you to take a hike. Watch the walls of Jerico come tumbling down. If everyone did it you would see what a real tea party is like. They tell me you can't do that. Well if a hundred million did it lets see if we can't.

Jul 06 08:30 PM

[perceptions...:]

What odds on a rate increase, on a lower valuation?

PS - Please say hello to Ayn, Atlas & others, for me!


On Jul 06 08:36 AM $ John Galt wrote:

> When prices were going up it was very easy for the government to
> slap a price increase onto your property taxes, but how easy will
> it be for home owners to fight that they are being billed for more
> than their house is worth?
>
> Are states going to be willing to reduce your tax bill when they
> are faced with such budget constituents? Are they going to cut services
> and benefits to constituants?
>
> New Jersey is a funny state. They have the higest property taxes,
> they charge you money to go to the beach ( do any other states do
> this?), they have a huge toll road streaming up and down the state,
> and then you have high state taxes. Where does this money even go?
>
>
> It's no wonder a huge population cash out when they retire and move
> to Florida or North Carolina.

Jul 06 11:41 PM