3: Fiscal Impact In Ten Select States
% Chang in GSP Growth
Change in Tax Revenue, Millions
Property tax revenues are a function of various assessment and rate-setting practices at the local level. Most of the property tax adjustment takes place over a period of years. The losses in Table 3 should be interpreted as the potential tax loss at current rates. California metros will suffer the greatest potential losses in terms of tax revenues. Due to declining property values, property taxes in the state could ultimately decline by as much as $2.96 billion. In addition, the state is expected to lose $994 million in sales tax revenues due to weakening consumer spending next year, and $39 million in transfer tax revenues because of declining home sales and prices. Although in some states, like Georgia, local property tax revenues will continue to rise, they will do so at a much more moderate pace than during the boom years.
The real estate crisis of 2007 and 2008 will go down in the record books. In recent years, millions of Americans were introduced to a new breed of mortgage – a flexible loan with rate resets in what at the time seemed like the far off and rosy future. Instead, they now face a marketplace where home prices have cooled, home values are shaky, and their flexible loans have become financially unfeasible. The wave of foreclosures that has rippled across the U.S. has already battered some of our largest financial institutions, created ghost towns of once vibrant neighborhoods – and it’s not over yet. Global Insight expects that 2008 will bring more foreclosures, slower growth of U.S. GDP, stresses for state and local government budgets, and curtailed consumer spending.
The good news is twofold. Federal, state, and local governments along with mortgage lend- ers have quickly recognized the fallacies inherent in much of the subprime lending situation. And the mortgage crisis is not going to bring the economy grinding to a halt. Indeed, we expect job growth in 2008 to be 0.85% and GDP growth to be 1.9%. In 2009, those figures will be 1.2% and 2.9%, respectively. In the end, the economy will not come off the rails, and we may actually have learned something.