Cash-strapped US cities starting to spend again

Property-tax collections in the US rose to US$182.8b in the last three months of 2013, boosting the revenues of local governments

PUBLISHED : Wednesday, 23 April, 2014, 3:24am
UPDATED : Wednesday, 23 April, 2014, 3:24am

Property-tax collections are rising at the fastest pace since the US housing market crash sent local government revenue plunging, helping end an era of local budget cuts.

In cities including San Jose, California, Nashville, Tennessee, Houston and Washington, revenue from real-estate levies has set records, or is poised to.

Local governments are using the money to hire police, increase salaries and pave roads after the decline in property values and 18-month recession that ended in 2009 forced them to eliminate about 600,000 workers and pushed Detroit, Central Falls, Rhode Island, and three California cities into bankruptcy.

"The money is flowing back, but it's not like an open spigot," said Rob Hernandez, deputy administrator of Broward County, Florida, where property-tax revenue is set to rise 7 per cent this year, though it remains below earlier peaks. "It's trickling in."

We were able to stop the bleeding. [It] will help us not have to cut services
San Jose Mayor Chuck Reed

Some areas that were hit hardest in the real-estate collapse, such as Clark County, Nevada, have not yet rebounded but forecast improvement in the next fiscal year.

Property-tax collections nationally rose to US$182.8 billion during the last three months of 2013, when much of the money is due, according to a US Census estimate last month. That topped the previous peak four years earlier, before the decline in housing values reduced revenue.

That increase helped boost collections for the year by 3 per cent over 2012. That was the biggest gain since 2009, when revenue climbed 9 per cent.

"With cities having increased real-estate tax collections, it will really improve their bottom lines," said Brooks Rainwater, a director of research for the National League of Cities in Washington.

The financial recovery is easing the risk of credit-rating cuts for local governments, which could increase prices by pushing down yields as a result of less risk.

Bonds from local government issuers have gained 5.34 per cent so far this year, outpacing the broad market's 4.86 per cent advance, Bank of America Merrill Lynch data shows.

It would be the first time since 2008 that debt from cities, counties and townships have outpaced all securities in the US$3.7 trillion market.

Property taxes have taken longer to rebound than other types of levies, prolonging the effects of the 18-month recession that ended in 2009. It can take more than a year for tax bills to catch up with changes in home values. Some state laws limit annual property-tax increases.

In Nashville and Davidson County, Tennessee, property tax revenue rose 13 per cent in the 2013 budget year compared with 2012. With revenue hitting US$891 million, the government rebuilt fire stations and started work on a police station.

In Houston, where property tax collections are up more than US$100 million from the 2011 low, the city is putting more into its libraries and parks and has begun adding to its workforce.

"We're clearly headed in the right direction," said Houston controller Ronald Green.

In Washington, property-tax collections in the year that ended in September rose about 5 per cent from the year before to US$1.9 billion. The city is spending more on schools and affordable housing.

San Jose, in the heart of Silicon Valley, is using the extra cash mostly to cover rising costs for employee health care and pensions. Property-tax collections are set to rise 8.1 per cent for the year ending in June to about US$222 million, above the previous peak of US$210 million in 2009.

"We were able to stop the bleeding," said San Jose Mayor Chuck Reed. "The real-estate market will help us not have to cut services, but it is not strong enough to give us enough revenues to overcome these increasing costs."

Local governments remain hesitant to hire after cutting jobs from mid-2008 to March 2013, according to the US labour department. Since then, local governments, which employ about 14 million people, have added 57,000 workers.

"Property values are rebounding to a degree and fairly robustly in some locations, but the effect of that on the fiscal circumstances in many cities is not as salutary as we would like," said Steven Kreisberg, the director of collective bargaining for the American Federation of State, County and Municipal Employees, which represents more than 1.6 million government workers and retirees.

Since March 2013, property values have risen by more than 10 per cent each month from a year before, according to the S&P/Case-Shiller index of property values in 20 US cities.

Clark County has a backlog of projects awaiting funding, said commissioner Steve Sisolak. The county's property-tax collections during the year beginning in July are forecast to rise for the first time since 2009, though gains will be limited by state caps on how much they can increase.

"The county's turning a corner," Sisolak said. "You fall off a cliff fairly quickly, and it takes you a while to climb back out."