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VOL. 123 | NO. 22 | Friday, February 01, 2008

Poor Housing Market Hurts Governments' Bottom Line

By Andy Meek

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The topsy-turvy housing market and related mortgage mess are hitting state and local governments where it hurts: right on the bottom line.

The squeeze currently being put on budgets from City Hall in Downtown Memphis to the state capitol building in Nashville comes from at least one common source. In general terms, the housing market slowdown means less tax revenue is being generated for those governmental coffers, which usually means one or both of the following occurs as a result.

Some government official or group of officials begins carving any fat out of the budget. That government also can go hat in hand for more money to taxpayers, one of its simplest sources of income.

Following his State of the City speech to the Memphis Rotary Club Tuesday, Memphis Mayor Willie Herenton dropped a hint that city officials might do exactly that later this year, once the city's next fiscal budget is approved in a few months.

"One thing I will say is we are in negotiations with our unions," Herenton said to reporters after his speech. "We have not given our employees raises in the last two years. That's a factor we have to take into consideration. We've just had an efficiency study. There's not a lot of room in our budgets for expenditure reduction.

"You look at growth and somewhere you've got to balance all that. It may necessitate that inevitably you have some tax increase."


Receivables must increase?

Shelby County Trustee Bob Patterson made a similar prediction a few times before he died from a sudden heart attack Jan. 19. Patterson forecasted that growth in Shelby County's residential tax base would be completely flat after next year's countywide property reappraisal. If that's true, it will all but assure some level of a tax increase for local homeowners.

In Shelby County, property tax receivables comprised 43.7 percent of the county's assets as of June 30, down from 45.7 percent as of June 2006. And the most recent Comprehensive Annual Financial Report for Shelby County, which is current as of June 30, reveals that county officials are concerned about and monitoring the impact of foreclosure and subprime mortgages on the local housing market.

"There has been some increase in foreclosure rates that appear to be related to subprime lending issues, and there are concerns regarding the impact on property taxes," the CAFR reads.

The county's debt service expenses will rise almost $9 million in 2008 and will continue to rise for the next several years because of the county's school funding commitments and because of the county's current debt structure, according to the CAFR. Another important theme for the county is that county officials have budgeted for no growth in property tax revenue in 2008.

Something else to consider is that, countywide, any significant disruption or change in property tax revenue can affect local schools in big ways. Half of every county property tax dollar is spent on education-related funding.

County figures also show a $14.5 million gap between revenues and expenses in the coming fiscal year that starts in July.


Statewide problem

Meanwhile, the real estate slump is affecting the local tax situation in other ways. The real estate-related taxes and fees the state government collects from housing activity in Memphis and Shelby County has seen a drop-off recently.

Over the third and fourth quarters of 2007, Shelby County delivered $14.7 million in realty transfer and mortgage tax fees to the state. That's down about 15 percent from the $16.9 million the county delivered to the state over the third and fourth quarters of 2006.

"We've definitely had a slowdown," said Shelby County Register Tom Leatherwood, who signs a multimillion-dollar check each month that sends the various real estate-related taxes to the state. "And these drops add up to real money."

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 81 217 5,290
MORTGAGES 94 276 6,985
FORECLOSURE NOTICES 22 72 1,628
BUILDING PERMITS 384 712 12,691
BANKRUPTCIES 66 241 5,541
BUSINESS LICENSES 27 85 2,146
UTILITY CONNECTIONS 52 234 7,292
MARRIAGE LICENSES 10 53 1,511

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