VOL. 123 | NO. 195 | Monday, October 6, 2008
Financial Crisis Hits Property Tax Coffers
By Andy Meek
HOUSING WOES: Property-related taxes collected for Shelby County and the state of Tennessee have taken a hit as the housing slump and credit crunch continue pounding the national economy. -- PHOTO COURTESY OF JOSH WHITEHEAD
Property-related taxes are the oxygen of local economies in Tennessee. But convulsions in the nation’s housing and credit markets could leave those economies gasping for air.
Every time a home is bought in Shelby County, fees are collected by state and county governments. The Shelby County Register of Deeds collects for the state of Tennessee a mortgage tax based on the amount of money being mortgaged for new homes. The register’s office also collects a real estate transfer tax for the state that’s determined by the value of property being transferred to new owners.
But as anyone who has watched the news over the past several months is no doubt aware, home sales are on the decline. And that means the corresponding tax revenue in Shelby County is drying up as well.
Through Aug. 31, residential sales in Shelby County were down almost 23 percent from the same time a year ago, according to the latest information from real estate information company Chandler Reports, www.chandlerreports.com.
There have been 11,590 residential sales through Aug. 31, down from 14,966 during the same period in 2007. The total sales volume in terms of dollar amount through Aug. 31 was $1.59 billion, down from almost $2.4 billion through Aug. 31 of 2007.
Fewer homes being sold adds up to a loss of revenue for Shelby County as well as at the state level. Through Aug. 31, transfer tax fees collected by Shelby County Register of Deeds Tom Leatherwood’s office dropped about 43 percent compared to the same period in 2007.
The amount Leatherwood’s office collected in mortgage taxes for the state posted a similar decline. Through Aug. 31, mortgage tax fees collected by the county register were off about 40 percent compared to the same period last year.
“We are slower now, and I don’t expect a quick turnaround on this,” Leatherwood said. “As a matter of fact, I don’t know if we’ve reached bottom at this point.”
The transfer tax revenue collected by the register’s office through Aug. 31 was $9.7 million. That’s down from a little more than $17 million during the same period last year.
The register’s office collected almost $4.7 million in mortgage taxes through Aug. 31, down from almost $7.8 million during the same period in 2007.
Statistics from the state level tell a similar story. For the month of August alone, the state Department of Revenue reported a nearly 40 percent drop in statewide realty transfer tax revenue, going from $13.8 million in August of 2007 down to $8.4 million this August.
Sweeping the country
The effects of the nation’s current economic woes run deeply through the veins of the country’s financial circulatory system. A report released in September, for example, by the National League of Cities called “City Fiscal Conditions in 2008” found that property tax revenues are generally expected to fall by almost 4 percent by the end of this year.
The report also found that two out of three city finance officers said their cities have less of an ability to meet their fiscal needs in 2008 than they had in 2007.
The U.S. Congress captured the attention of the nation and much of the world last week with monumental votes on different versions of a multi-billion-dollar rescue package for the country’s financial markets. The tremors from the shockwave that jolted legacy financial institutions on Wall Street have spread to the state and local level and are reflected in things like the shrinking tax receipts that Shelby County and the state of Tennessee are experiencing.
The breadth of that connection is something lawmakers such as U.S. Sen. Bob Corker, R-Tenn., said they have never seen the likes of before.
“I have never seen anything like this in my life from the standpoint of public interest and concern,” Corker told reporters Thursday. “It’s been truly overwhelming in our offices. ... I don’t think the American public understands the extent of the credit crisis and the tremendous damage that is creating right now to the economy and how if we don’t take preventative action it is going to sweep over this country.”