Property notices now hitting mailboxes across the state show significant drops in home values — in some cases to levels below what was paid for houses just a few years ago — and homeowners aren’t the only ones worried.
If the real estate market doesn’t rebound in a year, maybe two, local governments will be facing the prospect of major cuts to services, or the thorny question of asking for tax increases to keep services at levels once supported by a booming real estate market.
For now, no one is panicking. Most of Colorado’s local governments saw this coming and prepared for it.
They anticipated recession-driven changes to property values and cut their budgets to make up for declining revenues. Some started the process four years ago.
But if the economy doesn’t improve within the next two years — valuations have a lag time of about 18 months to two years — there could be big trouble.
Deeper cuts that could severely affect services, along with tax hikes, may be the only long-term answers.
“There’s no question this is a significant issue for all local governments, and we have to take some time and figure it out,” said Sam Mamet, executive director of the Colorado Municipal League. “It’s just now starting to sink in.”
Counties assess property values every two years, and those valuations are used to calculate property taxes due over the following two years. When property values slide, the amount of taxes collected by counties, school districts and special districts drops too, leaving the entities scrambling to provide such services as fire protection and human services.
In the South Metro Fire Rescue district, about 82 percent of the $60 million budget comes from property taxes.
The district serves, among other places, the wealthy communities of Greenwood Village, Cherry Hills and Castle Pines. Those cities saw among the biggest declines in assessed values in the Denver area. Some mountain communities also took big hits.
Anticipating the downturn, South Metro cut about $5 million from its budget this year, laying off workers, decreasing overtime, suspending capital projects and forgoing purchases of new equipment.
But cutting budgets can only keep local governments going for so long. At some point, districts such as South Metro may have to go to Plan B — whatever that might be.
“We’re in good shape, but if things don’t turn around, we’ll have some issues to deal with,” said Chief Dan Qualman of South Metro Fire.
Good planning seems to have paid off for Arapahoe County too. The county is likely to see a decline of almost 5 percent in projected property-tax revenue.
And property taxes make up about 65 percent of Arapahoe’s roughly $135 million general- fund budget.
The county, unlike others in the state, didn’t opt out of revenue limits imposed under the Taxpayer’s Bill of Rights, a process known as de-Brucing, a reference to Douglas Bruce, the author of TABOR.
Instead, the county gave homeowners a tax credit in lieu of collecting all of the taxes it could. In the future, the county could collect the full amount.
The county also didn’t dip into reserves to balance its budget, said Commissioner Rod Bockenfeld.
“We don’t want to imply that we are fat and happy, because we’re not,” he said. “We’re trying to work our way through the difficult economy. But if the economy does not restore itself soon, Arapahoe County is going to have to make some tough decisions.”
Property owners who disagree with their valuation have until June 1 to protest, which means budget estimates can’t be made until later in the year.
Cities are less affected by fluctuations in property taxes because they are mainly dependent on sales taxes.
Aurora, for example, reaps 63 percent of its revenue from sales and use taxes, and only 11 percent from property taxes.
The city sales-tax base was finally starting to improve when Aurora found itself projecting a $2 million to $3 million decrease in property-tax revenue based on the latest assessments.
“We were just starting to see sales tax move in the right direction,” said Aurora budget officer Jason Batchelor. “To take a hit on the property tax, it really prolongs the downturn.”
School districts may not be in bad of shape, either, because the state is required to “backfill” the absent property taxes through the state equalization fund.
However, Ken DeLay, executive director of the Colorado Association of Schools Boards, said the state hasn’t been able to provide the backfill money in the past two years because of its own budget woes.
There are other impacts to school districts. Some have issued debt through general obligation bonds, and a low property- tax collection could limit their loan power for capital projects.
Cherry Creek School District spokeswoman Tustin Amole said it is too soon to say how the valuations will affect the district.
She said the district’s facilities and long-range planning committee is expected to issue a report early next year that takes into account the property- tax revenue and other issues.
Chip Taylor, executive director of Colorado Counties Inc., said Front Range counties were wise not to take on big-ticket projects or begin offering major new services, knowing this hit was coming.
Resort communities and those that are heavy with oil and gas properties took the biggest hits, he said. Those along the Front Range are filled with a more diverse variety of properties, which resulted in more stability, Taylor said.
He said there could be a turnaround as soon as 2014.
“We’re hopeful that as part of this cycle, we are going to see it only as a two-year issue.”
Article source: http://www.denverpost.com/news/ci_18066811