ICMA Stats

An ICMA survey shows that reductions in new housing starts are adversely affecting local governments in more ways than the loss of property tax revenue caused by real estate foreclosures. The electronic survey, conducted in April 2008, was designed to take a snapshot of the effect of foreclosure and property tax–related issues. The responses of the 221 local governments that participated show that

Almost 40 percent of local governments reported being strongly or extremely affected by a reduction in new housing starts.
16 percent are strongly or extremely affected by a loss of property tax revenue caused by a shrinking tax base.
27 percent indicate they are strongly or extremely affected by loss of property tax revenue caused by tax caps.
56 percent are minimally affected by loss of tax revenue caused by foreclosures, and 21 percent report no effect.
Close to 80 percent report minimal or no effect from loss of real estate transfer tax revenue.
13 percent report being strongly or extremely affected by increased costs associated with vacant property.
53 percent report that there has been no effect on their ability to borrow money.

A reduction in new housing starts means a loss of building permit fees, which can be a significant source of revenue for communities. Localities that have been hard hit by the loss of tax revenue caused by foreclosures report laying off staff, freezing vacant positions, reducing existing programs, and holding off on new programs.

Several local governments mentioned consolidating services and selling assets. One city expressed concern over foreclosure properties on which the city has Community Development Block Grant (CDBG) loans, which may result in nonpayment of the outstanding loan amounts.

One of the cities that reported adverse effects on its ability to borrow money indicated that “the much greater issue is weakness in the municipal bond market due to lack of liquidity, impacts upon variable rate bonds and auction rate bonds, and downgrading of municipal bond insurers.”

As several cities commented, vacant properties require additional code enforcement, mowing, and other government maintenance. One local government is buying foreclosures and other vacant properties and rehabbing them or redeveloping the sites.

—Evelina Moulder
Director of Surveys
ICMA
emoulder@icma.org

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