The current economic conditions condensed into the budgetary cloud are brewing one of the darkest storms ever to threaten our city. It is the first time that I have seen revenue from property taxes actually fall. Not just fall in growth, or fall in forecasted percentage increase, or fall in share of revenue, but actually FALL, even when the cost of everything else rises. For a nearly $400 million revenue source for our general fund, a decrease of 2.3 percent is a significant dent in our ability to pay for neighborhood services.
One of the fundamental causes of this uncertainty in revenue is the state’s Proposition 13 of 1978. Proposition 13 almost halved the collection of revenue for general fund services, primarily police and firefighting, statewide. It capped the growth of property taxes at 2 percent even when property values grew much faster, and allowed property taxes to fall when property values fell. This counter-intuitive constraint, unparalleled in private markets, is blind to the non-linear (or cyclical) nature of economic cycles. It prevents the city from stocking up its reserves in good times, to prepare for a rainy day, like today.
We need “good weather” soon– some of which is forecast by increases in home sales, and some by the picking up of construction activity. Both are good omens for our dampened revenue intake.
Increases in home sales allow properties to be re-assessed beyond the Proposition 13 cap, and major construction adds to the assessed value of property. The city projects that by mid-2010 property taxes will have increased by 1 percent. A healthy increase will put the city back on track for a faster recovery by providing needed services in our communities, as well as good jobs for our residents.
Background:
By Steven Bartholow, SDNN
There is a lot of taxable property in San Diego County – more than 1.2 million separate properties, to be exact. And for the first time in recent memory, your property has decreased in value as a whole, as you probably already known.
County Assessor David Butler reported last week that the assessed value of all taxable property in San Diego County decreased 2.3 percent, or $9.46 billion, in 2008.
This 2.3 percent drop in property tax revenue amounts to a $16.7 million loss to the city of San Diego’s general fund. Last year’s budget predicted $411 million in property tax revenue, the proposed FY2010 budget put together in the spring expected $399.3 million, and the recent announcement by Butler has dropped that number to $382.6 million. So, the city is out of about $30 million that it expected to have in property tax revenue this year.
That’s not all. Gov. Arnold Schwarzenegger has proposed to borrow the property tax revenue of local municipalities – so the city could see less money in the bank than just $30 million. The same is true for the county government.
But there may be a tiny shimmer of good news for home-owners in an overall dark period: the county assessor reduced the value of 216,636 homes in San Diego County this year, and the taxes paid on them, on a full 29 percent of homes.
As the city’s revenues catch up to the recession that surrounds us all, a tangible loss of service is occurring within the city. This lost chunk of change would pay for the 107 full time city employees, public safety workers, park personnel, librarians, engineers, and others that were cut from the general fund in 2009.
