How does California revenue "plummet" due to a minor housing market decline

This statement is in today's NY Times

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"revenue in California has plummeted because of troubles in the housingmarket".

Is this yet another case of the NY Times journalists stating idiotic "facts" that are patently untrue?

I can't imagine how revenue in California can possibly "plummet" because of what appear to be minor (if any) decline in housing prices. Can you?

For example, say housing prices stayed steady; then revenue in California would remain the same. Say they went up (which they appear to have done in the bay area), then revenues go up slightly because people don't sell their house just because it went up in value. They live in their house.

Now, say they went down. Same thing. The taxes paid on the house are roughly 1.2 to 1.5% (give or take a few). So, given only a small percentage of the houses that declined in value (if any) were actually sold, then the tax change is only a small fraction of that small fraction.

Hence, I'm amazed at the journalists' statement. Are the NY Times journalists yet again guilty of idiocy? Or am I?

Reply to
Suzanne DeAngelillis
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From the LA Times: =============================================================The effects of the housing slowdown are not being felt evenly across the nation; in states such as Wyoming, Alaska and Texas, they're more than offset by the boom in oil and gas prices. But in a recent survey, 24 states reported that their tax collections had taken a hit because of the housing crisis.

The 10 most affected states, including California, Nevada and Arizona, will lose a combined $6.6 billion in tax revenue next year, according to a report prepared for the U.S. Conference of Mayors. ============================================================= and also from the LAT:

=============================================================The mortgage crisis cuts into tax revenue in several ways.

The most obvious victim is property tax collection. Homeowners in foreclosure don't pay taxes on time. And as foreclosures spread, property values drop -- dragging down assessments and collections.

To take one example: In wealthy Fairfax County, Va., property values were jumping 20% a year. Now values are flat or falling. The number of foreclosures has exploded, from fewer than 200 two years ago to about 4,000 this year. The resulting $220-million budget shortfall has officials warning of significant cuts in services, including spending on public schools.

"Instead of having a soft landing, we've crashed," said Edward L. Long Jr., a deputy county executive.

When the housing market is flat, governments also lose out on the many transaction fees tacked onto real estate sales. This revenue stream is down in several states, in a few cases by 20% or more.

Even more distressing to budget planners is the decline in sales tax revenue. If people aren't buying homes, they're not buying refrigerators and washing machines to furnish them. Nationwide, orders for durable goods have been flat for the last four months. (November saw the first slight uptick: 0.1%. Economists had been hoping for 2.2%.)

On average, states receive about a third of their revenue from sales taxes. So it hurts -- deeply -- when families don't have reason to splurge on the new sofa and coffee table that will make a just-purchased house look like home.

Jacqueline Byers, director of research for the National Assn. of Counties, said she had taken to wondering, as she drove past yet another vacant house: "Does that translate into the library's going to close at 6 p.m. instead of 9? Little things like that are all affected. It's a phenomenal impact."

The fallout has been most severe in California, where officials are grappling with a $14-billion gap. Gov. Arnold Schwarzenegger has ordered agencies to immediately trim spending by 10%.In Florida, the Legislature recently took emergency steps to close a budget shortfall estimated at $2.5 billion over the next 18 months. Lawmakers raised tuition at state universities by 5%, sliced money for long-term nursing home care for the indigent, and requested that state law enforcement officers take their uniforms to be cleaned less frequently.

Reply to
Alan

It's not "minor". And it's not just a decline in housing prices, but a major decline in the over housing market.

Bay area is only one area of CA. The whole central valley is experiencing major declines.

You are.

Reply to
PeterL

Property tax revenues (which mostly go to local governments) are impacted because under Prop 13, a property owner whose property is worth less than its base Prop 13 value (e.g., a residence purchased in the last couple of years, in most parts of the state) can get a reduced assessment. Also, property tax revenues don't rise as projected because (a) fewer properties change hands, generating reassessments and (b) the properties that do change hands do so at lower prices.

Sales and use tax revenues decline, as Alan pointed out, because people aren't buying new appliances, furniture etc. for newly purchased homes. Also, probably more significant, people are no longer taking out home equity loans or refinancing for consumption, and they generally feel poorer because their homes are not worth what they were a year ago. At the top of the market my house (purchased in

1964 for $18,000, basis including additions c. $60K) was worth close to $500K; now it might bring $425K at best. I'm still way ahead but I don't feel as rich as I did a year ago. And if I had borrowed out my equity and spent it, I could be in real trouble. Many people have done just that, and are in deep doodoo.

Income tax revenues decline (or fail to rise to meet projections) because many businesses and individuals are dependent on the housing industry for income. Real estate brokers and agents, real estate developers, construction contractors, etc., etc, etc., all earning less than expected. My manicurist quit three years ago to sell real estate and did very well ... now she's doing nails again two days a week.

The booming real estate market buoyed the California economy for several years. When it declines, the economy declines.

Good news for some buyers, though. My daughter, who couldn't have gotten into the market before, is in escrow to buy 8 acres in the back country!

Katie in San Diego

Reply to
Katie

That has always been true, it has nothing to do with Prop 13. In fact, Prop 13 keeps tax revenues up, because houses that it caused to be very under-assessed are now only slightly under-assessed (and still rising at 1%/year).

Those are major effects (and worse because of Prop 13 holding down taxes on unsold properties).

Seth

Reply to
Seth

You just HAD to ask! grin at William, et al!

Here I don't even know you but I can tell you that you are not the idiot.

ChEAr$, Harlan Lunsford, EA n LA

Reply to
Harlan Lunsford

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