Why the Subprime mess could not only lower your net worth, but could also lower your cash flow at home.
I always thought it funny (pathetic funny, not haha funny) that during economic cycles, local, state and federal taxing authorities tend to raise taxes early and often - mostly because they can be justified and tend to go largely unchallenged, as incomes rise for residents.
But what happens when the cycles turn ?
Do taxing and spending, ever slow down ( or go down?)
Today Naperville city council will take its first swipe at setting the next fiscal year’s property-tax rate at a 7 p.m. workshop today at city hall, 400 S. Eagle St.
Lets dissect the news report coming out of the Daily Herald ( The “Big Picture- Local Focus” )
http://www.dailyherald.com/story/?id=66958&src=2
Naperville’s property tax rate could be going up for the first time in six years.
Can I assume stating that the tax rate being static for 6 years, does not mean my taxes have not gone up during those 6 yrs? Good.
City revenue projections for both the telecommunications and real estate transfer taxes are down by nearly a million dollars each. Combined with slower than anticipated growth of other revenue sources, the city’s finance department is suggesting almost a 10-cent hike in the property tax rate next fiscal year.
Oops!-seems somebody must have been betting the budget on the wrong horses and maybe even chasing past performance here…
That means the owner of a $400,000 house in Naperville would pay about $117 more for the city’s portion of their tax bill — assuming the value of their property stays the same.
In the past, increases in property values allowed the city to cut its tax rate and still receive more tax money. But now, with property values beginning to stagnate, that additional money may not be available unless the city increases its tax rate.
This part of the report might give the illusion that our taxes were stagnant, or even may have gone down, but we all know better. Even though the tax rate went down, absolute taxes went up. Lets not sugar coat it!
Because the council can’t increase the property-tax rate once it reports the figure to the assessors’ offices, it routinely sets it at higher point to be safe.
O.K., so lets be clear…the council, to be safe, raises our taxes to a high enough point, just in cast their forecasts are wrong? What kind of fiduciary would be given that much leeway without the accountability that goes along with it?
Why all the focus on 30% of the total , and not a word about the 70%?
Finance Director Doug Krieger said an increase is necessary to make up for the loss of nearly $2 million in revenue from the telecommunications and real estate transfer taxes. Those losses represent about 3 cents of the nearly 10-cent hike request.
Krieger said competition in the telecommunications market and the increasing popularity of Voiceover Internet Protocol technology has cost the city nearly $1 million in telecommunications tax revenue this past year.
A slowdown in the real estate market cost the city $900,000 in transfer taxes, Krieger said. Both residential and commercial property sales are down evenly, he said.
Combined with slower than anticipated growth of other revenue sources, the city’s finance department is suggesting almost a 10-cent hike in the property tax rate next fiscal year.
First off, what are the other 7 cents of the 10 cent hike going to?
Lets discuss the other revenue sources that are experiencing slowdowns of growth? –Or do we not know yet?-Maybe thats the amount the buffer point needs to be set at, “just to be safe.”
Secondly, why isn’t our local government using the same cost saving technologies its residents are using, the same technologies that are costing us millions a year in lost income? Why is there no equivalent ( or even small) cost saving in our budgetary spending ?
Isn’t spending a part of a budget?
Does anybody want to discuss this? Maybe not.
“What I really want to discuss is the projections staff has for revenue,” Councilman Kenn Miller said. “But it does appear we’ll have a rate increase in some form.”
Its nice to hear from Councilman Miller, that this rate increase , based upon all facts and discourse, has already been decided. Lets all hope Councilman Miller wants to discuss everything in the budget–revenues and spending, because it is the responsible thing to do as public servants.
Why not have everything on the table?
Councilman Richard Furstenau believes the city can make do with a tax rate that stays put.
“We may have to cut a few things, but we’ve got some things most cities don’t even think about,” he said. “We have to learn to live within our means and we won’t have to raise the rate a nickel.”
Way to go Councilman, but you may be making even more enemies (http://www.dailyherald.com/story/?id=68510) out there by taking such a fiscally responsible stance- be careful.
When all the good fun going through the Daily Herald article is set aside, the issues seems to be this;
- Our past council budgets sound like they had linked projections (too highly?) to the ever rising fortunes of its residents homes, and now that, is unwinding, along with the subprime bubble.
- Depending on telecom tax revenue is dangerously “old school”
- Shortfall money has to come from somewhere else.
- Tax rates are the easiest place to justify a hike.
Taxpayers suffer even more by having their taxes go up, while networth and incomes go down.
Why now?
Just when family pocketbooks are becoming particularly stressed during this approaching down cycle… (subprime & layoffs cause stress too ), tax rate hike becomes the way out.
Generally, there tends to be a lag behind the general national economy (the one you hear about so often on the financial/ nightly news), and the local governments, (those, we tend to read about these exclusively in the local papers). This makes sense, when business is good, it is easy to attract employees,their families, their incomes, and those properties are selling and turning over generating real estate transfer tax receipts, so far so good.
But when the triple whammy of lost income, lost net worth, and higher taxes, force more long-term stress on the local economy, tax base flight occurs. (We all know why people move here from Cook County.)
And when people start to move from Naperville, it hurts our community long term more than lost services.
A rate hike seems like a done deal.
Lets hope council explores cutting some on the spending side, at least until the subprime issue rights itself.
By then many of these issues would have been put to bed.