The Next Victim of the Real Estate Crisis

As the economy stalls, state and local governments will see less tax revenue roll in. Get ready for cuts in services

June 30 2008 - State and local governments were flush with tax revenue during the five-year housing boom. They pulled from bulging pools of property, income, and sales tax to expand education, law enforcement, health care, and infrastructure programs without needing to burden residents and corporations with tax hikes.

Those days are over. Home prices are falling, and foreclosures, gas prices, unemployment, and inflation are on the rise. At least 29 states, plus the District of Columbia, reported budget shortfalls that total about $48 billion as they finalized their 2009 fiscal budgets, which typically begin July 1, according to the Center on Budget & Policy Priorities.

States are facing flat or even declining revenues even as costs for salaries, fuel, and construction increase. And revenues will only plunge further as the housing slump and credit crunch begin to reflect more in lower property assessments and sales and income taxes. With fewer homes being sold, homeowners are spending less on new furniture, carpets, bathroom and kitchen fixtures, and other household costs. Americans struggling just to make mortgage payments and fill fuel tanks have less to spend on discretionary purchases. Income tax is down as a result of job losses and shrinking profits for corporations, including those in the construction business.

“The downturn in the housing market is a big factor as to why this has happened,” says state representative David Lujan (D-Ariz.). “When one segment of the economy is going down, all other aspects are impacted as well.”

Real Estate News: The Next Victim of the Real Estate Crisis
by Prashant Gopal | BusinessWeek