Property taxes rising dramatically

To homeowners' dismay, cash-strapped communities across the US are raising rates, sometimes by double digits.

Lehigh County is building a new 36-bed juvenile detention facility. The county prison is full, and the courts are so backed up that this eastern Pennsylvania community will add a 10th judge.

Faced with such increased expenses, which have led to a $30 million shortfall, County Executive Jane Ervin has proposed raising property taxes by 70 percent - hardly a popular move with residents. "If I had proposed no tax increase in the budget, there would have been just as many angry people since services would have been cut," says the first-term Republican.

Lehigh's situation is far from unique. Around the country, counties and local communities are turning to property taxes to bridge budget gaps. New York Mayor Michael Bloomberg is proposing a 25 percent hike, which he says is needed to bridge a projected $6.5 billion budget gap next year. In Westwood Hills, an upscale suburb of Kansas City, residents are facing a 19.2 percent property-tax hike. And in Philadelphia, hundreds of homeowners are appealing recent recent property tax increases as high as 100 percent.

The hikes are the result of less funding by states, which are financially strapped as well. Without state or federal help, counties and towns have to either trim services or spend more of their own budgets for them. In many cases, property taxes are their only way to raise revenues for schools, nursing homes, or even the sheriff. The rising taxes are especially hard on the poor and elderly, leaving open the prospect that they may have to abandon their homes because they are unable to pay.

The hikes come at a time when many properties are appreciating in price. This means that even in some areas where rates aren't going up, residents may still end up paying higher real-estate taxes if they're assessed frequently.

In fact, in Texas, a formula taking into account skyrocketing housing prices has resulted in lower state contributions for education. "Local property taxes rose so much the state had to contribute less," says Arturo Perez of the National Conference of State Legislatures.

According to US Census data, property-tax collections, adjusted for inflation, rose from $235 billion to $265 billion between 1998 and 2001, or about 13 percent. "This was before the reassessment boom, so I wouldn't be surprised if collections went up in the past year as much as they did in that time period," says Pete Sepp, a spokesman for the National Taxpayers Union, an antitax group in Washington.

It has certainly become a political hot potato. In New Hampshire, the Republican candidate for governor, Craig Benson, ran on a platform that he would not increase property taxes. He beat out a Democratic candidate who said he would reduce property taxes but replace it with some form of income tax.

"Property taxes are lightening-rod words around here," says Doug Morris, a professor of resource economics at the University of New Hampshire (UNH).

One of the issues is that the state decided to "equalize" taxes collected for education. If a town collects more taxes than it needs, that town becomes a "donor" town with its excess funds going to "receiver" communities that don't have as much for education.

"The towns that are donor towns are raising the roof," says Ed Jansen, another UNH professor and a selectman in Rollinsford - a receiver town.

Not surprisingly, it's hard to get voters to approve property-tax increases. On Election Day, the San Francisco Bay area voted down a proposal to increase property taxes to strengthen the Bay Area Rapid Transit (BART) against earthquakes.

Meanwhile in New Jersey, the mayor of Millburn Township, an upscale community, is trying to secede from the more urban Essex County in part because of property taxes, which recently rose.

By moving to adjoining Morris County - which also includes Millburn's US representative, thanks to a recent redistricting - each household would save about $2,700 to $3,000 in taxes. "We had a nonbinding referendum, and 88 percent said they wanted to move to another county," says Thomas McDermott, the mayor. "I'm a third-generation Essex County resident, and I've heard these cries of overtaxation for years from my grandparents and parents."

On Nov. 6, Morris County voted to accept the New Jersey community, and it's now up to the state Legislature to approve the shift. Essex County Executive James Treffinger says he respects Millburn's right to decide its own future, but he wants the residents to remain a part of his county.

Politicians are more than aware of the effect of headlines announcing higher property taxes. For example, in Lehigh County, Ms. Ervin says the 70 percent increase caused a stir. She notes, however, that a comparable dollar increase - but not percent increase - in Allentown, the county seat, did not make as many headlines.

"There was an overreaction by a lot of residents exacerbated by the 70 percent tag," she says.

Carol Koenig, an interior decorator in Allentown, says her first thought was that of a "huge" increase. She wondered what the county is going to do with the money. "I understand they want to do more fire protection and pay the police better," she says. "I am sure we were probably due for this, but it's just that everyone has their hand out."

To try to calm the political waters, Ms. Ervin decided to go on the offensive, explaining to voters why the county had to hike the property tax for the first time in 12 years. No, the hike is not going to pay the police, she told residents (that's paid for by municipal taxes). Instead, she points to other services, such as the two nursing homes run by the county.

"We have no mandate to provide them, but it adds to the quality of life here," she says. "But the state regulates them, and they are constantly increasing the standards without providing any funding."

She has tried to explain to voters that the county, by state law, has no other way to raise money. "Is the system correct?" she asks, answering, "No, we need more flexibility to address changes in communities."

Earlier this month, the Lehigh County commissioners began looking at the budget. They made some cuts in services and proposed scaling back Ervin's property tax hike. But once the budget is finalized, a tax hike is still likely to be there.