What is the outlook for local government revenues in the Tenth District?

Abstract

Local governments, which rely heavily on property taxes and fund transfers from state governments, continue to struggle with slowing revenues - a situation that is likely to persist over the next few years. As new property tax assessments reflect declines in house prices, local property tax revenues may fall in some areas unless tax rates are increased. In addition, decreases in state revenues have led to a slowdown in state transfers to local governments. ; Felix finds that for this downturn, local government revenues from property taxes and state transfers combined were likely slowest in fiscal year 2011. That weakness may continue for several years, especially if home prices decline further. Despite declines in home prices and state government revenues, projections based on historical experience suggest local governments may avoid outright declines in revenues, in part, because of their ability to raise tax rates to offset declines in property values. However, recent local property tax collections have been lower than projected, hinting that the severity of the recent recession may have led local governments to deviate somewhat from historical trends. ; The outlook for most Tenth District states, however, is somewhat brighter than the rest of the nation. House prices generally have held up better in the district, and after sharp declines in state revenues in fiscal years 2009 and 2010, many Tenth District states are experiencing positive growth. Still, local revenue growth in the region is likely to remain somewhat subdued in the near term.