Government & Politics  June 22, 2007

Tax revenue drop has not yet hit public budgets

The number of home foreclosures has been increasing in Colorado for months, but it could be two more years before governments in Northern Colorado feel the crunch on their budgets.

The assessed valuations of residential properties sent out in May reflect housing prices from last spring. That means foreclosures that have occurred in the past year may not have an impact until the next time counties assess the value of properties in 2009.

“We may see an effect, but it hasn’t happened yet,´ said Weld County Assessor Chris Woodruff. “There’s always about a two-year lag time. What the market does in the next year will really affect the 2009 valuations.”

SPONSORED CONTENT

Business Cares: March 2024

WomenGive, a program of United Way of Larimer County, was started in Larimer County in 2006 as an opportunity for women in our community to come together to help other women.

Still, the recent rise in home foreclosures doesn’t necessarily mean doom for local government budgets.

“I think it would have to get really, really bad before there’s a big impact in Weld County,” Woodruff said. “The foreclosures would have to start affecting commercial properties, not just the residential ones.”

Housing market downturn

In the first quarter of 2007, Weld County had the second highest number of foreclosures in the state, with one in every 124 households in foreclosure.

Larimer County’s foreclosure rate was lower, at one in 275 households. The Colorado Division of Housing estimates Weld and Larimer counties could see a 20 percent increase in foreclosures this year over last year.

The cities of Greeley and Loveland have both felt the effects of a downturn in the housing market, but neither city points the finger solely at rising foreclosures.

Last year, the city of Greeley left vacant 27 municipal positions, and the city is looking at leaving another 30 vacant in 2008, said Tim Nash, Greeley director of finance.

Nash said the need to leave those positions vacant is directly related to fewer housing starts in Greeley, which means fewer taxes and fees the city can collect from new construction.

The only drop in sales tax revenue Nash said he can definitely attribute, at least in part, to the foreclosure rate is the 41 percent drop in home and building materials from April 2006 to April 2007. All one has to do, he said, is look at the steep drop in building permits during the same year – 367 in 2006 down from 724 in 2005.

“There are a lot more homes on the market for a variety of reasons,” Nash said. “I would attribute some of that to foreclosures. But it’s also because of interest rates going up and an overbuilt housing market.”

Loveland Finance Manager Alan Krcmarik said the city has seen more delinquent utility bills, also related to rising foreclosures. In a normal month, the city sends out 65 to 70 shut-off notices to people who haven’t paid their utility bills, Krcmarik said. Now the city is sending out more than 100 notices a month, Krcmarik said.

“Some of that may be because of foreclosures,” he said. “But gas prices are going up, and people don’t have as much money to pay their bills. We’ve also lost a lot of high-paying jobs to lower-paying jobs in this area. These are all interrelated and have an effect on each other.”

Property tax effect

Typical government expenses related to foreclosures include loss of property-tax revenue, costs associated with managing the foreclosure process, building inspections, increased police and fire protection due to arson and vandalism and increased demand for social services, according to “Collateral Damage: The Municipal Impact of Today’s Mortgage Foreclosure Boom,” a 2005 study done at Harvard University.

Tax sales, which happen each year, prevent a loss of property-tax revenue on foreclosed homes, said Bob Keister, Larimer County budget director. An investor pays the delinquent taxes, and the former property owner has to pay the investor back that amount plus interest. Government entities eventually get paid the taxes owed to them from foreclosed homes, although later than normal, Keister said.

A large number of foreclosed homes can bring down the value of homes in neighborhoods around them, resulting in widespread loss of property taxes. But the finance directors for Larimer and Weld counties say the situation in both counties hasn’t yet reached that point.

In last month’s valuations, some property values in Weld County went down, mostly in areas hardest hit by foreclosures – east Greeley, Frederick, Firestone and Johnstown, Woodruff said.

Larimer County’s assessed home values went up an average of 5 percent to 6 percent since the last valuation in 2005, Keister said.

Commercial businesses make up a bigger chunk of the property tax pie than residential properties. That’s one reason local governments would feel the crunch much more if commercial properties started foreclosing like residential ones have.

School districts

Under the Public School Finance Act of 1994, the state of Colorado, not local school districts, would have to make up the difference if property-tax revenue to school districts decreases.

School districts call this “backfilling.” During the past decade, the state has had to backfill more and more school district budgets because of the TABOR and Gallagher amendments, said Dave Montoya, budget manager for the Poudre School District in Larimer County.

The amendments require school districts to decrease their mill levies as property values increase. Earlier this year the Colorado legislature passed a mill-levy freeze, which means the school district mill levies statewide won’t change next year.

If assessed valuations go up, the mill levy freeze is estimated to bring in $45 million additional state revenue for school districts statewide, said Vody Herrmann, director of Public School Finance for the Colorado Department of Education.

If assessed values go down – and they could in some counties because of a large number of home foreclosures – then there will be a property-tax shortfall, and the state would have to make up the difference.

So far, only the school district in Brighton has expressed fear to the state about losing property-tax revenue, Herrmann said. Brighton is in Adams County, which had the highest foreclosure rate in Colorado in the first quarter of this year, with one foreclosure for every 98 households.

“It hasn’t really hit us yet to the point we feel it,” Herrmann said. “The last year or so has been heavy with foreclosures, so we may see the impact this fall.”

Counties and cities

In Weld County, the windfall in tax revenue from the oil and gas industry would likely outweigh any loss on the residential side, said Don Warden, director of finance. About 27 percent of Weld County’s property-tax revenue comes from residential properties, compared to 41 percent from oil and gas.

Larimer County doesn’t have the same revenue from oil and gas, but foreclosures there haven’t been as numerous as Weld County, Keister said.

“A lot of foreclosures have a long-term economic effect, but we’re not there,” he said.

The city of Fort Collins hasn’t seen an impact from foreclosures, said Mike Freeman, economic advisor to the city. “Our foreclosures haven’t been anywhere near what Weld County and other parts of Larimer County have experienced,” he said.

Like Greeley, the city of Loveland has seen a big decrease in new housing starts. Residential building permits are down 48 percent from what was projected for 2007, Krcmarik said. The city has also outsourced some of its positions, and it’s not adding any new positions.

But Loveland has seen a boom in commercial development, much of it due to McWhinney Enterprises’ expanding developments on Loveland’s east side.

“We count on new construction for use taxes and building fees,” Krcmarik said. “We’ve been very lucky that the residential fallout so far has been offset by a lot of commercial development.”

The number of home foreclosures has been increasing in Colorado for months, but it could be two more years before governments in Northern Colorado feel the crunch on their budgets.

The assessed valuations of residential properties sent out in May reflect housing prices from last spring. That means foreclosures that have occurred in the past year may not have an impact until the next time counties assess the value of properties in 2009.

“We may see an effect, but it hasn’t happened yet,´ said Weld County Assessor Chris Woodruff. “There’s always about a two-year lag time. What the market does in…

Sign up for BizWest Daily Alerts