DiNapoli Report: Rising Foreclosures Pose Long-term Fiscal Problems for
New York’s Local Governments
Housing Crisis Beginning to Impact Municipal Finances
As increases in foreclosures and mortgage delinquencies continue to grip certain regions of the State, property taxes, the primary source of tax revenue for local governments, could become the next casualty of the housing crisis according to a report released today by New York State Comptroller Thomas P. DiNapoli. The report notes that mortgage recording and sales taxes are already decreasing. DiNapoli estimates that property tax revenue could fall by up to $1.3 billion if statewide property values decline to the same extent as during the early 1990’s recession, potentially forcing local governments to sharply raise tax rates simply to raise the same amount of revenue.
“Property taxes are the foundation for local tax revenues, but that foundation is weakening,” DiNapoli said. “While New York State is less affected by the housing crisis than other states overall, there are some regions where foreclosures have increased by more than 500 percent since 2006 – which lowers the value of surrounding homes and puts demands on municipal services. Over time, lower property values can lead to lower property tax collections. With no end in sight to the housing crisis, many local governments will find their finances stretched pretty thin in order to maintain services.”
The DiNapoli report, which includes county-by-county data on subprime loans and foreclosures, estimates that more than 50,000 New York homeowners could experience foreclosure this year. Orange and Richmond (Staten Island) counties posted the State’s highest third quarter foreclosure rates in 2008 (1 in 205 and 1 in 253 housing units, respectively). Regionally, the Mid-Hudson and Long Island regions downstate and Western New York and the Finger Lakes upstate have the State’s highest foreclosure rates.
The report notes that between 1993 and 1994, statewide property values declined by 5.2 percent. If a similar decline were to take place today, local governments could face a property tax shortfall between $1.0 and $1.3 billion depending on how quickly reassessments, assessment challenges and tax certiorari efforts are undertaken, and on whether or not tax rates are increased to help offset the loss in taxable assessed property value. In 2007, property taxes accounted for more than 44 percent of total revenue for local governments.
While some municipalities may raise property tax rates to cover the shortfall, others may not have that option. New York’s cities, counties and villages are constitutionally limited in how much revenue they can raise through the property tax (1.5 percent of a property’s full value for counties; 2 percent for villages and cities – excluding New York City). DiNapoli notes in the report that in 2008 there are eight villages, six cities and one county exceeding 80 percent of their limit (see below).
DiNapoli also added that increased foreclosures hurt municipal cash flows, particularly where counties are responsible for enforcing and collecting unpaid property taxes in order to make their towns and school districts “whole.” According to the report, counties paid approximately $400 million to school districts for unpaid taxes in 2006 and $375 million in 2007. For 2007, Rockland, Orange and Dutchess counties had the highest unpaid tax balances, with a combined shortfall of more than $97 million.
The report also found:
- While New York State ranks 36th nationally in terms of statewide foreclosure rates (1 out of every 546 households), there are areas of the State where foreclosures have increased dramatically, including the Mid-Hudson, Southern Tier and Capital District regions. In the third quarter of 2008, Orange County had the highest foreclosure rate in the State with one out of every 205 households facing foreclosure.
- Statewide foreclosures increased 77 percent from 2006 to 2007. Statewide foreclosures for the third quarter of 2008 show an increase of 99 percent since 2006.
- As of January 2008, there were roughly 150,000 subprime mortgages originated in New York, the majority of which were used to fund properties located in New York City (30 percent), Long Island (28 percent) and in the Mid-Hudson region (15 percent).
- Home sales (Jan – Jun 2007 compared to Jan – Jun 2008) have declined most significantly in New York City (-30.7 percent), Long Island (-25.4 percent) and in the Mid-Hudson region (-27.7 percent)
- Mortgage recording tax revenues accounted for nearly 6 percent of total tax revenues in New York’s towns in 2007. Declines in home sales have led to significant declines in mortgage recording tax revenues particularly for Long Island towns where collections decreased by $23.1 million between 2006 and 2007.
Click here for a copy of the report
|Municipalities Exceeding 80 Percent of Their Constitutional Tax Limit
|Montgomery County (82%)
|Dunkirk, Chautauqua County (96%)
Gloversville, Fulton County (93%)
Lackawanna, Erie County (89%)
Jamestown, Chautauqua County (85%)
Niagara Falls, Niagara County (82%)
Buffalo, Erie County (81%)
| Ellenville, Ulster County (98%)
Herkimer, Herkimer County (96%)
Whitehall, Washington County (90%)
Malone, Franklin County (88%)
Hempstead, Nassau County (85%)
Monticello, Sullivan County (83%)
Potsdam, St. Lawrence County (81%)
Lyons, Wayne County (81%)