Falling property tax assessments could challenge local governments
November 30, 2022
- As property values decline meaningfully in the wake of interest rate increases, some of the largest office markets in the U.S. face heightened risk of shock to municipal finances due to greater reliance on property taxes for revenue, or pre-existing challenges that will be amplified amid a slowing economy.
- Office asset values in major markets have generally declined 15%-30% since the beginning of the year, potentially eliminating billions of dollars in municipal revenues in cities with higher property tax rates.
- While the prospects of a municipal default or bankruptcy won’t lead to immediate consequences for landlords or tenants, critically poor city finances lead to long-term challenges in attracting population growth and business investment. Previous examples have included the bankruptcies of Stockton, CA and Detroit.
- A potential drop in capital gains and sales taxes could create further budget challenges, which should make economic development and pro-business governance a critical priority for local jurisdictions to blunt the impact.