Property values decline, tax revenues follow
Brainerd, Baxter, Nisswa and most communities in Minnesota have followed the national trend experiencing steep declines in the value of homes. Homes that once sold for $500,000 are now being sold for $250,000. The examples are too numerous to mention.
However, as homeowners lose value in their dwellings, local and state governments, that rely on the assessed values of area homes, are also taking a hit. The $500,000 home value before ther 2006 real estate bubble burst, had a healthy assessed value that helped to fill the coffers of school district, cities and towns around the state. As foreclosures hit, stunned homeowners were faced with a harsh reality that they were upside down in their balance owned on that half million dollar property. However, the individual that ended up buying that property from the bank after foreclosure paid half of what the original mortgage was for the home. The new buyer, being prudent, then took his purchase price to the county assessor and argued for a reduction in the assessed valuation. The dwelling was the same house, but the worth of the house was now less. The cycle continues to spin, impacting every level of government.
It’s a vicious cycle that has been exacerbated among schools by the state of Minnesota withholding funds for cash-strapped school districts in an effort to balance the state’s budget. In normal economic times, the districts and cities could count on assessed values that were soaring higher and higher every year — until the bubble burst, sending them scrambling for funding sources.
What’s the solution?
Well, when times a tough, belt tightening is usually the solution. However, it’s cyclical. When times are good and the assessed values of homes return (it is predicted in 2016), maintain the belt-tightening or set aside funds for that rainy day. If local government units fail to follow a prudent approach, expect the same results when the boom and bust cycle returns.
Perhaps, we as individuals would do well to apply these same principles in handling our own funds.