Thursday, October 25, 2007

Honey! I shrunk the property tax! 

The Joint Economic Committee's Democratic membership has released a report on the impact of the subprime mortgage crisis on property values and property tax revenues. This morning's press release includes this statement from our own Sen. Klobuchar.
�In the world of subprime lending, the chickens have come home to roost,� said Klobuchar. �If we are to contain the economic spillover effect of the subprime lending disaster, we must act now.�
They claim over $100 billion in lost home value and, not to be ignored, almost a billion dollars in property tax revenue.

Yet while claiming they are using conservative estimates, the report itself contains this paragraph on page 12:
The effects of larger price declines could considerably increase the magnitude of these damages. For example, Moody�s forecasts that, in the aggregate, housing prices will decline by about 6.9 percent between Q3 2007 and Q2 2009 and rise mildly thereafter. If we instead assume that the aggregate price decline is 20 percent over that period, the total number of foreclosures for the period 2007 to 2009 would be nearly 2 million and the loss of property values would total about $106 billion.
That is indeed what they go for, and as a result for Minnesota's estimated 121,000 subprime mortgages, 28,000 will end up in foreclosure, and the repricing of those homes and the homes near them will lead to a $14 million loss in local property tax revenue.

Of course federal government officials have been peddling solutions like it was soda pop. Klobuchar and other Democrats on the JEC have been pushing for increasing the repurchase of mortgages by Fannie Mae and Freddie Mac, changing bankruptcy laws and attacking "predatory lending practices". Norm Coleman has proposed allowing borrowers to tap tax-free accounts without penalty to refinance. But if you think prices are going to drop 20% as the JEC report projects -- and given the sales of existing homes, I wouldn't say that is an impossible outcome -- it's not clear any of these are good solutions -- the Democrat plan puts the taxpayers on the hook, while the Coleman plan has the borrower bear the cost and sacrifice some of his or her retirement funds to help let the banks off the hook.

So here's your quiz: How much in local (county, municipal, school) property tax is paid in Minnesota? I'll put the answer in comments after you put your guesses there. Or you can Google it if you like. Then ask yourself -- how horrible would a $14 million hit be? And how likely will it be that local officials will cry panic over the number at any rate and rail louder than ever for property tax relief from the state next spring?

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