Property taxes rising dramatically

Lehigh County is building a new 36-bed juvenile detention facility. The county prison is full, and the courts are so backed up that this eastern Pennsylvania community will add a 10th judge.

Faced with such increased expenses, which have led to a $30 million shortfall, County Executive Jane Ervin has proposed raising property taxes by 70 percent - hardly a popular move with residents. "If I had proposed no tax increase in the budget, there would have been just as many angry people since services would have been cut," says the first-term Republican.

Lehigh's situation is far from unique. Around the country, counties and local communities are turning to property taxes to bridge budget gaps. New York Mayor Michael Bloomberg is proposing a 25 percent hike, which he says is needed to bridge a projected $6.5 billion budget gap next year. In Westwood Hills, an upscale suburb of Kansas City, residents are facing a 19.2 percent property-tax hike. And in Philadelphia, hundreds of homeowners are appealing recent recent property tax increases as high as 100 percent.

The hikes are the result of less funding by states, which are financially strapped as well. Without state or federal help, counties and towns have to either trim services or spend more of their own budgets for them. In many cases, property taxes are their only way to raise revenues for schools, nursing homes, or even the sheriff. The rising taxes are especially hard on the poor and elderly, leaving open the prospect that they may have to abandon their homes because they are unable to pay.

The hikes come at a time when many properties are appreciating in price. This means that even in some areas where rates aren't going up, residents may still end up paying higher real-estate taxes if they're assessed frequently.

In fact, in Texas, a formula taking into account skyrocketing housing prices has resulted in lower state contributions for education. "Local property taxes rose so much the state had to contribute less," says Arturo Perez of the National Conference of State Legislatures.

According to US Census data, property-tax collections, adjusted for inflation, rose from $235 billion to $265 billion between 1998 and 2001, or about 13 percent. "This was before the reassessment boom, so I wouldn't be surprised if collections went up in the past year as much as they did in that time period," says Pete Sepp, a spokesman for the National Taxpayers Union, an antitax group in Washington.

It has certainly become a political hot potato. In New Hampshire, the Republican candidate for governor, Craig Benson, ran on a platform that he would not increase property taxes. He beat out a Democratic candidate who said he would reduce property taxes but replace it with some form of income tax.

"Property taxes are lightening-rod words around here," says Doug Morris, a professor of resource economics at the University of New Hampshire (UNH).

One of the issues is that the state decided to "equalize" taxes collected for education. If a town collects more taxes than it needs, that town becomes a "donor" town with its excess funds going to "receiver" communities that don't have as much for education.

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