U.S. City Budget Woes Grow as Tax Revenue Drops, Report Says

U.S. local property taxes fell in the first three months of 2012, following two quarters of growth, according to a report from the Nelson A. Rockefeller Institute of Government.

The drop raises the prospect of “serious budget problems” for municipalities because it coincides with employee benefit costs soaring and states cutting local aid, wrote Lucy Dadayan, a senior policy analyst at the institute who co-wrote the report.

“This weakness in property tax revenue comes at a tough time for local governments,” Dadayan said today in a statement. “Budget pressures are coming at local governments from every angle and affect both the revenue and spending side of municipal and school budgets.”

Local property-tax collections fell 0.9 percent in the first three months of this year, according to the institute. It marked the sixth consecutive quarterly decline when collections are adjusted for inflation, the Albany, New York-based institute said. Property taxes are the most significant revenue source used to finance local services such as K-12 education, police and fire protection.

Adjusted for inflation, local property taxes declined by 2.8 percent in the first quarter of 2012, the institute said.

The weakness is most acute in states such as California that have experienced the largest declines in housing prices, according to the report. Three California cities have sought bankruptcy protection in the last month.

To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net; Will Daley at wdaley2@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net