Credit Rating Agency Warns Recession Could Trigger Property Tax Hikes

By Brett Rowland (The Center Square)

Fitch Ratings said Friday that the outlook for state and local governments was “deteriorating” and an expected recession could put pressure on state and local governments to raise property taxes.

“Local governments may face slowed growth or possibly contraction in tax revenues associated with real property valuations, which may trigger expenditure controls or revenue-raising measures to preserve budgetary stability,” Fitch Ratings Senior Director Michael Rinaldi said.

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Several factors “could pressure property taxes more quickly than in the past,” according to a U.S. States and Local Governments Outlook 2023 report from the credit rating agency.

Many U.S. states and local governments have been able to build up a financial cushion that could help them withstand an expected mild recession by the second quarter of 2023, according to the report.

“Robust reserves, in many cases exceeding pre-pandemic levels … leave states and local governments well-positioned to face this economic weakness,” Fitch Senior Director Eric Kim said in a statement.

But if the recession hits harder than expected, state and local governments could face difficult decisions.

“A significantly deeper and prolonged recession could lead governments towards credit negative budget choices such as sustained pension funding deferrals or payment delays,” Kim said.

The report noted that “both state and local governments rely on tax revenues including income and sales taxes, which respond quickly to changes in the economy.” But property taxes also could come into play.

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“Property taxes are another key revenue source for local governments and tend to be slower in their economic responsiveness,” according to the report. “But the twin dynamics of a rapidly cooling housing market and a commercial real estate market adjusting to the pandemic shift away from office-based work could pressure property taxes more quickly than in the past.”

Fitch Ratings is one of three major credit rating agencies that rate a borrower’s ability to pay back debt.

Syndicated with permission from The Center Square.

The Center Square

View Comments

  • Imagine if they considered cutting spending instead of raising property taxes on people suffering through a recession.

  • Of course. We will own nothing and be happy! Isn't this similar to what happened almost 100 years ago? Why it doesn't matter if we have paid off our mortgages - we never really own our houses. We have a typical home in Ohio and are already paying $5k/year! Local politicians tend to be big pigs, spending just as recklessly as those in Washington. They all act like they want to "do good", but once they start getting "favors" (I've seen it, due to the profession I once worked in), they could give a hoot about even their neighbors/family. Can tell they don't believe in any afterlife!

  • Hey. Remember, 'homes' got 80,000,000 votes. Yup. Uh huh. He did. I mean, would our MSM lie to us about all of this?

  • Just what does the Biden administration have to gain by destroying America? Does not take genius to figure it out. But it does take complacency to allow it to happen.

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