Credit standing company warns recession might set off property tax hike

Brett Rowland (Center Square)

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

“Local governments could face slower growth or a possible contraction in tax revenues related to property valuations, which could trigger spending controls or increased revenue measures to keep budgets steady,” said Michael Rinaldi, senior director at Fitch Ratings.

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Several factors “could put pressure on property taxes more quickly than in the past,” according to the 2023 outlook for U.S. state and local governments Report from credit rating agencies.

Many U.S. state and local governments have been able to build financial buffers to help them weather a mild recession expected through the second quarter of 2023, the report said.

“Strong reserves, in many cases exceeding pre-pandemic levels … put state and local governments in a strong position to respond to this economic weakness,” Eric King, a senior director at Fitch, said in a statement.

But state and local governments could face tough decisions if the recession is deeper than expected.

“Severe and prolonged recessions could lead to negative credit budget choices by the government, such as continued deferrals of pension funding or payment delays,” Kim said.

“Both state and local governments rely on tax revenues, including income and sales taxes, that respond quickly to changes in the economy,” the report noted. But property taxes may also play a role.

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“Property taxes are another major source of revenue for local governments, and they tend to be slower to respond economically,” the report said. “However, the combination of a rapidly cooling housing market and a commercial real estate market shift from office work to adapt to the pandemic Momentum could put pressure on property taxes faster than in the past.”

Fitch Ratings is one of the three major credit rating agencies that rate borrowers’ ability to repay their debts.

Syndicated with permission from The Center Square.