Nathan Newman at the Progressive States Network takes an insightful look at the impact of the housing slump on the ability of states to carry out their business.
It's especially hard on states that depend heavily on highly-volatile real estate taxes, such as Florida and Virginia:
The collapse of the housing bubble means that those states and local governments which base much of their revenue on real estate transfer taxes are seeing new holes in their state budgets.
As the Wall Street Journal detailed yesterday, Florida, for example, is expected to face a $1.5 billion shortfall due to the weakening housing market. Some local governments like Virginia's Fairfax County, which receive more than 60% of general revenues from real-estate taxes, are seeing even larger proportionate hits to their budgets.
According to budget projections, while many states will see some decline in projected revenues, few expect losses on the scale of recession years like 2002 since most governments get only a minimal percentage of their revenues from such real estate transfer taxes.
Putting Too Many Eggs in the Real Estate Basket: But states like Florida that base so much of their revenue on real estate transfer taxes are in deeper trouble. The most recent comparative data from the Federation of Tax Administrators shows that of the $6.6 billion of such taxes collected nationwide in 2004, Florida alone raised $1.95 billion-- almost 30% of the national total. This over-dependence by Florida on such a volatile revenue source partly reflects the state's lack of an income tax, which has also driven outrage over rising general property taxes as well. Having slashed property taxes during 2007, the Florida state legislature is now scheduled to return this fall to make deep cuts in education and social services.
In a state rated as having the second most regressive tax system in the nation where working families are forced to shoulder most of the state tax burden, it's too bad that state lawmakers are so unwilling to discuss bringing in an income tax, which would create a fairer, less volatile revenue stream for the state. It's unfortunate that instead, it's Florida's school children who will lose out due to the real estate meltdown.