I'm not an economist...but I found this diddy pretty interesting this morning.
Kansas City, MO is facing a severe budget crisis -- and is looking at a budget deficit of around $90 million. Because of the economic crisis, Kansas City is projecting a major shortfall in their projected revenue for next year. Because of this shortfall, the city is looking for ways to increase revenue (city government translation = increase taxes).
So....let's look at how this problem happened.
Over the past 5 years or so, in an effort to put more people in homes, the government encouraged financial institutions to give out more loans to people to buy homes.
The huge increase in the number of people buying homes inflated the value of homes. Meanwhile, many of these loans ended up being adjustable rate loans. As the rates on these loans adjusted, people were no longer able to pay their mortgages, which caused them to have to leave their homes.
Because more people were no leaving their homes instead of buying them, the value of homes dropped dramatically. Because the value of the homes has dropped -- according to this article an estimated 10-12% lower in Jackson County, the city is going to see their income from property taxes drop 10-12% next year.
So the city's possible solution to the problem? Raise property taxes. Making it even more costly to stay in a home in a depressed housing economy, which will most likely escalate the problem on the people who are scraping to get by in home ownership as well. Which very well will cause more people to lose their homes, further depressing the housing economy, and making the situation worse, not better.
Seems like there has to be a better way.