Cuyahoga County’s tax base will shrink by more than $1 billion next year after the county reassesses property values — an exercise that hasn’t occurred since the housing peak, according to a prediction from two authors at the Federal Reserve Bank of Cleveland.
Because of the time delay for the valuations, which are done every six years, several Ohio counties have yet to undergo a formal reassessment since the last recession.
Cuyahoga County, the county seat of Cleveland, could experience an 11% to 18% drop in home values with some inner-ring suburbs falling as much as 45%, said the report, authored by Thomas Fitzpatrick IV and Mary Zenker. Cleveland was hit hard by the 2007 subprime crisis and the subsequent financial crisis in 2008. It has seen significant home price declines.
The county will undertake its formal reappraisal in 2012, along with 19 other counties. Minor revisions are made between these formal appraisals, but the methods are imprecise and they can miss big changes, according to the Fed authors. One of Ohio’s revision methods is to adjust the estimated tax value of properties every three years based on the prior three years of property sales.
The last formal appraisal in Cuyahoga County occurred in 2006, near the peak of the housing market. The 2009 revision included sale prices from 2006, which meant even the adjusted property values in Cuyahoga County did not reflect the impact of recent housing price declines, the study said.
Home values have continued to fall since 2009, suggesting there may be a large correction next year.
In 2006 and 2007, estimates of the market value of sold properties in Cuyahoga County exceeded the county’s estimates. However, the trend reversed after 2008. The differences between the market and county estimates from 2008 through 2010, according to the Cleveland Fed, imply that when property values are reassessed next year, they will drop by double digits.
Ohio’s six-year reappraisal period differs from other states. California, for example, reappraises the value of properties for tax purposes whenever ownership of the property changes, forcing cities in the state to reduce the taxable value of a property when it goes through foreclosure.
With foreclosures figuring so prominently in the past recession, California’s reappraisal mechanism has contributed to the budget challenges now facing its cities, as losses are realized immediately with every foreclosure.
The Fed’s authors said Ohio’s loss in property tax bases may require local governments to raise taxes or reduce services.