As the Governor and Nevada Legislature prepare to enact a budget for the next two years, speculation has been rampant that the state will look to local governments to make up a large part of the deficit. Local government revenues have historically (at least in the past few decades) been relatively stable, as they are premised in large part on property taxes.
However, the ongoing recession has significantly impacted both commercial and residential property values, and although assessments traditionally lag behind market shifts, the decline in values is starting to show up. In Washoe County, taxable values dropped 8 percent. In Clark County, taxable values droppedsignificantly more. The Clark County Assessor notes that last year, the County received $500 million less in tax revenue due to declining property values. These drops are significant and, in some instances, may translate directly into less local government revenue at the same time the state is considering taking a larger part of county revenues. (I say “may” translate because some properties, particularly those properties that remain overvalued still have not seen the property tax cap catch up with artificially inflated taxable values, so even a decrease in taxable value can result in an increased tax bill – a subject much too lengthy for this blog entry).
Despite the sizable decreases in taxable value, there is still a high likelihood that both commercial and residential properties are overvalued by the county assessor. By law, taxable value cannot exceed market value. The tricky part is defining market value. The methodology used by an assessor to calculate taxable value tends to rely on outdated sales data while discounting relevant market value data as well as discounting economic obsolescence, resulting in a taxable value that often exceeds market value.
The question remains as to how many property owners will appeal their valuations and the level of success they will achieve. The deadline to appeal property tax valuations is January 18, 2011. Once the various appeals are resolved, we’ll have a better picture about how much revenue local governments can count on from property taxes in the coming fiscal year – and how those tax savings (or decreases in revenue from a government perspective) will play out in the legislative session.