A "Perfect Storm" Organizing for City of Greensboro, Guilford County?

Consider the following:

1. Stimulus money is beginning to disappear.

2. Cuts at the state level will likely tend to reduce funding of local governmental entities and programs.

3. An epidemic of foreclosures is tending to drag downward property values.  Lower valuations means lesser property tax revenues.

4. Consumers are less likely to buy new cars, and instead are tending to hold on to used cars for a longer period of time.  This will also reduce property tax revenues because the valuations of used cars are lower.

5. In a poor economy with high unemployment and high levels of underemployment, there will be more property owners delinquent on their property taxes.  Sales tax revenues also tend to be lower.

What does this mean?  A "perfect storm" might be organizing that will affect revenues for both the city of Greensboro and Guilford County.  That will potentially necessitate greater cuts and/or tax increases than previously anticipated or appreciated.

How will our esteemed elected officials respond?  Will the first impulse be to raise taxes in order to preserve the vast expanse of unnecessary services and facilities and expenses and programs?  Will they truly do this to a population that has faced unemployment and underemployment and income reductions due to the prolonged economic downturn?

There are a number of elected officials to watch as budget discussions begin.  On the Greensboro City Council, we need to watch Robbie Perkins, Nancy Vaughan and Zack Matheny.  On the Board of County Commissioners, we need to watch numerous folks: Skip Alston, Kay Cashion, Bill Bencini, Bruce Davis, John Parks, Paul Gibson, Kirk Perkins, Linda Shaw and Mike Winstead.

What these folks do behind the scenes to enable cuts and reductions to occur, or to undermine them, will be critical in determining whether our taxes are increased with the budget negotiations to occur over the next several months.

And we need to watch for two things: how they vote, but also how effectively they work to assure that spending cuts will be sufficient to avert the need for tax increases.  Some elected officials might claim they do not want a tax increase, but fail to do those things that are needed to avoid that outcome.

Comments

[Stormy]

Joe, I do not recall that the county has ever sold the school bonds that were approved in the 2008 elections. With municipal and state bond costs getting ready to take a jump, because their ratings are dropping, it is likely that interest rates on bonds will go up dramatically in order to sell the bonds, i.e., their costs will increase. That is another financial factor that the county and Greensboro face in the near future.

[Joe Guarino]

Stormy, if that scenario is truly developing, then you are right-- that is another potential source of budgetary imbalance.

[Mick]

#3: The last Guilford County Revaluation was in 2004. I dont know if the overall property values will be lower or not. There were a few years of appreciation in many neighborhoods between 2004 and the recession when the property value issues hit us. Personally, my homes is assessed at less than the current market value. Commercial stuff will no doubt be nasty. By law we have to do revaluation by 2012 barring special dispensation from the state (I thnk). That will most likely be a business decision. It is an extremely expensive process. However, some folks will want their properties re-assessed due to depreciation. Some will be more like me and have some appreciation. A bunch of folks will be disappointed either way.

[Joe Guarino]

Thanks, Mick. I suspect there will be some neighborhoods that will have outright depreciation from what I am hearing. I don't know how it will shake out countywide. But if most homes are not subject to revaluation until 2012, then the commissioners might dodge this potential bullet next year.

I think the numbers might turn out to be surprising. Foreclosures in a neighborhood can have a profound impact on valuations, and there have been lots of foreclosures. I am hearing this with respect to upper end homes and neighborhoods; but I can't help but believe it is the case in certain other types of neighborhoods as well. I wonder if it is affecting the commercial real estate sector.

[Mick]

I think we will find that commercial properties will take a big hit. Upper end homes (the higher you go the worse it will be) will not be pretty and some low end markets will have suffered somewhat. The mid-moderate to upper moderate (say $125 - $250 K) will hold its own or improve. Again, it depends dramatically on what the current assessed value is on these properties. Who knows where the overall will come in at? I doubt a bloodbath but all is relative these days. Reval will need to get started soon in order to be in place for 2012.

Foreclosure can have an effect ob value. One here and one there is now the norm and isnt a big deal and is almost expected. However, there are certain markets where foreclosures are almost the norm and these will be problem areas.

[Jeff]

In terms of ease of revaluation, single-family residential will still be the easiest, despite the lack of recent arms-length transactions in many sectors (particularly ultra-low end rental properties, new starter homes, condos, and nouveau-riche McMansions).

Other real property revaluations will really be tough. Cap rates are all over the place now, with the possible exception of multi-family residential rental properties, which have been (artificially?) helped by favorable Fannie/Freddie backed financing.

Barring any sudden significant recovery, I expect that the 2012 revaluation will result in a net decrease in the tax base vs. the current 2004-based values. It will undoubtedly be uneven, which will cause a rash of valuation appeals.

If the GOP-controlled state legislature succeeds in lifting/eliminating the charter school caps, many of the school construction projects in the 2008 bonds may be unnecessary.

[Joe Guarino]

Jeff, that last sentence is music to my ears.:)

But your projection regarding valuations is sobering. I hope the county commissioners and city council members are listening. You can't continue to spend and spend and spend in an environment where resources and prosperity are contracting. But that is what many of them want to do.

[Stormy]

Jeff,

The school construction projects may be rendered unnecessary, but I would wager that our courageous BOE would warrior forward and build the schools anyway, and at top expense. It's been two years now, and they still haven't found the land to build the schools. Worse, they are looking for land in areas not where they said that they were needed. As an example, they are looking for land for the Airport High School south of I-40, not far from Southwest Guilford. Their excuse is that land is too expensive where the school is needed. Doh!

[Mick]

Jeff and Joe, It will be interesting to see where we land as to net values for the county. I think we have to proceed with it and to see where we are. I think there might be some legal troubles if they decline to proceed with reval. You are both right as either end of the real estate values is where the trouble lie for the most part.

Stormy,
I dont get the Airport High School thing. Never have. We live just a couple of miles from NWHS and the airport! 10 minutes from Kernodle Middle and about the same to NW Middle. 5 minutes to Pearce Elementary. I just dont see a new school complex needed out our way. Update the older NW schools if anything. Is SWG overcrowded?

As to construction, I hope we have learned from our "mistakes" at Northern.

[Joe Guarino]

Stormy and Mick, my expectation is that the school board and other education interests will be intervening with the county commissioners to try to assure that they are permitted to proceed with all their projects-- in spite of the horrible manner in which the previous bond spending has been managed.

Mick, you and Jeff both seem to have significant knowledge of the local real estate markets. And we need to keep in mind that this is only one potential component, among several, contributing to the declining revenue picture described in my post. All of these fiscal stressors are occurring against a background of more than one decade of deindustrialization in our region. We had been bleeding industry severely, and that was hurting us even before the financial crisis and the recession hit.

The city and the county simply cannot afford to maintain the illusion that spending can be maintained at past levels or increased, because our local levels of prosperity have plummeted severely.

The big government types have had a difficult time accepting the fact that the pie is shrinking locally; and they have been in denial with respect to what needs to be done regarding the issue of spending by local government.

[Jeff]

Mick, I don't think Airport HS makes much sense, either. Replicating the Ragsdale solution by converting NW Middle to be part of the high school and building a new middle school would seem to be cheaper and eliminate the pain of redistricting.