Housing Slump Hits Tax Revenues in Selected States

Housing Slump Hits Tax Revenues in Selected States

Thursday, September 6th, 2007

Growing Economy

BY Nathan Newman

Housing Slump Hits Tax Revenues in Selected States

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.

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Strengthening Communities

BY J. Mijin Cha

Illinois Rebate Reverses Utility Rate Increases Due to Deregulation

Last year, the Illinois Commerce Commission (ICC) unanimously approved a "reverse auction" that allowed utilities to purchase electricity through wholesale energy suppliers. In doing so, the ICC no longer regulated the price of electricity and instead the state moved towards a deregulated market for electricity. The move was hailed by the right-wing Heartland Institute as "the right thing" that would eventually result in lower electricity rates.

Instead, customers saw drastic increases in their electricity rates, some of whom saw their utility bills triple in just one year. As a result, this week, Governor Blagojevich signed a $1 billion electricity-rate relief package to provide consumers with relief from the large increases. The utility restructuring legislation, SB 1592, also abolished the reverse auction program and replaced it with a new state agency that will purchase power on behalf of the state's two largest utilities. Illinois is just one of many states that is reconsidering their competitive electricity market. In Ohio, stakeholders are negotiating how to end competitive pricing. Virginia's legislature just passed a law to abolish their competitive market and restore the state to full cost-of-service regulation by the State Corporation Commission.

States are beginning to realize the false promise of deregulation. Between 2002 and 2006, prices in regulated markets rose an average of 21%. In deregulated markets, however, prices soared by an average of 36%. In Baltimore, for example, electricity prices rose by a remarkable 50% in June after a 15% jump last year when the rate caps expired. As one expert states, deregulation, "hasn't panned out the way we had hoped."

In addition to providing relief to utility customers, the Illinois legislation also requires energy-efficiency programs that will substantially decrease the growth of electricity use in Illinois. Under current regulations, this mandate will be costly for the utilities whose profits depend on the amount of electricity sold. As we will highlight on Monday, decoupling can break the link between the utility's commodity sales and revenue, giving utilities more incentive to encourage energy efficiency while guaranteeing regular, stable profits.

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Strengthening Communities

BY Adam Thompson

States Seek Answers to Rising Homeowners Insurance Rates

Even as insurance companies see record profits, homeowners in the post-Katrina Gulf Coast are struggling to find and obtain affordable homeowner's insurance and residents in other coastal states are seeing higher rates as well. While state attorneys general have sued insurers over denied claims and delayed payments, states are trying a myriad of approaches to provide affordable homeowner's insurance but no consensus has emerged on the best approach.

While some states, like Florida, Louisiana and South Carolina are providing subsidies to families, tax credits to insurance companies, or expanded access to public insurers, other states are considering stronger coastal building codes to attract insurers. Some state lawmakers are calling for regional or national disaster relief funds, but are being resisted by states historically less vulnerable to natural disasters. In typical fashion, the Bush Administration has rejected calls for a national disaster fund and has not offered any meaningful solutions, telling states they need to figure this out on their own.

Florida, where 80% of property lies in vulnerable coastal areas, has moved aggressively to resolve its insurance problems, although some critics worry only short term solutions have been enacted. Under Gov. Charlie Crist (R), the state froze rates for customers of the public Citizens Property Insurance system, known as the "insurer of last resort," until 2009 and eased eligibility for coverage under the system. Gov. Crist praised lawmakers for putting a "nail in the coffin of an industry that is hurting people." Although insurers complain that rate reductions encourage construction in vulnerable areas without regard to the dangers, Florida already has some of the strictest building codes around.

Reigning in Insurance Company Profits:  The Consumer Federation of America and Americans for Insurance Reform reported earlier this year that the property/casualty insurance industry has dramatically increased profits and surplus in recent years. Insurers are paying out lower claims in relationship to the premiums they are charging.  They have insidiously used the terrorist attacks of 9/11 and natural disasters like Hurricane Katrina to successfully lobby for taxpayer support while they raise rates and deny claims. Allstate, for instance, is paying much less than half of the premiums it collects in benefits to consumers. 

State Options: States have several options to counter these abusive practices, such as:

  • Strengthen rate review and regulation to weed out excessive rate increases
  • Develop a coastal weather modeling system to evaluate insurer rate increases, rates which are often based on short-term and unscientific methods to predict natural disasters
  • Create multi-state funds to cover all wind risk, and
  • Standardize reasonable deductibles and coverage limits 
  • Publish consumer reports exposing insurance companies with a history of anti-consumer behavior.

Everyone it seems is affected by disasters, except the insurance companies who do more to increase their profits during difficult times than serve their customers. The people's government needs to step in to make sure they play by the rules. 

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Research Roundup

A new Transportation Equity Network report, The Road to Jobs: Patterns of Employment in the Construction Industry in 18 Metropolitan Areas, highlights the critical role of construction jobs in offering decent-paying employment to non-college educated workers, yet African-Americans are underrepresented in this workforce. With a looming shortage of skilled construction labor, the report emphasizes there is a window of opportunity to fund skills training that will open up the industry to excluded minorities and women.

In Foreclosure Exposure, ACORN highlights the racial and economic disparities of the subprime lending debacle, as African-Americans were 2.7 times more likely and Latinos 2.3 times more likely than white borrowers to be issued high-cost loans. These racial disparities persisted even when comparing borrowers of similar income levels. More generally, the report highlights those metropolitan areas most at risk from concentrated foreclosures.

American Rights At Work released its Labor Day List: Partnerships that Work, highlighting successful businesses that have built collaborative partnerships with unions in their workplaces.

In a new Economic Snapshot, the Economic Policy Institute finds that the median family income for 2006 has fallen $1000 below its peak in 1999. More dramatically, annual full-time earnings have dropped $1,335 for women and $2,353 for men below peak levels.

Kids Count has updated eleven poverty indicators and three employment and income indicators at its state-level data online system, a resource for creating customized profiles, maps and graphs of child wellbeing at the national, state and county level.

Please email us leads on good research at


Housing Slump Hits Tax Revenues in Selected States

Wall Street Journal, Housing Slump Strains Budgets of States, Cities

Federation of Tax Administrators, State Real Estate Transfer/Deed Recordation Taxes

Institute for Tax and Economic Policy, Florida's Tax System is Nation's Second Most Regressive

Illinois Rebate Reverses Utility Rate Increases Due to Deregulation

Illinois SB 1592, Amending the Electric Service Customer Choice and Rate Relief Law of 1997

Virginia, HB 3068, Abolishing Competitive Pricing

Illinois Citizens Utility Board

Illinois PIRG, Illinois Customers Face Higher Energy Bills

New York Times, A New Push to Regulate Power Costs

Washington Post, Electricity Deregulation: High Cost, Unmet Promises

States Seek Answers to Rising Homeowners Insurance Rates

Americans for Insurance Reform - The Insurance Industry's Troubling Response to Hurricane Katrina

Institute for Southern Studies - Blueprint for Gulf Renewal: The Katrina Crisis and a Community Agenda for Action

Consumer Federation of America - Insurers Increase Profits to Record Levels by Overpricing Policies and Shifting Costs to Consumers and Taxpayers

Eye on the Right

In this last legislative session, Oregon passed two important civil rights bills. One enacted domestic partnerships for same-sex couples, and the other added sexual orientation and gender identity to the states anti-discrimination laws. As should be expected, a vocal and venomous minority has already begun their fight against equal rights in Oregon.

A group called Concerned Oregonians is now lobbying pastors to support a referendum to overturn the bills. Concerned Oregonians' mission to conduct political work that is so intertwined with religion that their website contains a two page PDF advising pastors as to just how political they can be without crossing the line. Restore America, another group which supports overturning the laws, was founded "to call all Bible believing, voter eligible Christians in America to REGISTER and VOTE in every election." But according to an absurd email from them last week, they don't just want Christians to vote their conscience, they want them to vote the way they're told. Now the state's Constitution Party has called the bills "a recipe for civil war."

Oregon's anti-discrimination bill is a long overdue extension of civil rights, while the domestic partnership law is a badly needed compromise which smacks of separate and not equal. Their opponents are treading a fine line in their tactics opposing the bills, and the Constitution Party might want to read up on the legal boundaries of incitement.

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The Stateside Dispatch is written and edited by:

Nathan Newman, Policy Director
Mijin Cha, Policy Specialist
Adam Thompson, Policy Specialist
John Bacino, Communications Associate

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