Repeating History Faster Than Usual
One year ago on February 7th, The Tentacle published one of my first articles here. It was entitled "Oh, My! The Cry Will Go Up! We Can't Do That!" It was on the annual exercise all governments go through to find the revenue to meet expenses.
Essentially my argument was then, as it is now, why not look at it in another way.
Reduce expenses to meet anticipated revenue.
Yet somehow governments seem to "find" the money to keep the expenses ever growing.
Now we are at it again, whether from federal, state, county or municipal leaders, the wailing is in progress. Everything is a "sacred cow," if we do not find the money we will need to cut all those programs that pull at our heartstrings. They find some money, we relent on our outcry and magically by the middle of June all is right with the world and we go merrily on our way until this time next year. And the year after. And the year after.
Suddenly we wake up and begin to wonder how this program or that project is at a place that is so expensive. And, less we forget, what about all those high salaries we need to pay to those in government so they do not leave their important positions.
If this seems familiar, it is. I have written about these same themes many times over the course of the last year. But has anyone learned anything, or is it just me?
Our local officials just love this cycle. Why? While they are bemoaning the fact that they do not have enough money, government is slyly (according to some) and neatly enjoying the windfall being brought about by a superheated assessment of property values.
What are the factors creating these windfalls? First is what I call the "Shift in Affordability." In the 1990 Census approximately 37% of Frederick County housing market was in the $100,000 to $149,999 bracket.
Ten years later it was down by almost 11 percent. Entry level $50,000 to $99,999 for the same period went from 25% way down, to 10%.
Why, because at the opposite end of the housing spectrum, especially for those homes $300,000 and above, have doubled in percent of the market. In 2002 for number of units sold, the $300,000 plus category was almost 15% of the total units sold. This past year, 2003, is anticipated to be even higher.
With more and more units being sold in the most expensive category and, along with the result of a combination of governmental policies, existing home values are going sky high. All of which results in higher than normal assessments, hence higher property tax revenue at a pace much greater than originally forecast.
For the first six months of 2003, new home average sale price increased 31.9% over the same period the year before. Existing home average sale price increased 15.3%.
However, the number of new home sales was down 54.6% to just 485 units, while the number of existing homes rose 5.9% to 2,253 units. Remember this is from January 1st to July 1, 2003. Existing home sales are approximately four and one half times the amount of new home sales.
In 1993, the year the Impact Fee was instituted, the ratio was roughly one for one. One new home sold for every existing home sold. As fewer new homes are added in the county, this ratio will increase even more, so that 4.5 existing homes sold for every new home constructed could soon be a 6 to 1 ratio.
So what, you say?
The biggest problem for the county was outlined in an article in a local newspaper recently that stated that according to county finance officials, "new home construction in Frederick County will steadily decline during the next six years."
This, in turn, will cause tremendous pressure on county commissioners to cover the shortfall that is expected in the collection of Impact Fee revenues which funds school construction in part.
Is it little wonder? If government consistently artificially constricts the housing pipeline to convert land into building lots while simultaneously increasing Impact Fees to a point where "affordable housing" is out of the reach of most people, those seeking new homes are often turned away from the county and go elsewhere or seek to purchase existing homes.
This latter scenario makes it more attractive to the individuals wanting to move, many tired of escalating property taxes, by pricing their existing homes higher and higher to get the best dollar while the buyers’ market is extremely strong.
So government officials make out with increasing property tax revenues, not because of growth, but by those of us who already live here. Then, because the new homes do not provide the funds necessary under Impact Fees, they raise the rates to cover the shortfall. Except there is a point that if the rise in Impact Fees is not supported by a corresponding rise in student enrollment (on which the rate of increase has been falling as well) the commissioners cannot meet the "rational nexus" required by law to raise the fees.
Seems like Catch-22 all over again.
Several years ago, those of us who have been following these trends predicted Fiscal Year 2006 would be a difficult year financially. Looks like this Board of County Commissioners has beaten that prediction.
Here's hoping we were wrong.