Foreclosures and local government revenues from the property tax: The case of Georgia school districts

Abstract

Historically, local governments in the United States have relied on the property tax as their main source of own-source revenues. With the recent collapse of housing prices and the resulting increase in foreclosures that followed the “Great Recession”, many observers have speculated that the local governments would suffer significant revenue losses, either immediately or in the near future. However, to our knowledge there is no existing work that examines the impacts of these recent foreclosures on property values and the subsequent impacts on property tax revenues and other dimensions of the property tax system. We use proprietary information from RealtyTrac on annual foreclosure “activity” (e.g., the flow of newly foreclosed properties into foreclosure filings), for the period 2006 through 2011, merged with information on local government revenues and economic data, to estimate the impacts of foreclosures on local government property tax revenues, as well as on market values and property tax levies. We focus on school districts in the State of Georgia, and address the question: How have recent foreclosures stemming from the Great Recession affected the property tax system of local governments? Across various specifications, we find that foreclosure activity had significant impacts on property tax bases, levies, and revenues.