Two days ago, I linked to a story about the possibility that Pennsylvania's capital city would more than double property taxes, while raising fees for municipal services like trash, sewer and water. I speculated on the effect such increases would have on real estate values and prices.
Harrisburg quadrupled the trash rates only two years ago. Doubling those rates now (as the current recommendations suggest) would amount to an eight fold increase since the end of 2007. Raising property taxes by 117% on top of the trash increase (together with 20% increases in the already-high sewer and water rates) would seriously affect the bottom line of investment properties within the city. An adverse affect on the profitability of investment properties is more than a mere academic or political matter. Operating revenue is a major component in valuation of investment properties. When net revenue declines, market value declines also.
Harrisburg skyline (city-data.com) - the battleground for upcoming assessment wars
A reduction in the market value of investment properties will result in applications by owners for a corresponding reduction in the assessed value of those properties. While local tax authorities will be reluctant to approve such reductions, the courts are the final arbiters of such matters. Declining real estate values (with the resulting loss of tax revenue) will offset many of the gains the city hopes to realize by raising taxes.
Assessment litigation, already common in Harrisburg and Dauphin County, PA, will become even more common for many years to come if the latest tax recommendations are enacted.