HI State Fiscal Conditions by CharlieThhomas

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									    The Impact of Increases in Property Taxes and Transfer Taxes




National Association of Realtors ® Research               May 2008
Despite signs of improvement in
the economy, the budget outlook
for many states is still poor.
According to the Center on Budget and Policy
Priorities, 47 states face shortfalls in fiscal year
2009 or 2010.
                  Budget Shortfalls FY2009 as Share of State General Fund

                  Washington
                  Washington


                                                                                                                                                                              Maine
                                                                                                                                                                              Maine
                                              Montana
                                              Montana               North Dakota
                                                                    North Dakota
                                                                                                               Michigan
                                                                                                               Michigan
            Oregon
            Oregon                                                                    Minnesota
                                                                                      Minnesota                                                                    Vermont
                                                                                                                                                                   Vermont
                               Idaho
                               Idaho                                                                                                                               New Hampshire
                                                                                                                                                                    New Hampshire

                                                                    South Dakota                    Wisconsin
                                                                                                    Wisconsin                                                New York Massachusetts
                                                                                                                                                             New York Massachusetts
                                                                    South Dakota
                                                                                                                          Michigan
                                                                                                                          Michigan                                 Connecticut
                                                                                                                                                                   Connecticut
                                                Wyoming
                                                Wyoming


                                                                                            Iowa
                                                                                            Iowa                                                 Pennsylvania New Jersey
                                                                                                                                                 Pennsylvania New Jersey
                                                                      Nebraska
                                                                      Nebraska
                     Nevada
                     Nevada                                                                                                          Ohio
                                                                                                                                     Ohio
                                                                                                                                                          Maryland Delaware
                                                                                                                                                          Maryland Delaware
                                       Utah
                                       Utah                                                              Illinois
                                                                                                         Illinois     Indiana
                                                                                                                      Indiana
     California
     California                                                                                                                        West Virginia
                                                                                                                                       West Virginia
                                                      Colorado
                                                      Colorado
                                                                                                                                                    Virginia
                                                                                                                                                    Virginia
                                                                            Kansas
                                                                            Kansas           Missouri
                                                                                             Missouri
                                                                                                                            Kentucky
                                                                                                                            Kentucky

                                                                                                                                                North Carolina
                                                                                                                                                North Carolina
                                                                                                                    Tennessee
                                                                                                                    Tennessee
                                                                               Oklahoma
                                                                               Oklahoma
                                Arizona
                                Arizona
                                               New Mexico
                                               New Mexico                                    Arkansas
                                                                                             Arkansas                                       South Carolina
                                                                                                                                            South Carolina


                                                                                                                      Alabama
                                                                                                                      Alabama         Georgia
                                                                                                                                      Georgia


                                                                       Texas
                                                                       Texas                            Mississippi
                                                                                                        Mississippi
    Legend                                                                                         Louisiana
                                                                                                   Louisiana

           0.00% - 5.00%                                                                                                                        Florida
                                                                                                                                                Florida
           5.01% - 10.00%
           10.01% - 15.00%
           15.01% - 25.00%
           25.01% - 35.50%                                                                                                Alaska
                                                                                                                          Alaska
           None
0    145      290                580            870              1,160
                                                                    Miles                                                                                                 Hawaii
                                                                                                                                                                          Hawaii
     Budget Shortfalls FY2010 as Share of FY 2009 State General Fund

                  Washington
                  Washington


                                                                                                                                                                              Maine
                                                                                                                                                                              Maine
                                              Montana
                                              Montana               North Dakota
                                                                    North Dakota
                                                                                                               Michigan
                                                                                                               Michigan
            Oregon
            Oregon                                                                    Minnesota
                                                                                      Minnesota                                                                    Vermont
                                                                                                                                                                   Vermont
                               Idaho
                               Idaho                                                                                                                               New Hampshire
                                                                                                                                                                    New Hampshire

                                                                    South Dakota                    Wisconsin
                                                                                                    Wisconsin                                                New York Massachusetts
                                                                                                                                                             New York Massachusetts
                                                                    South Dakota
                                                                                                                          Michigan
                                                                                                                          Michigan                                 Connecticut
                                                                                                                                                                   Connecticut
                                                Wyoming
                                                Wyoming


                                                                                            Iowa
                                                                                            Iowa                                                 Pennsylvania New Jersey
                                                                                                                                                 Pennsylvania New Jersey
                                                                      Nebraska
                                                                      Nebraska
                     Nevada
                     Nevada                                                                                                          Ohio
                                                                                                                                     Ohio
                                                                                                                                                          Maryland Delaware
                                                                                                                                                          Maryland Delaware
                                       Utah
                                       Utah                                                              Illinois
                                                                                                         Illinois     Indiana
                                                                                                                      Indiana
     California
     California                                                                                                                        West Virginia
                                                                                                                                       West Virginia
                                                      Colorado
                                                      Colorado
                                                                                                                                                    Virginia
                                                                                                                                                    Virginia
                                                                            Kansas
                                                                            Kansas           Missouri
                                                                                             Missouri
                                                                                                                            Kentucky
                                                                                                                            Kentucky

                                                                                                                                                North Carolina
                                                                                                                                                North Carolina
                                                                                                                    Tennessee
                                                                                                                    Tennessee
                                                                               Oklahoma
                                                                               Oklahoma
                                Arizona
                                Arizona
                                               New Mexico
                                               New Mexico                                    Arkansas
                                                                                             Arkansas                                       South Carolina
                                                                                                                                            South Carolina


                                                                                                                      Alabama
                                                                                                                      Alabama         Georgia
                                                                                                                                      Georgia


    Legend                                                             Texas
                                                                       Texas                            Mississippi
                                                                                                        Mississippi
                                                                                                   Louisiana
                                                                                                   Louisiana
           None
           0.01% - 5.00%                                                                                                                        Florida
                                                                                                                                                Florida
           5.01% - 10.00%
           10.01% - 15.00%
           15.01% - 25.00%
           25.01% - 30.00%                                                                                                Alaska
                                                                                                                          Alaska
           Gap - unknown size
0    145      290                580            870              1,160
                                                                    Miles                                                                                                 Hawaii
                                                                                                                                                                          Hawaii
Many observers reach the same conclusion
 The three main organizations that track state fiscal
 conditions — the National Conference of State
 Legislatures, the National Association of State Budget
 Officers and the Center on Budget and Policy Priorities
 — have found large and growing shortfalls in the vast
 majority of states.
     Center on Budget and Policy Priorities report
Budget shortfalls are large and growing
through FY 2011
           2002       2003       2004        2005       2006        2007        2008   2009     2010      2011
   0                                                                                                                0

  -20                                                                                                               -20

 -40                                                                                                                -40

 -60                                                                                                                -60

 -80                                                                                                                -80

 -100                                                                                                               -100

 -120                                                                                                               -120

 -140                                                                                                               -140

 -160                                                                                                               -160

 -180                                                                                                               -180
        NCSL (Shortfall After Budget Adoption)       NCSL (Shortfall Before Budget Adoption)   CBPP Shortfall (Total)
  NCSL data from April 2009 report; CBPP data from March 2009
  NCSL reports that only 67.5 billion in FY 2010 shortfalls remain unresolved
What is the likely result?
Budget gaps will be closed by some
 combination of the following options:
  • Raising revenues (new taxes or tax rate increases)
  • Cutting spending
  • Tapping into reserves
  • Securing money from Federal Stimulus
  Composition of State and Local
  Revenue FY2006
       State and Local Revenue Structure in US and HAWAII
100%
          Other General Revenue               Other General Revenue
                                                Interest Earnings
90%          Interest Earnings
                                                  Other Charges
              Other Charges
80%                                              Hospital Charges
             Hospital Charges
                                                Education Charges
            Education Charges                      Other Taxes
70%
                Other Taxes
60%                                          Individual and Corporate
                                                    Income Tax
         Individual and Corporate
                Income Tax
50%

                                                   Property Tax
40%
               Property Tax
30%


20%                                          Sales & Gross Receipts Tax

         Sales & Gross Receipts Tax
10%


 0%
                    US                                  HI
Despite recent declines in the housing market, property
taxes collected at the state level have increased slightly.
                            US State Taxes 2000-2008
                            (thousands of nominal $)
$14,000,000
$12,000,000
$10,000,000
 $8,000,000
 $6,000,000
 $4,000,000
 $2,000,000
        $0
              2000   2001     2002   2003   2004     2005   2006   2007   2008

                                 US Property Taxes
Aggregate local data is not out yet; anecdotally,
local property taxes are increasing too.
 “Thousands In N.Va. Face Tax Increases: Rise
  Comes Despite Officials' Efforts”
  April 30, 2009 Washington Post
 “Syracuse meets with residents after proposing
  tax hike”
  May 7, 2009 The Salt Lake Tribune
 “Rise in property taxes coming to City of Florence”
  June 11, 2009 WMBF News.com
State Government Reliance on
Property Taxes for Revenue
                                  Property Taxes as Share of State Revenue 2007

                    Washington
                    Washington


                                                                                                                                                                                 Maine
                                                                                                                                                                                 Maine
                                                 Montana
                                                 Montana               North Dakota
                                                                       North Dakota
                                                                                                                  Michigan
                                                                                                                  Michigan
              Oregon
              Oregon                                                                     Minnesota
                                                                                         Minnesota                                                                    Vermont
                                                                                                                                                                      Vermont
                                  Idaho
                                  Idaho                                                                                                                               New Hampshire
                                                                                                                                                                       New Hampshire

                                                                       South Dakota                    Wisconsin
                                                                                                       Wisconsin                                                New York Massachusetts
                                                                                                                                                                New York Massachusetts
                                                                       South Dakota
                                                                                                                             Michigan
                                                                                                                             Michigan                                 Connecticut
                                                                                                                                                                      Connecticut
                                                   Wyoming
                                                   Wyoming


                                                                                               Iowa
                                                                                               Iowa                                                 Pennsylvania New Jersey
                                                                                                                                                    Pennsylvania New Jersey
                                                                         Nebraska
                                                                         Nebraska
                         Nevada
                         Nevada                                                                                                         Ohio
                                                                                                                                        Ohio
                                                                                                                                                             Maryland Delaware
                                                                                                                                                             Maryland Delaware
                                          Utah
                                          Utah                                                              Illinois
                                                                                                            Illinois     Indiana
                                                                                                                         Indiana
       California
       California                                                                                                                         West Virginia
                                                                                                                                          West Virginia
                                                         Colorado
                                                         Colorado
                                                                                                                                                       Virginia
                                                                                                                                                       Virginia
                                                                               Kansas
                                                                               Kansas           Missouri
                                                                                                Missouri
                                                                                                                               Kentucky
                                                                                                                               Kentucky

                                                                                                                                                   North Carolina
                                                                                                                                                   North Carolina
                                                                                                                       Tennessee
                                                                                                                       Tennessee
                                                                                  Oklahoma
                                                                                  Oklahoma
                                   Arizona
                                   Arizona
                                                  New Mexico
                                                  New Mexico                                    Arkansas
                                                                                                Arkansas                                       South Carolina
                                                                                                                                               South Carolina
                                                                                                                                                                     Source: Census Bureau,
                                                                                                                         Alabama
                                                                                                                         Alabama         Georgia
                                                                                                                                         Georgia
                                                                                                                                                                     NAR Calculations
                                                                          Texas
                                                                          Texas                            Mississippi
                                                                                                           Mississippi
      Legend                                                                                          Louisiana
                                                                                                      Louisiana

             0.00% - 1.00%                                                                                                                         Florida
                                                                                                                                                   Florida
             1.01% - 2.00%
             2.01% - 4.00%
             4.01% - 6.00%
             6.01% - 18.58%                                                                                                  Alaska
                                                                                                                             Alaska
             N/A
  0    145         290              580            870              1,160
                                                                       Miles                                                                                                 Hawaii
                                                                                                                                                                             Hawaii
Local Government Reliance on
Property Taxes for Revenue
                         Property Taxes as Share of Local Government 2006

                   Washington
                   Washington


                                                                                                                                                                               Maine
                                                                                                                                                                               Maine
                                               Montana
                                               Montana               North Dakota
                                                                     North Dakota
                                                                                                                Michigan
                                                                                                                Michigan
             Oregon
             Oregon                                                                    Minnesota
                                                                                       Minnesota                                                                    Vermont
                                                                                                                                                                    Vermont
                                Idaho
                                Idaho                                                                                                                               New Hampshire
                                                                                                                                                                     New Hampshire

                                                                     South Dakota                    Wisconsin
                                                                                                     Wisconsin                                                New York Massachusetts
                                                                                                                                                              New York Massachusetts
                                                                     South Dakota
                                                                                                                           Michigan
                                                                                                                           Michigan                                 Connecticut
                                                                                                                                                                    Connecticut
                                                 Wyoming
                                                 Wyoming


                                                                                             Iowa
                                                                                             Iowa                                                 Pennsylvania New Jersey
                                                                                                                                                  Pennsylvania New Jersey
                                                                       Nebraska
                                                                       Nebraska
                      Nevada
                      Nevada                                                                                                          Ohio
                                                                                                                                      Ohio
                                                                                                                                                           Maryland Delaware
                                                                                                                                                           Maryland Delaware
                                        Utah
                                        Utah                                                              Illinois
                                                                                                          Illinois     Indiana
                                                                                                                       Indiana
      California
      California                                                                                                                        West Virginia
                                                                                                                                        West Virginia
                                                       Colorado
                                                       Colorado
                                                                                                                                                     Virginia
                                                                                                                                                     Virginia
                                                                             Kansas
                                                                             Kansas           Missouri
                                                                                              Missouri
                                                                                                                             Kentucky
                                                                                                                             Kentucky

                                                                                                                                                 North Carolina
                                                                                                                                                 North Carolina
                                                                                                                     Tennessee
                                                                                                                     Tennessee
                                                                                Oklahoma
                                                                                Oklahoma
                                 Arizona
                                 Arizona
                                                New Mexico
                                                New Mexico                                    Arkansas
                                                                                              Arkansas                                       South Carolina
                                                                                                                                             South Carolina


                                                                                                                       Alabama
                                                                                                                       Alabama         Georgia
                                                                                                                                       Georgia
                                                                                                                                                                 Source: Census Bureau,
                                                                                                                                                                 NAR Calculations
                                                                        Texas
                                                                        Texas                            Mississippi
                                                                                                         Mississippi
                                                                                                    Louisiana
                                                                                                    Louisiana
     Legend                                                                                                                                      Florida
                                                                                                                                                 Florida
            0.00% - 10.00%
            10.01% - 20.00%
            20.01% - 30.00%
            30.01% - 40.00%                                                                                                Alaska
                                                                                                                           Alaska
            40.01% - 55.75%
 0    145      290                580            870              1,160
                                                                     Miles                                                                                                 Hawaii
                                                                                                                                                                           Hawaii
Household property tax burden
                         State & Local Property Tax Collections Per HH 2006

                    Washington
                    Washington


                                                                                                                                                                                Maine
                                                                                                                                                                                Maine
                                                Montana
                                                Montana               North Dakota
                                                                      North Dakota
                                                                                                                 Michigan
                                                                                                                 Michigan
              Oregon
              Oregon                                                                    Minnesota
                                                                                        Minnesota                                                                    Vermont
                                                                                                                                                                     Vermont
                                 Idaho
                                 Idaho                                                                                                                               New Hampshire
                                                                                                                                                                      New Hampshire

                                                                      South Dakota                    Wisconsin
                                                                                                      Wisconsin                                                New York Massachusetts
                                                                                                                                                               New York Massachusetts
                                                                      South Dakota
                                                                                                                            Michigan
                                                                                                                            Michigan                                 Connecticut
                                                                                                                                                                     Connecticut
                                                  Wyoming
                                                  Wyoming


                                                                                              Iowa
                                                                                              Iowa                                                 Pennsylvania New Jersey
                                                                                                                                                   Pennsylvania New Jersey
                                                                        Nebraska
                                                                        Nebraska
                       Nevada
                       Nevada                                                                                                          Ohio
                                                                                                                                       Ohio
                                                                                                                                                            Maryland Delaware
                                                                                                                                                            Maryland Delaware
                                         Utah
                                         Utah                                                              Illinois
                                                                                                           Illinois     Indiana
                                                                                                                        Indiana
       California
       California                                                                                                                        West Virginia
                                                                                                                                         West Virginia
                                                        Colorado
                                                        Colorado
                                                                                                                                                      Virginia
                                                                                                                                                      Virginia
                                                                              Kansas
                                                                              Kansas           Missouri
                                                                                               Missouri
                                                                                                                              Kentucky
                                                                                                                              Kentucky

                                                                                                                                                  North Carolina
                                                                                                                                                  North Carolina
                                                                                                                      Tennessee
                                                                                                                      Tennessee
                                                                                 Oklahoma
                                                                                 Oklahoma
                                  Arizona
                                  Arizona
                                                 New Mexico
                                                 New Mexico                                    Arkansas
                                                                                               Arkansas                                       South Carolina
                                                                                                                                              South Carolina


                                                                                                                        Alabama
                                                                                                                        Alabama         Georgia
                                                                                                                                        Georgia
                                                                                                                                                                Source: Census Bureau,
                                                                         Texas
                                                                         Texas                            Mississippi
                                                                                                          Mississippi                                           Tax Foundation Calculations
                                                                                                     Louisiana
                                                                                                     Louisiana
      Legend                                                                                                                                      Florida
                                                                                                                                                  Florida
             $0.00 - $1,000.41
             $1,000.42 - $2,000.00
             $2,000.01 - $3,000.00
             $3,000.01 - $4,000.00                                                                                          Alaska
                                                                                                                            Alaska
             $4,000.01 - $6,582.00
  0    145      290                580            870              1,160
                                                                      Miles                                                                                                 Hawaii
                                                                                                                                                                            Hawaii
Impact of Property Taxes
 Property taxes are a major source of funding for local
  governments and for some states.
 As home values decline, many localities may try to increase
  property tax rates or adjust assessed values in an effort to
  boost revenues.
 These efforts will only further depress the value of homes in
  the locality because tax increases will be capitalized into the
  value of the home.

 Lost home value after $1000 increase in property taxes*

                                 $12,000 - $15,000
   * Estimate assumes 32 year time horizon for capitalization of $1000 annual payments at
   5.5 percent discount rate and capitalization rate of 80 – 100 percent; actual results will vary
Impact of Transfer Taxes
 Many state legislatures turn to transfer taxes because
  they are relatively easy to implement
    A small group of individuals are taxed relatively
     infrequently
 However, what is easy is not always best
   Optimal tax theory suggests that taxing a broad based
    group at a low rate is the most efficient form of taxation
    because it does not distort market activity
   Possible distortions from transfer tax increases include
    avoidance of the taxed activity—resulting in fewer
    transfers (sales of property) and decreased mobility
States have collected less from transfer
taxes in recent years
                  U.S. Documentary and Stock Transfer Taxes
   $14,000,000

   $12,000,000

   $10,000,000

   $8,000,000

   $6,000,000

   $4,000,000

   $2,000,000

           $0
                 2000   2001   2002   2003   2004   2005   2006   2007   2008

Source: US Census Bureau
  Transfer Taxes reduce home sales
    We can estimate the number of people who might be
     affected by a 1% increase in a transfer tax
    The results tell us the number of potential
     homebuyers in a state who would not be able to
     purchase a home as a result of the tax increase

          Number of Households in Hawaii unable to
            buy a house because of the transfer tax

                                      2,177
Source: Data on conventional homes from the Federal Housing Finance Board;
        Data on income distribution from the Census Bureau, NAR Calculations

								
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