The Advocate brings word of the chaos coronavirus has brought to municipal budgeting at home in Stamford.
Unsurprisingly, the city’s revenue projections are highly uncertain.
In 2019, as set forth in our CAFR (short for “Comprehensive Annual Financial Report”), the city took in almost $700 million in revenues (at p.30 of the linked pdf). 75% of that—or approximately $535 million—came from property taxes on residential and commercial property owners throughout the city. About 15% is “operating and capital grants,” a number which appears highly variable year to year. And another 10% is charges for services, investment earnings, and other sources.
Each year, one of the many responsibilities of the Board of Finance is projecting revenues that the city will receive. This year, early projections had us collecting 99% of property taxes assessed in the fiscal year. So, if the city projected $550 million in property tax revenues, each percentage point not collected would be $5.5 million in “missing” revenues. (In practice, such revenues are ultimately received—the “missing” revenues are probably better characterized as deferred.)
Then, coronavirus hit. And now, the Board of Finance must rethink what percentage of property taxes assessed it should assume the city collects this year.
Stamford’s 2019 CAFR boasts that “[t]he combined current levy collection rate (for all property types) was 98.9%, marking the seventeenth consecutive year that the City’s collection rate exceeded 98%.”
But 2019 was a great year economically. 2020 will not be. So, how are property tax collections during a poor economy?
Down, but not significantly so. There is a slight negative relationship between the unemployment rate in Stamford and percentage of outstanding property taxes collected. However, even in the previous recession, the collection rate never dropped below 98%, with the recent low being 98.29% in 2012.
Set forth below is a graph comparing the unemployment rate and property tax collections since 2002 (the last year for which I could find data). The downward sloping line is the “best fit” line demonstrating this relationship; I’ve assumed a linear (as opposed to exponential) relationship, although we don’t really have enough extreme datapoints on the unemployment rate to know if assuming a linear relationship is appropriate. So, take my amateur statistics with a grain of salt.
[If the image is too small, try ctrl and + on your computer to make the page larger.]
Generally, property tax collections are fairly resilient. There are good reasons for this. If a property owner fails to pay property taxes, the city is entitled to a lien on the property, which can be foreclosed on if not satisfied timely. And specific to this year, the state of Connecticut has extended the income tax filing deadline from April 15 to July 15, perhaps freeing up cash to pay property taxes which otherwise would have gone to pay income taxes.
That said, there is no precedent whatsoever for the sudden increase in unemployment the state and country are experiencing. And while there are reasons to think that property taxes collections will remain resilient, I would not be surprised to see a collection rate in this year of 95% assessed taxes, or even less. These taxes will ultimately be paid (in the aggregate, the city eventually collects no less than 99.9% of property taxes assessed). But maybe not this year.
Accordingly, if I were on the Board of Finance, I would push to decrease the expected tax collection rate to 95%. While my most likely projection would be a drop to only 98% or 97%—a loss of about $5 or $10 million—it is better to be pleasantly surprised at year’s end at a high collection rate, than disappointed in an unexpectedly low collection rate. And an extra buffer here can offset lower realizations in other revenue sources, for example, in service fees and investment income, which presumably will be much more affected by our coronavirus economy.