Property Tax Rebellion Brewing After Real Estate Collapse

Never judge a house by its tax bill. That's the lesson Don Newby, 65, is learning.

The construction manager from Gibbsboro, N.J., is paying boom-era property taxes on a home that has lost 20 percent of its value in the past three years. He blames the Gibbsboro tax authorities, who haven't reassessed property values in the town since 2003.

"That's absurd," says Newby, who pays $14,000 a year in taxes on a four-bedroom, bi-level modern house in the New Jersey township near Philadelphia. Newby, who was unemployed for a year after the economic collapse, says he believes the government is intentionally delaying new assessments to benefit from the lag as long as possible.

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"When you watch how property values have come down, it appears I could save almost $2,000 in taxes," he says.

Costly Lag in Assessing Property Values

Americans grumble that local tax assessors haven't caught up with the real estate downturn, leaving homeowners with unfairly high property taxes. Many disgruntled homeowners including Newby are challenging authorities, either by appealing their tax bills or mobilizing groups to push for tax-law overhaul.

The National Taxpayers Union, a Washington-based advocacy group, estimates that 30-60 percent of homeowners are over-assessed each year.

"This is a big frustration," says Peter Sepp, the group's policy and communications director.

The problem stems largely from a simple technicality: Home values in most states are reassessed every few years, according to data from Therese McGuire, real estate professor at Northwestern University's Kellogg School of Management.

In Nevada, for example, one of the states hit hardest by the housing crunch, the average time between assessments is five years, while in Connecticut the average cycle is 10 years. Although most New Jersey townships reassess once a year, Gibbsboro has no set schedule, which means residents have to wait for tax commissioners to set a date.

Nationally, the average lag is three to four years.

U.S home prices, meanwhile, have plunged in the past four years. The median sale price of a single-family home has dropped 29 percent to $164,300 from the market peak in July 2006, according to the National Association of Realtors.

Sore Point

Property taxes have always been a sore point with homeowners.

Unlike income and sales tax bills that are paid gradually over the course of a year, property taxes are paid in painfully big chunks once or twice annually.

U.S. homeowners paid a median $1,897 in property taxes in 2008, according to the Tax Foundation, a Washington-based advocacy group, with New Jersey residents paying the highest bill at $6,320 annually, 1.74 percent of home values. New Jersey doesn't have the highest property rates, however. Texas wins that distinction, with localities on average charging homeowners property taxes worth 1.76 percent of their home value.

To be fair, property taxes usually serve a purpose that clearly benefits residents. Cities and counties fund a large portion of their operations with property taxes, paying for everything from schools to sewers.

Chris Hoene, director of research at the National League of Cities, which represents municipalities, says governments have intentionally built lags into their cycles to offer more revenue stability.

"We weren't hearing many objections to the property tax lag when prices were going up," he says. "It cuts both ways, and over time it evens out."

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