Programs that freeze the property taxes of older homeowners may reduce their taxes for a long time – unless property values decline and seniors end up paying more:

The state’s Senior Citizens’ Assessment Freeze Exemption works by capping participating homeowners’ property assessments. So even if the property’s value rises each year, a participating homeowner is taxed only at the level when the “freeze” was put into effect. In better times for real estate, participating homeowners in some suburban townships averaged as much as $38,000 reductions on their assessments, which would have reduced their property tax bills by hundreds of dollars. But instead of just losing out on the revenue, governments shift the tax burden onto property owners who don’t qualify for the freeze.

The law was intended to prevent fixed-income seniors from being taxed out of their homes since, to qualify, participating homeowners have to earn less than $55,000 a year.

“But nobody thought property values would decline,” said state Rep. David Harris, an Arlington Heights Republican who sits on the House property tax subcommittee. “Now, the issue is huge.”

Here’s why. If property values drop below the frozen level, there is no longer any benefit to the participating homeowner because he or she is taxed at that lower level.

That wouldn’t be a problem if the value dropped for only that homeowner. But when the value drops for everybody and the tax levies for all government bodies stay the same, or more likely increase, tax rates have to increase to meet the levies governments are allowed to collect.

The most important thing to me in this story: nobody assumed property values might drop. In other words, legislators and those receiving the tax help didn’t think about this possibility. So now they are stuck trying to scramble to find a fix.

While there are certainly other reasons contributing to the financial troubles of the last seven years or so, I wonder how much ignoring this simple idea – property values could decline for a while and not bounce back – contributed to the larger issues.