With property values dropping in recent years, one side effect is that more homeowners are appealing their property tax bills. This has led to some problems in local government as officials try to keep up with the increased number of requests:

From Los Angeles to Atlantic City, the New Jersey gambling resort whose credit rating Moody’s Investors Service cut by three levels last month, property owners are demanding lower taxes after real-estate values plunged. The disputes over billions in dollars come as municipalities are already slashing services such as police and fire protection and may depress revenue further as communities try to recover from the longest recession since the 1930s. In Michigan, Governor-elect Rick Snyder has warned that hundreds of towns face financial crises…

Oakland County, the Detroit suburb with Michigan’s second- highest median income, didn’t previously pay much attention to Tax Tribunal cases because any losses were covered by new construction gains, said Robert Daddow, deputy county executive. Now, about $3.9 billion in taxable value, or 5 percent of the county’s tax base, is under review, he said.

Cities and towns across Michigan had property-tax collections plunge as much as 20 percent in the past year, the steepest drop since a 1994 rewrite of state levies, forcing scores to decide whether to borrow to pay bills or risk default on bonds.

Municipal budgets “tend to lag economic conditions” by 18 months to several years, according to a National League of Cities report in October that Pagano co-wrote.

The consequences for local municipalities could be staggering: less tax revenue means fewer services and in the long run, unhappy residents. And this is not just a short-term problem – economic recessions like this can have a long effect as the communities must rebuild budgets and restart development projects. I particularly like the example from Oakland County: when times were good, these sorts of appeals didn’t matter much because new development covered whatever appeals for lower taxes were approved.

One of the hallmarks of suburban development after World War II was the interest many communities had in promoting tax generating land uses. Additionally, many residents desire low property taxes. When population growth and housing construction was on the rise, even residential properties, which bring in property tax dollars but also require outlays for increased levels of services, were seen as a good. But in worse economic times, communities will have to double down even more on this issue: what land uses generate the most money for the community at large?