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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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November 5, 2007 12:01 AM ET
Wisconsin broke the nation's longest-running budget stalemate last month by approving, among other things, a $1-a-pack cigarette tax increase while rejecting a proposed new tax on hospitals. Meanwhile, the governor in once puritanical Massachusetts is in favor of converting a racetrack in Boston into a full-blown casino. And in Chicago, Mayor Richard M. Daley has proposed a fee of 15 cents a square foot on large development projects. The fee could generate about $2 million in revenue next year for the city. “This is not a fee on a small interest group,” William Bornhoff, managing director of the Chicago Real Estate Alliance, a developers group, told Financial Week sister publication Crain’s Chicago Business. “This increases the cost of doing business in Chicago.” In addition, a political fight is playing out in Michigan, where Gov. Jennifer Granholm has signed into law new sales and use taxes, the bulk of which would be paid by businesses purchasing services from other businesses. The main reason for all these new revenue generators is to help make up for the expected sharp drop in property tax revenue cities face as the impact of the slumping housing market hits home, sending once balanced budgets deep into the red. The National League of Cities said in its latest annual survey that 70% of cities and towns claim to be in better fiscal shape this year than last, but “the picture for 2008 is less optimistic, with city officials predicting a slowdown in revenues and increased spending pressures.” Most government economic experts think that’s just the beginning of a new trend, as foreclosures and delinquent taxes will jump when the 2.5 million adjustable-rate mortgages issued over the past few years reset to higher monthly payments, and many of those ARM borrowers decide to walk away from their now depreciating investment rather than keep paying. “We haven’t seen anything like this in 15 years” in terms of the potential long-term impact on the tax base, said Christopher Hoene, a researcher who helped prepare the National League of Cities report. “It’s worrisome.” Philippa Dunne, co-editor of the Liscio Report, which tracks monthly state tax receipts for use by bond rating agencies, said some cities and states, which had been getting as much as one-third of their tax revenue from residential real estate-related transactions over the past few years, face a much broader problem than just lower property tax revenue. Revenue from real estate transfer fees is slowing down, as is the income from sales taxes on high-ticket durable goods such as appliances and furniture. Some communities have reported 40% to 50% year-over-year decreases in transfer fees in recent months due to lower sales volumes, she said. Indicative of the speed at which the real estate downturn has squeezed state revenue, California, which has seen more real estate activity in terms of loans and property value appreciation than any other state over the past few years, is finding itself in a tax bind after receipts fell $777 million below state projections during the first three months of its fiscal year that started July 1. As a result, the state said last week it is selling $7 billion in short-term notes to tide it over until more tax revenue comes in. Raising fees or creating new ones is “always the first response” of municipal governments when facing budget shortfalls, said Mr. Hoene, because any attempt to boost property taxes results in a groundswell of protest. And Ms. Dunne said that communities “really don’t want to raise property taxes right now” and exacerbate the financial situation for already troubled homeowners. Given that outlook, she said, more and more states are investigating ways to create or expand their “sin taxes,” those generated from gambling, smoking and alcohol. Chicago, for example, in addition to talking about bringing a casino to the city, has proposed upping the tax on liquor by 50% and beer by 85% in its 2008 budget. And Massachusetts, which has seen millions in potential state revenue flow south to Indian-owned casinos in Connecticut for the past decade, wants one of its own. Both the mayor of Boston and the governor have come out in favor of a proposed casino at the Suffolk Downs horse track in Boston. California has taken a similar tack on gambling, recently agreeing to allow Indian tribes within the state to expand their operations. Although the equation for municipal governments—raise taxes and fees or cut services—is simple, there appears to be no easy way out this time around. FW
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