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Lagging real estate values hit city budget

May 09, 1999|By DAN KULIN /Staff Writer

Budget cuts and rate increases proposed for Hagerstown residents are being caused in part by property values that are increasing slower than they had in the past.

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The real estate market has a significant impact on city revenue because property taxes are based on property values.

This trend of slow growth in property values is expected to continue for the next several years and continue to force city officials to make tough budget decisions about cuts in spending or rate and tax increases, according to budget projections from the city finance office.

It is a situation that is affecting many municipalities around the Tri-State area in the same way.

Slow growth is also a factor behind proposed tax rate increases in Martinsburg, W.Va., and personnel reductions in Chambersburg, Pa., finance officials in those municipalities said.

The real estate market affects municipalities because they rely heavily on property taxes to support portions of their budgets.

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In Hagerstown, revenue from property taxes supports about 50 percent of the $21.6 million general fund, which is the main operating fund that pays for operations such as fire, police and public works.

Property taxes are based on the assessed value of property. In Maryland assessments are done by the state. In Pennsylvania and West Virginia assessments are done by the counties.

Increases in property assessments result in more revenue from property taxes even if the tax rate is left the same because individual tax bills increase as their assessments increase.

This has caused some people to argue that increasing an assessment is in fact a tax increase. And counties and cities in Maryland are required by law to notify residents of the possible increase to their tax bill even if the tax rate remains unchanged.

However, politicians often point to the tax rate when the rate is proposed to remain the same. And despite additional revenue coming in thanks to an increase in assessments, they say they are not raising taxes.

In the late 1980s and early 1990s the assessed value of properties in Maryland was growing rapidly.

In 1990, the assessed value of properties in Hagerstown increased almost 7 percent compared to the previous year, according to city records.

However, that growth has slowed.

For the 2000 fiscal year the assessable base for Hagerstown is expected to increase 3.5 percent over this year.

Meanwhile, wages and other expenses are expected to increase about 5 percent.

According to the Maryland State Assessment Office, the average property assessment increased by 40 percent in 1990. This year, the statewide average assessment increase is 3.8 percent.

In Martinsburg, the assessable base grew by almost 3 percent this year, a slower pace than three to five years ago when large scale commercial development occurred in the city, said Mark Spickler, Martinsburg finance officer.

In Chambersburg, the assessable base grew about 1.3 percent this year, a slow growth rate, which has caused city officials to make personnel cuts by not filling positions after someone quits or retires, said Cas Rzomp, assistant director of the Chambersburg finance department.

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