Businesses that rely on person-to person contact have been hit particularly hard by the COVID-19 pandemic and resulting 2020 recession, as local mandates and voluntary closures keep people isolated at home. As a result, we’ve seen the unemployment rate rise as high as 14.7%, hotel occupancy drop to just above 20%, and – while recovering as states reopen – restaurant seating is down about 60% compared to last year.
So, what does this mean for your company’s property taxes? Especially for industries like travel, hospitality, entertainment, and dining, you’d expect assessed values to drop, right? It might not be so simple. A look at property tax revenue during the Great Recession helps explain why:
State and Local Tax Revenue Across United States
During the Great Recession (highlighted in green above), property tax revenue continued to increase year over year. It also became a larger percentage of state/local tax revenue as sales and income tax revenue dropped due to the recession.
Closer Look: Houston City Budgets as an example of Property Tax Stability
Again, property tax budgets and actual revenue climbed during the Great Recession. It wasn’t until 2011 that property tax revenue dropped – three years after the recession began.
We’re still in the midst of the 2020 recession, and there’s a lot of uncertainty about how long—and how severe—the recession will be. But economists have made predictions about the shape this recession might take.
Like the Great Recession, experts believe the 2020 recession due to COVID-19 will have a U-shaped recovery. That means the downturn will likely continue into 2021, but there will be an upswing.
If this is the case, we can expect to see similar property tax trends as we saw during the Great Recession, and your assessed values and property tax liability will take some time to catch up with market conditions.
As a result, it’s going to take some legwork to lower your property tax liability in 2021 because assessed values naturally lag real-time market conditions.
In 2020, properties were assessed before the pandemic affected the US, so your 2020 tax bill will be based on a healthy, pre-pandemic economy.
Even in 2021, your assessed value may not drop depending on the method your assessor uses. For example, if your assessor looks at average sales across several years or looks at sales from a year or two prior, the pandemic won’t make much of a dent – if at all.
What you Can Do
We’re heading into budgeting season for 2021 and getting your numbers right is going to be more difficult than normal. There are a few things you should do to prepare:
- Take the lag into account when making predictions.
Keep in mind your assessment dates and tax bill due dates to predict when your tax liability will “catch up” to the current economic crisis.
- Start preparing for 2021 appeals—you know you’ll need them.
Gather information on the economic conditions that are impacting your company and the value of your property. Doing what you can now to get ready will go a long way during peak seasons, especially if you have a lot of property with short appeal windows.
WATCH OUR ON-DEMAND Webinar for a More In-Depth Conversation
Our CEO Stephen Wicks is diving into the data to share insights on the expected impact of the COVID-19 recession – and tips for property tax professionals to prepare. Click the link below to access this free, on-demand webinar that you can watch anytime!