Property Tax Levies and Collections in New Orleans, Before and After Hurricane Katrina

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1 Property Tax Levies and Collections in New Orleans, Before and After Hurricane Katrina By Salomon Alcocer Guajardo

2 In August 26, Hurricane Katrina hit the City of New Orleans, Louisiana, devastating the city s levy system along with its commercial and residential housing stock. Immediately after Katrina, the city s population dropped from about 497, to about 211,, putting the city s economy and financial position in a precarious state. This study examines property tax levies and collection trends before and after the hurricane to assess the financial impact on New Orleans tax-based revenue. In doing so, it also provides a preliminary barometer of what other cities are likely to experience financially if faced with a major natural disaster and its aftermath. The New Orleans experience illustrates what cities are likely to expect with regard to changes in their population and property tax bases as well as providing a window into the gestation time from disaster to recovery with respect to their financial condition and position. In short, the New Orleans experience is a case study of how a natural disaster alters the financial landscape of a city drastically and immediately, and provides insights into how the tax base might behave after a natural disaster. TAX LEVIES AND COLLECTIONS Prior to Katrina, the city s estimated and net assessed real property values were increasing steadily (see Exhibit 1). In 1995, the city s estimated actual value for real property was about $7.5 billion, with a net assessed value of about $885 million. By 2, the estimated actual value of real property had increased to about $9.9 billion, with a net assessed value of about $1.1 billion. The estimated actual value for real property reached about $12.1 billion in 24. At this time, the net assessed value of real property was about $1.4 billion. From 1995 to 25, the city realized a steady increase in the estimated and net assessed values of real property from year to year. As of year-end 28, the estimated actual value of real property was about $17.2 billion, with a net assessed value of $2 billion. Exhibit 1: Estimated and Assessed Value of Taxable Real Property n Estimated Actual Value n Net Assessed Value ,182,1 Millions of Dollars ,593,398 8,132,351 8,233,296 8,684,889 9,941,294 1,46,525 1,557,947 1,73,481 1,73,481 12,199,345 12,794,634 9,459,193 11,674, , ,777 96, ,783 1,13,24 1,159,821 1,241,98 1,231,764 1,248,743 1,423,261 1,492,75 1,13,64 1,362,97 2,4, October 213 Government Finance Review 49

3 Exhibit 2: Estimated and Assessed Value of Taxable Personal Property n Estimated Actual Value n Net Assessed Value , ,777 96, ,783 1,13,24 1,159,821 1,241,98 1,231,764 1,248,743 1,423,261 1,492,75 1,13,64 1,362,97 2,4,624 Millions of Dollars ,593,398 8,132,351 8,233,296 8,684,889 9,941,294 1,46,525 1,557,947 1,73,481 1,73,481 12,199,345 12,794,634 9,459,193 11,674,784 17,182, A similar trend is evident for personal property estimated actual and net assessed values from 1995 to 24 (see Exhibit 2). In 1995, the estimated actual value of personal property was about $3.1 billion, with a net assessed value of about $467 million. By 25, the estimated actual value of personal property had increased to about $4.5 billion, with a net assessed value of about $679 million. However, beginning in 25, the estimated actual and net assessed values in personal property began to decline. From 24 to 25, the estimated actual value of personal property declined from $4.5 billion to $4.1 billion, a decrease of about 9 percent. In 26, the year after Katrina, the estimated actual value of personal property dropped to about $3.8 billion, an annual decline of 9 percent from 25. For year-end 27, the estimated With respect to the amount of personal property taxes collected per capita, the data show that annual personal property taxes collected have returned to pre-katrina levels. actual value of personal property declined further, to about $3.2 billion, a 15 percent decline from the prior year. In 211, the estimated actual value of personal property was about $3.6 billion. Despite the incremental increase in the actual assessed value of real property and its tax levy, the gap between annual real estate taxes levied and collected has widened since 1995 (see Exhibit 3). In 1995, the city s total real estate tax levy was about $145 million, with tax collections of about $143 million, a gap of about $1.9 million. By 1999, this gap between total real estate taxes levied and collected had widened to about $12.4 million. In 25, the gap between total real estate taxes levied and collected amounted to about $19 million. Immediately after Katrina in 5 Government Finance Review October 213

4 Exhibit 3: Real Estate Taxes Levied and Collected n Variance from Taxes Levied (5) (1,89) (1,928) (2,189) (2,738) (1) Thousands of Dollars (15) (2) (12,453) (17,766) (14,46) (13,361) (11,15) (15,886) (18,946) (25) (3) (25,654) (24,692) (26,542) 26, the gap between real estate taxes levied and collected increased by another $7 million, from $19 million to $25.6 million. Since Katrina, the annual gap between real estate taxes levied and collected has increased to about $26 million. With respect to the collection of personal property tax levies, Exhibit 4 shows that a gap remains, despite a decrease in amount of personal property tax levied. In 1995, a total of about $79 million was levied on personal property with about $75 million collected, a gap of $3.8 million. In 1999, the total personal property tax levy was about $98 million with about $81 million collected, a gap of about $17 million. By 21, the gap between personal property taxes levied and collected had increased to about $19 million. Immediately following Katrina The impact and aftermath of Hurricane Katrina on the city of New Orleans has several implications for real estate and personal property taxes in cities prone to natural disasters. in 26, the total personal property levied decreased to about $99 million with about $88 million in collections, a gap of about $12 million. Despite a significant decrease in personal property tax levies since 26, the gap between what is levied and collected persists. COLLECTION PER CAPITA When annual real estate and personal property tax collections are examined on a per capita basis, the data show that the City of New Orleans is collecting more property tax-based revenue from a smaller population base. In 1995, the real estate property taxes collected per capita were about $288 (see Exhibit 5). When the city s population decreased to 49, in 1998, the real estate property taxes October 213 Government Finance Review 51

5 Exhibit 4: Personal Property Tax Levied and Collected n Variance from Taxes Levied (2) Thousands of Dollars (4) (6) (8) (1) (12) (14) (3,84) (7,89) (4,644) (6,157) (1,418) (11,289) (9,23) (7,234) (11,599) (7,788) (7,93) (16) (14,348) (18) (2) (17,356) (18,972) collected per capita increased to about $329. When the city s population base declined to 462, in 25, the amount of real estate property taxes collected per capita increased to about $538. Immediately after Katrina in 26, the real estate taxes collected per capita increased to about $921, as the city s population base dropped from 462, to 211,. Since 27, the real estate taxes collected per capita has declined to about $767, as the city s population base increased to about 317,. As these data suggest, the tax and financial burden placed on the city s population base has increased after Katrina. With respect to the amount of personal property taxes collected per capita, the year-end data show that annual When annual real estate and personal property tax collections are examined on a per capita basis, the data show that the City of New Orleans is collecting more property tax-based revenue from a smaller population base. personal property taxes collected have returned to pre-katrina levels (see Exhibit 6). In 1995, the city collected about $152 in personal property taxes per capita. In 1998, the city collected about $181 in personal property taxes per capita, as its population base decreased to about 49,. When the city s population base decreased to about 462, in 25, personal property taxes collected per capita increased to about $215. Immediately after Katrina in 26, the amount of personal property taxes collected per capita increased to about $416. Since then, the amount of personal property taxes collected per capita has decreased to about $188 as the city population base increased to 317,. 52 Government Finance Review October 213

6 Exhibit 5: Real Estate Taxes Collected Per Capita n Real Estate Taxes Collected Per Capita 1, Thousands of Dollars IMPLICATIONS FOR OTHER CITIES The impact and aftermath of Hurricane Katrina on the city of New Orleans has several implications for real estate and personal property taxes in cities prone to natural disasters. First, the estimated actual value of taxable property is likely to decrease immediately after a natural disaster. The extent to which this occurs depends on the magnitude of the devastation and its effect on the real estate stock. If there is a substantial decrease in the estimated actual value of taxable real property, the effect on the net assessed value of the property will most likely be proportional. In the case of New Orleans, the net assessed value of real property increased to the pre-katrina levels in 28. The estimated actual value of taxable property is likely to decrease immediately after a natural disaster. The extent to which this occurs depends on the magnitude of the devastation and its effect on the real estate stock. With respect to changes in the estimated actual value of personal property, the New Orleans experience shows that the value of taxable personal property will decline after a natural disaster. The extent of that decline depends on the magnitude of the devastation. Since Katrina, the recovery of the personal property tax base has been slow in New Orleans. As of 28, the estimated value of taxable personal property in the city has recovered to pre-2 levels. A third implication of the New Orleans experience is that natural disasters will accelerate and heighten property tax collection losses. This is due to several factors such as economic and population displacement. In the city of New Orleans, Hurricane Katrina increased the existing gap October 213 Government Finance Review 53

7 Exhibit 6: Personal Property Taxes Collected Per Capita from 1995 to 28 n Personal Property Taxes Collected Per Capita Thousands of Dollars between real estate taxes levied and collected as well as the existing gap between personal property taxes levied and collected. This was due, in part, to the economic and population displacement caused by Katrina; however, in 25, the annual gap between real estate taxes levied and collected reached a high of about $19 million. Current fiscal data suggest that this gap will hover around $26 million over the next several years. With respect to changes in the estimated actual value of personal property, the New Orleans experience shows that the value of taxable personal property will decline after a natural disaster. The extent of that decline depends on the magnitude of the devastation. The fourth implication of the New Orleans experience is that the financial burden on the residents who remain behind increases substantially. In the case of New Orleans, the population base had been declining incrementally since 1996; in turn, the real estate and personal taxes collected per capita were increasing simultaneously. When Katrina occurred, the City of New Orleans experienced an immediate population decline of about 25,, thereby reducing the population base from about 462, to 211, and increasing the real estate taxes collected per capita from about $538 to $921. A similar effect occurred with regard to personal property taxes collected per capita. Because population displacement is likely to occur after a natural disaster, cities and their residents should expect the tax burden on taxpayers to increase immediately after the disaster. They also should expect gradual population increases in the ensuing years. CONCLUSIONS Although this article focused exclusively on the City of New Orleans real 54 Government Finance Review October 213

8 estate and property tax levies and collections before and after Hurricane Katrina, the financial consequences the city experienced after Katrina are many. General government expenditures associated with public safety increased as general tax-based revenue declined. With respect to the financial burden on its taxpayers, the general obligation debt burden per capital on the city s taxpayers increased. The New Orleans case study shows that cities face monumental financial challenges after experiencing a natural disaster such as Hurricane Katrina. y SALOMON ALCOCER GUAJARDO is associate professor at John Jay College, City University of New York. He can be contacted at sguajardo@jjay.cuny.edu. The author would like to thank Renald Iacovelli and Judy Lynne Peters, Department of Public Management, John Jay College, The City University of New York, for comments and suggestions on an earlier version. Order online at How Can My Government Efficiently Move Ahead? With this book learn how to use enterprise resource planning (ERP) systems to support your government s budgeting, purchasing, operations management, financial reporting, human resource management, and payroll while cutting costs. For a list of frequently asked questions, templates, and samples, visit Questions? publications@gfoa.org October 213 Government Finance Review 55