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Property tax levies and collections in New Orleans, before and after Hurricane Katrina.

In August 2006, 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 497,000 to about 211,000, 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 2000, 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 2004. At this time, the net assessed value of real property was about $1.4 billion. From 1995 to 2005, the city realized a steady increase in the estimated and net assessed values of real property from year to year. As of year-end 2008, the estimated actual value of real property was about $17.2 billion, with a net assessed value of $2 billion.

A similar trend is evident for personal property estimated actual and net assessed values from 1995 to 2004 (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 2005, 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 2005, the estimated actual and net assessed values in personal property began to decline. From 2004 to 2005, the estimated actual value of personal property declined from $4.5 billion to $4.1 billion, a decrease of about 9 percent. In 2006, the year after Katrina, the estimated actual value of personal property dropped to about $3.8 billion, an annual decline of 9 percent from 2005. For year-end 2007, the estimated actual value of personal property declined further, to about $3.2 billion, a 15 percent decline from the prior year. In 2011, 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 2005, the gap between total real estate taxes levied and collected amounted to about $19 million. Immediately after Katrina in 2006, 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 2001, the gap between personal property taxes levied and collected had increased to about $19 million. Immediately following Katrina in 2006, 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 2006, 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 490,000 in 1998, the real estate property taxes collected per capita increased to about $329. When the city's population base declined to 462,000 in 2005, the amount of real estate property taxes collected per capita increased to about $538. Immediately after Katrina in 2006, the real estate taxes collected per capita increased to about $921, as the city's population base dropped from 462,000 to 211,000. Since 2007, the real estate taxes collected per capita has declined to about $767, as the city's population base increased to about 317,000. 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 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 490,000. When the city's population base decreased to about 462,000 in 2005, personal property taxes collected per capita increased to about $215. Immediately after Katrina in 2006, 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 317,000.

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 2008.

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 2008, the estimated value of taxable personal property in the city has recovered to pre-2000 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 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 2005, 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.

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 250,000, thereby reducing the population base from about 462,000 to 211,000 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 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.

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 lacovelli 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.

Exhibit I: Estimated and Assessed Value of Taxable Real Property

       Estimated Actual Value   Net Assessed Value

Fiscal Year

1995    7,593,398                 885,899
1996    8,132,351                 948,777
1997    8,233,296                 960,554
1998    8,684,889                 977,783
1999    9,941,294               1,013,240
2000   10,406,525               1,159,821
2001   10,557,947               1,241,098
2002   10,703,481               1,231,764
2003   10,703,481               1,248,743
2004   12,199,345               1,423,261
2005   12,794,634               1,492,750
2006    9,459,193               1,103,604
2007   11,674,784               1,362,097
2008   17,182,001               2,004,624

Note: Table made from bar graph.

Exhibit 2: Estimated And Assessed Value of Taxable Personal Property

         Estimated Actual Value   Net Assessed Value

Fiscal Year

1995      7,593,398                 885,899
1996      8,132,351                 948,777
1997      8,233,296                 960,554
1998      8,684,889                 977,783
1999      9,941,294               1,013,240
2000     10,406,525               1,159,821
2001     10,557,947               1,241,098
2002     10,703,481               1,231,764
2003     10,703,481               1,248,743
2004     12,199,345               1,423,261
2005     12,794,634               1,492,750
2006      9,459,193               1,103,604
2007     11,674,784               1,362,097
2008     17,182,001               2,004,624

Note: Table made from bar graph.

Exhibit 3: Real Estate Taxes Levied and Collected

          Variance from Taxes Levied

Fiscal Year

1995       (1,890)
1996       (1,928)
1997       (2,189)
1998       (2,738)
1999      (12,453)
2000      (17,766)
2001      (14,046)
2002      (13,361)
2003      (11,105)
2004      (15,886)
2005      (18,946)
2006      (25,654)
2007      (24,692)
2008      (26,542)

Note: Table made from bar graph.

Exhibit 4: Personal Property Tax Levied and Collected

          Variance from Taxes Levied

Fiscal Year

1995       (3,840)
1996       (7,089)
1997       (4,644)
1998       (6,157)
1999      (17,356)
2000      (10,418)
2001      (18,972)
2002      (14,348)
2003      (11,289)
2004       (9,203)
2005       (7,234)
2006      (11,599)
2007       (7,788)
2008       (7,903)

Note: Table made from bar graph.

Exhibit 5: Real Estate Taxes Collected Per Capita

Real Estate Taxes Collected Per Capita

Fiscal Year

1995       288
1996       310
1997       316
1998       329
1999       328
2000       374
2001       404
2002       420
2003       435
2004       495
2005       538
2006       921
2007       784
2008       767

Note: Table made from bar graph.

Exhibit 6 Personal Property Taxes Collected Per Capita
from 1995 to 2008

Personal Property Taxes Collected Per Capita

Fiscal Year

1995       288
1996       310
1997       316
1998       329
1999       328
2000       374
2001       404
2002       420
2003       435
2004       495
2005       538
2006       921
2007       784
2008       767

Note: Table made from bar graph.
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Article Details
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Author:Guajardo, Salomon Alcocer
Publication:Government Finance Review
Geographic Code:1U7LA
Date:Oct 1, 2013
Words:2162
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