Houses in the Hopyard Farm subdivision in King George County, where home values have risen. Photo credit: The Free Lance-Star
by James A. Bacon
Inflation may be a national, even global, phenomenon, but many of its ramifications play out locally. When housing prices rise, so do real estate tax assessments and tax burdens. Inflation creates tensions in the labor market as workers demand pay raises to offset lost purchasing power. Higher wages push employees into higher tax brackets. The term “the misery index” — calculated by adding the unemployment rate and the inflation rate — could well make a comeback. Economic productivity suffers and, if we follow the path of the 1970s, stagflation could well ensue.
Here at Bacon’s Rebellion we will begin sharing data points on the local impact of inflation, starting with two stories: one from King George County and one from the City of Richmond.
In King George County, 77-year-old Carl Crump is retired and living on a fixed income. With the price of gas, groceries and other basics trending higher, Crump was none too happy to receive a real-estate assessment that would push his tax bill $800 higher, reports Fredericksburg’s The Free Lance-Star.
The median value of homes in the county has surged 25% since the last assessment in 2018 — and 9% in just the last year. That’s the median: some property owners got off easier while others were hit harder. The Board of Supervisors has yet to set the tax rate, so the ultimate impact on property owners may not be as bad as the reassessments suggest. On the other hand, the Board will face the reality of its own rising costs of doing business, from salaries and health care to pencils and gasoline.
Meanwhile, in Richmond, the average assessed value for a home increased 13.7% this year. With the real estate tax base growing by $4.2 billion, city officials estimate that real estate tax revenues will surge by $45 million, reports the Richmond Times-Dispatch. That’s a big bite for city taxpayers, but the article is focused on the implications for city finances through the feedback loop of something called the Local Composite Index (LCI).
The LCI is a formula that calculates a local government’s “ability to pay,” and state government uses it to adjust its state aid to public schools. Localities with a higher ability to pay get less from the state. Thus, the City of Richmond expects to lose $30 million in state aid for its schools.
Local officials are irate. They say that the rising real estate wealth fails to capture the fact that one in four residents live in poverty. “It’s a misrepresentation of the city’s ability to pay; it also does not effectively capture the high levels of concentrated poverty in the city,” said Richmond Superintendent Jason Kamras. “We know from research that it is exponentially more challenging and expensive in terms of educating children [in poverty].”
City taxpayers have to cough up $45 million more, and not a word of sympathy for them. After the adjustment to the LCI, the City of Richmond gets to keep a net of only $15 million. Waaah. That’s what you get when you have an education funding formula that transfers wealth from affluent localities to poor localities.
Whether or not you share my reaction to the woes besetting the City of Richmond, this is an example of how inflation corrodes the system, causing disruption, dislocation, and conflict. There’s a lot more to come.
