Property Tax Collection Better Than Last Year’s

By Scott F Davis

Posted: November 8, 2009 at 1:53 a.m.

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FAYETTEVILLE — Property tax collection in Washington County is up this year in spite of hard economic times in part because lenders have taken back so many properties from owners.

Banks typically pay their taxes on time, while owners in serious financial trouble often do not, officials said.

Real estate and personal property tax collection due this year are up — both in total and as a percentage, according to the Washington County Collector’s Office.

That’s good news for schools, the county and the cities that depend on tax revenue to pay bonds, make payroll, fund operations and pay bills. However, a banking professor warns the benefit of lenders paying more taxes will eventually be offset by lower property values.

The vast majority of property taxes goes the schools — 80.4 percent, said Roger Haney, Washington County treasurer. The county gets nearly 10 percent, cities get 8.3 percent and the library gets 1.2 percent, Haney said

The size of the checks sent to the schools, county and cities are based on the collection of taxes throughout the year, Haney said. Timely collection matters.

“It’s real important,” Haney said. “For the schools, it’s their bread and butter.”

Cities are more affected by hard economic times than schools because most of their revenue comes from sales taxes. Counties rely on a mix of both.

“The sales tax varies from month to month. It varies a lot depending on the economy, on whether they are buying here,” he said. Taxpayers may not do something they did in past — like eat out, he said.

Property tax revenue is more predictable because that’s one bill most people try to make sure they pay, Haney said.

Collection Rebounds

Total property tax collection received by deadline has increased every year since 2004, even though the percentage of people paying on time fell steadily from 95.1 percent in 2005 to 89.6 percent in 2008. The current year’s collection rate is 91.1 percent, according to a report by the collector’s office.

The total amount of property taxes billed grew from $87.76 million in 2004 to $147.1 million in 2009, according to the report.

Lower property values caused by the market slowdown have not yet impacted tax revenue because 2009 taxes are based on the assessed value at the beginning of 2008, officials said.

Lenders Pay

If property owners don’t pay their real estate taxes, then the lenders will eventually pay them after they foreclosure on the property.

For example, Metropolitan National Bank paid more than $152,600 in delinquent taxes from 2007 and 2008 on 35 parcels, according to list provided by the collector’s office.

Three other financial institutions made the top 50 list of delinquent taxpayers, paying more than $86,000 this year. The top 50 payers of delinquent 2007 and 2008 taxes paid a combined $1.9 million, according to the report.

Vance Whinery, database analyst for the collector’s office, cautioned against drawing firm conclusions from the data without checking each parcel and determining who paid the taxes. Still, the list shows numerous properties known to be in some stage of foreclosure or bankruptcy and confirms that many of the delinquent taxes have been paid by lenders.

Additional research shows examples of taxes paid for properties deeded to banks in lieu of foreclosure.

For example, Bank of the Ozarks paid more than $150,000 in taxes on lots in two developments — Waterford Estates in Goshen and Sundowner Ranch in Prairie Grove, according to the Collector’s Office. Developer Gary Combs, whose limited liability companies owned the developments, reached a deal earlier this year to deed hundreds of lots to the bank in lieu of foreclosure.

Small Town Impact

The impact of banks paying delinquent taxes is hard to quantify for the county as a whole, but bank payments skewed collection totals in Prairie Grove and Goshen, according to records.

The county as a whole collected 91.9 percent of its current taxes this year and 95.5 percent of its total when the delinquent collections were added. Likewise, current city property tax collections in Goshen were 91.9 percent, but when delinquent collections — including Waterford Estates — were added the total jumped to 102.5 percent.

Similarly, delinquent taxes from Sundowner Ranch helped boost collection of Prairie Grove city taxes to 106 percent. The Prairie Grove School District also benefited, collecting 98.7 percent, according to the report.

Two Sides

The increase in tax collection because of bank-owned properties may be a silver lining for the schools and government, but its also comes at a price, a University of Arkansas professor said.

“There’s two sides of the coin. On the one hand, banks take back the properties and pay taxes so collections are up over what they would be if they didn’t foreclose,” said Tim Yeager, associate professor at the university’s Sam M. Walton College of Business.

“On the other hand, the glut of properties that banks have to sell reduces prices, especially on the excess supply of lots in Northwest Arkansas. So tax collections (will decline in the future) as sales prices fall,” he said.

Area bankers have told Yeager they are able to sell their residential homes fairly quickly and at reasonable prices, but lots are not moving and prices probably have much further to fall, he said.

BY THE NUMBERS

Washington County Tax Collection

Past due collection in 2009 are on pace to beat last year’s total, which were up from prior years. One reason delinquent collection is up is because lenders have been paying late taxes on properties they have taken back, data from the Collector’s Office shows.

Tax Collection (in millions)

2004 2005 2006 2007 2008 2009

Annual total taxes dues 87.76 97.80 109.81 122.74 136.05 147.08

Annual current tax collection 83.49 92.99 102.47 113.86 121.96 134.03

Taxes not paid by deadline 4.26 4.82 7.34 8.88 14.09 13.04

Percentage paid by deadline 95.1 95.1 93.3 92.8 89.6 91.1

Delinquent Tax Collection

2004 2005 2006 2007 2008 2009

Collected through October: 2,605,596 2,570,630 2,805,215 3,332,603 5,700,878 6,081,398

Collected during year 3,643,327 3,391,096 5,931,172 6,112,374 8,999,839 6,081,398

Source: David A. Ruff, Washington County Collector

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