Fall of Housing Sector Bad News for States
By Mary Branham Dusenberry, CSG Managing Editor
Sujit CanagaRetna, Senior Fiscal Analyst, Southern Legislative Conference
Florida was once considered among the fastest-growing states in America because of its booming housing and construction industries.
In fact, from 2003 to 2006, tax revenues flowed into state coffers at extraordinary levels. In 2006, the state received $9.8 billion in taxes from those sectors, according to a new report from the Southern Legislative Conference, “Mortgage Meltdown: The Financial Impact of the Housing Contraction in the Southern Legislative Conference States.” That accounted for 36 percent of Florida’s total $27.1 billion in tax collections.
But times have changed. The bubble burst, the housing market collapsed and tax revenues from those sectors spiraled down to $5.4 billion in the 2008 fiscal year, the SLC report said.
“The housing sector is a huge part of the economic structure,” said Scott Pattison, executive director of the National Association of State Budget Officers. “The state is reaping benefits from the construction, the sales taxes they’re paying (and) the employers who pay people who are employed who are paying their taxes.”
Not as much anymore. And it may not get better anytime soon.
Along with the financial woes confronting homeowners, the souring economy and tightening credit environment also has resulted in a record number of housing developers and banks going under.
In Florida, that’s evidenced by the licensing of mortgage brokers and new bank applications. The number of applications had been rising steadily since 2001, reaching a height of 16,733 applications approved in the 2005-2006 fiscal year, according to licensing statistics from the Florida Office of Financial Regulation. That number dropped to 5,301 in the 2007-2008 fiscal year. And, according to statistics from that office, 81,695 brokers were licensed in the 2006-2007 fiscal year; that dropped to 63,993 brokers in 2007-2008.
“Every year, it started increasing … more people wanted to get into the business,” said Holly Hinson, communications director for the Office of Financial Regulation. “I’m anticipating that it’s going to go down even more.”
It’s a position facing many Southern states, the SLC report said.
While Florida shouldered a nearly 9 percent drop in its revenues in 2008, three other SLC states—Georgia, Missouri and South Carolina—also saw a decline in total revenues compared to the previous year.
While four energy-rich SLC states—Louisiana, Oklahoma, Texas and West Virginia—enjoyed a relative boom in revenue flows, the remaining eight SLC states experienced much smaller increases. For instance, Texas’s 2008 revenue increased by nearly 12 percent, Kentucky saw 1.17 percent growth in revenue, but North Carolina saw only 0.64 percent growth in revenue. But those four energy states are now forecasting revenue shortfalls for the 2009 fiscal year and beyond.
That’s a situation many states are in; and many are considering policies to mitigate the adverse implications of the current mortgage meltdown and foreclosure crisis. At least two SLC states, Maryland and North Carolina, are considered national leaders in devising policy responses, both legislative- and executive-branch driven, to react to the ongoing recession.
Maryland enacted changes in the areas of financial resources, education and outreach, and legislative and regulatory reform—all changes that created a number of positive outcomes for the state’s residents.
North Carolina’s legislature is one of the most proactive in providing consumer protection from predatory lending and preventing foreclosures. In the interim before the 2008 regular session, the North Carolina House Select Committee on Rising Home Foreclosures studied the issues of mortgage lending and foreclosure and considered what additional tools were needed to address the problem.
“If housing does pick up, I think you’ll see a situation where the states that were hit by that will start to be in a little better shape earlier,” Pattison of NASBO said. “Some of them, the activity was so extreme that I think it will take awhile to get back in shape.” That includes states such as Florida, Arizona and Nevada, where a lot of activity was driven by the housing sector and speculation in the market.”
The Mortgage Meltdown will be one of the topics discussed during the Financial Services Working Group session at the CSG Spring Conference May 16 in Coeur d’Alene, Idaho. Arizona Sen. Carolyn Allen will discuss measures her state is using to stave off the mortgage crisis.