DENVER — Dozens of states, counties and cities across the nation will enter the new year facing deep and unexpected budget holes as the widening mortgage crisis cuts sharply into tax revenue.
Elected officials, scrambling to adjust, are trimming money for public schools, reducing grants to help the homeless, even asking police to dry-clean their uniforms less often.
"We're talking about a pretty tough fiscal environment for the next four or five years," said Christopher W. Hoene, the director of policy and research for the National League of Cities. "Libraries, parks, after-school programs . . . you'll see lots of questions raised about cities' abilities to fund them."
What makes this all so painful is that up until a few months ago, many government officials felt certain they could weather the storm. They knew property values wouldn't soar forever. So they factored a downturn into budget calculations. They built up sizable emergency funds.
But the rainy day they prepared for turned out to be a monsoon.
"We had predicted a slowdown -- but not this much," said Tim Nash, finance director for Greeley (population 90,000), a college town in a heavily agricultural region of north-central Colorado. Nash thought he was being prudent when he budgeted for 200 new housing starts in the city this year, down from 310 last year.
He wasn't even close.
Instead of the $2.6 million that Nash expected in sales taxes on new construction, Greeley will collect $1.2 million. As a result, Greeley has left vacant 49 city positions, most of them building inspectors whose services are, abruptly, no longer in demand.
The effects of the housing slowdown are not being felt evenly across the nation; in states such as Wyoming, Alaska and Texas, they're more than offset by the boom in oil and gas prices. But in a recent survey, 24 states reported that their tax collections had taken a hit because of the housing crisis.
The 10 most affected states, including California, Nevada and Arizona, will lose a combined $6.6 billion in tax revenue next year, according to a report prepared for the U.S. Conference of Mayors.
"We're at the early stage of a problem that's going to get worse," said Corina Eckl, an analyst for the National Conference of State Legislatures.
The mortgage crisis cuts into tax revenue in several ways.
