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US property owners facing big increase in real estate taxes

Local governments in the country are struggling to pay their bills and many are set to approve massive increases in residential fiscal taxes to plug the gap.

They will see a 3.6% drop in revenue from residential property taxes this year, according to a survey from the US League of Cities and are preparing to set higher rates and even defy laws putting a cap on rises.

A prime example is Fairfax County in Virginia, a Washington DC suburb, where County Executive Anthony Griffin wants to raise property taxes 12 cents per $100 of assessed value.

In New York City, where revenues are projected to lag expenses by $4 billion over the next 18 months, property tax rates were raised 7% in December while property prices have dropped 4%.

While Virginia and New York don't have laws limiting property tax increases, 43 states do, inspired by California's Proposition 13 in 1978, according to the National Tax Journal. Georgia lawmakers are considering one for their state that would cap gains in property assessments to 3%.

But this doesn't always protect property owners from large price increases. In Michigan, for example, some taxes will rise as much as 4.4% this year because the tax cap provides for an increase linked to a state-calculated consumer price index.

Many property owners won't realise the impact of increased real estate taxes until the bills are delivered in July. 'Assessments are going out now, but most people don't pay attention until the bills come,' said Ken Parrish, treasurer of Kent County.

In Florida, a state that is among the top most affected by falling prices and rising foreclosures, property tax rule allows assessed values to rise at least by the inflation rate. Even though home values dropped as much as 50% in 2008, assessments can go up 0.1% this year, raising some taxes.

'You're going to see tax rates across the state go up to make up for falls in values. That's going to be a bitter pill for some people to swallow,' said Kurt Wenner, tax research director for Florida Tax Watch, a private lobbyist.

Property owners are swamping assessors with appeals. Counties across New Jersey got 32,976 appeals last year, 40% more than in 2007, according to the State Treasurer's office. 'If your market value falls below your assessed value, you can appeal. But as long as market value remains above assessed value, the tax can go up as much as the cap allows,' explained Terri Sexton, associate director of the Institute of Governmental Affairs at the University of California at Davis.

However the full effects won't be felt for another six to 12 months as property tax assessments and revenues catch up to changes in the market, according to Michael Pagano, dean of public administration at the University of Illinois at Chicago.