Rainy Days in the Sunshine State: A Look at the Impact of the Mortgage Crisis on County Finances in Florida

Local governments are facing tremendous financial pressures. In many regions across the country, the economic downturn has resulted in increased demands for social services, declining property tax revenues due to falling property values, increased debt servicing costs, and shortfalls in pension funds and short-term investments. This paper explores whether local governments indirectly benefited from lax credit policies of the past and builds two models to test how banking credit and property market volatility in Florida have affected county budgets. The first model estimates the effect of property value changes on local government expenditures to determine how much local governments leveraged property value increases to meet expanding demands. The second model estimates the effects of the rate of change in property values on the rate of mortgage application approvals to determine whether property value changes were incorporated into financing decisions. The results of the models show that the changes in property values have had significant effects on both individual and local government finances. Homeowners and local governments have both benefited from greater banking credit and suffered as a result of it. The models also provide some insight into the factors that local governments can consider in assessing how extensive the impacts of the credit crisis will be on their own counties.