If property tax revenues remain stagnant or decline, cities will have difficulty balancing their budgets, said Eric Scorsone, co-chairman of MSU Extension’s State and Local Government Program.

“Cities are going to have trouble with large property tax losses,” Scorsone said. “The revenue from property taxes are a main source of funding for, primarily, police and fire departments.”

The revenue loss stems from housing values taking a dive when the economic climate cooled last year.

Generally, the taxable value of a house, or the amount of taxes homeowners must pay to local municipalities, is about half the value of a house. When home values increased in past years, so did revenue from property taxes.

But now, as the unstable housing market leads home values to decline, the revenues cities and counties generate from property taxes also are declining.

The MSU Extension study used 2008 tax data from 12 counties to estimate that the counties lost $240 million in property tax revenue last year. The trend is expected to continue into the next decade.

“Unlike the federal government, (cities and counties) have to have balanced budgets and can only borrow a very limited amount of money,” Scorsone said. “They can use reserve and emergency funds, but some have already used those up from the tough times we’ve seen recently.”

Several state politicians, including Sen. Michelle McManus, R-Lake Leelanau, are pushing for property tax caps, which could cause further declines in property tax revenues. McManus has sponsored legislation to prevent property tax increases for homeowners whose homes are declining in value, said Veronica LaDuke, McManus’ spokeswoman.

LaDuke said without tax caps, foreclosures would increase and residents would leave the state, causing further decline in tax revenue.

“It’s better to have people in the state paying taxes, rather than leaving the state, leaving homes empty and no one to pay the taxes,” LaDuke said.

But Arnold Weinfeld, MML director of public policy and federal affairs, said there already are several property tax caps in place. He said the caps should be revised before more are enacted.

“Property tax caps have shown they aren’t the best ways for relief,” Weinfeld said. “Income tax and other more immediate return reliefs are best. We just have to look at what works best in the big picture.”

Scorsone said college towns such as East Lansing, Ann Arbor, Grand Rapids and Kalamazoo aren’t struggling as much as other major cities because the colleges act as a buffer. Although East Lansing has had it easier than most municipalities, city officials expect to face deficits in the future, and hope to prevent those problems by scaling back now.

East Lansing city treasurer Jill Martinez said long-time residents are the reason the city still is seeing slight increases in property tax revenue. However, she said officials expect that to change.

“Our taxable values are still seeing some growth, where other cities aren’t seeing any,” she said. “We’re just not seeing the growth like we used to.”

East Lansing finance director Mary Haskell said the city expects to see property tax revenues begin to decline, possibly as early as this year.

To make up for anticipated future decline, Haskell said the city has budgeted for 25 percent less overtime pay to city employees next year.

“Before we go to the drastic measures of laying off employees, we want to cut easy things,” she said. “We’re trying to weather the storm.”