City property values are projected to plunge $1.5 billion, leaving an $11.8 million revenue hole in the 2010 budget, according to information from City Assessment Commissioner Mayor Reavey.

That 5% decline in value means less money for pothole patching, police, firefighters, libraries and other city services unless Mayor Tom Barrett and the Common Council enact a significant increase in the property tax rate.

“The picture is very grim at this point,” said Ald. Michael Murphy, chairman of the Common Council’s Finance and Personnel Committee. “You do see some increases in the housing market nationally, but locally, there’s still pain to come.”

Adopting a budget that keeps the tax levy at $237 million, the same amount as this year, would require a 43-cent, 5.3% increase in the property tax rate, according to Milwaukee Rising calculations. The rate would rise from $8.09 per $1,000 assessed valuation for this year to $8.52 per $1,000 for 2010.

A 3% levy increase, expected to be the maximum allowed by law, would generate $7.1 million in new taxes and require an 68-cent, 8.4% property tax rate increase.  The rate would rise from $8.09 per $1,000 assessed valuation for this year to $8.77 per $1,000 for 2010, Reavey said.

The city’s taxable property value is projected to decline from $29.3 billion to $27.8 billion, Reavey wrote to Murphy, who requested the information.

The city is facing enormous fiscal pressures, including a large pension contribution, in 2010.

Murphy said he and Barrett already have informally agreed to freeze hiring, except for public safety positions, until the end of the year.  That should reduce the city’s payroll by about 250 employees, he said.

“Services will not be as quickly responded to as in the past because there will be fewer and fewer people to do the work,” Murphy said.

Levying to make up the $11.8 million would be difficult, he said.

“There’s a limit to what you can tax people when they are losing their jobs,” he said.

Some city residents probably may be facing higher tax bills whether or not the city increases the levy.

“Because of the diversity of city neighborhoods, even your preference of keeping the tax rate level will create a tax shift this year to properties that do not go down as much as the citywide decrease in value,” Reavey wrote. “This is not unlike the rising market of the past where the tax burden of property going up higher than the citywide average assumed a greater tax burden than the previous year.”

Property owners will get their assessment notices next month.

The total number of open foreclosures and bank or city-owned properties was 6,532 at the end of February, Reavey wrote. Their total assessed value was $737 million.

“In many cases it is the same areas of the City where we saw substantial increases in assessed values in the recent past that we see the strongest impact of foreclosures and other negative influences today,” she wrote.

The precise impact of foreclosures is not clear, Reavey said. While they do affect value, each one must be analyzed to determine how much, she said. Her office is aware of properties that were sold by a bank and then resold for much more by the purchaser, she said.

“No matter how the Mayor and Council decide to tackle this budget, it will be challenging,” she said.