Mecklenburg County is preparing for a potential $25 million loss in its next budget as property values are corrected from the flawed 2011 revaluation.

The drop could cut services and delay projects. On top of that, the county may have to refund up to $22 million in overpaid property taxes for 2011 and 2012.

County officials have proposed covering the refunds with reserves. But they’re still uncertain how to offset the possible $25 million hit from property taxes.

The financial picture is certain to change before County Manager Harry Jones presents his 2013-14 budget in May. But some county commissioners already are concerned about the impact any property tax drop could have.

The change in values comes after an outside review found widespread flaws in the way property values were set two years ago.

Jones warned commissioners that maintaining current services “will be very difficult.” This week, he asked county departments to submit budget reductions for next year.

Meanwhile, Charlotte-Mecklenburg Schools leaders have said the district needs $15 million more to handle enrollment growth, rising costs and the opening of a new elementary school. Central Piedmont Community College, another major recipient of county money, has building and land needs, too.

But given the current forecast, Jones said Tuesday that “it will be very difficult” to give more to schools or pay for other projects.

Commissioner Bill James, a Republican, said overbilled property owners need to get their refunds before requests from CMS and other groups are considered.

“We took money that wasn’t ours to take,” he said.

Shrinking tax base

The impact of lowering property values will have ripple effects beyond the county. The city of Charlotte and Mecklenburg’s six towns will also see collections shrink as property values are adjusted downward.

In a Wednesday presentation to the Charlotte City Council, city Finance Director Greg Gaskins said the value changes could “have a large impact on revenues.”

Property taxes make up the largest share of the county’s budget, with more than $892 million forecast to be brought in this year.

Traditionally, property taxes have been the county’s most stable source of money. Collections remained steady or even grew as sales taxes, investment income and other sources fluctuated in the recession.

But now, the size of the tax base – a key number in determining what the local governments collect – is in flux as an outside consulting firm reviews the 2011 revaluation and points out errors. Pearson’s Appraisal Service is expected to continue its work through the fall.

Mecklenburg’s tax base could shrink by as much as $3.2 billion based on the Pearson’s review and other appeals to property values, Finance Director Dena Diorio told commissioners.

To date, Pearson’s has identified 58 neighborhoods with major errors – which means property values will be adjusted, Diorio said. Those neighborhoods include 28,177 parcels valued at $16.1 billion.

In Eastover, some of the assessments were almost 20 percent high. Lowering values across Mecklenburg by that amount would cost the county $24.9 million in the coming year, Diorio said.

Refunds with interest

State lawmakers are considering a bill to require the county to pay refunds with interest to anyone whose tax bills will drop because of the changes to the revaluation.

Based on the 20 percent rollback, the county estimates it would need to refund $10 million to $22 million from 2011 and 2012.

A smaller tax base also could mean $6 million less for construction projects – mostly schools – since the county dedicates a fixed amount of its tax rate to capital costs. That’s about 4.5 percent of what the county spent on capital projects this year.

It’s possible the loss in property taxes could be offset by an increase in the money collected through other sources. But Diorio said the county staff has not yet finished its budget forecasts for next year.

Still, barring any major increases in other areas, the county has few options: cut services and other expenses to make up for the property tax shortfall, use money from reserves – or raise the tax rate.

‘Playing with fire’

Those choices are sure to be hotly debated in the coming months.

Republican James said he wouldn’t consider raising taxes to pay for refunds.

Commissioner Trevor Fuller, a Democrat, said the county needs to resolve the lingering problems with the 2011 revaluation.

“We are playing with fire,” he said at Tuesday’s meeting. “Without the revenue to pay for the services that the people of this community expects, what are we really doing here?”

Staff writer Steve Harrison contributed.