Last week, I’d written about the potential problems that states and cities across the U.S. are likely to face as the mortgage-industry led housing slump persists — namely, that state legislators are likely to pump out more and more complex legislation governing mortgage banking activity, right at the precise moment property tax revenue takes a nose dive. Today’s LA Times finds that this scenario is already taking place:

“We had predicted a slowdown — but not this much,” said Tim Nash, finance director for Greeley (population 90,000), a college town in a heavily agricultural region of north-central Colorado. Nash thought he was being prudent when he budgeted for 200 new housing starts in the city this year, down from 310 last year. He wasn’t even close. Instead of the $2.6 million that Nash expected in sales taxes on new construction, Greeley will collect $1.2 million. As a result, Greeley has left vacant 49 city positions, most of them building inspectors whose services are, abruptly, no longer in demand.

It’s a story that I expect we’ll see repeated throughout the country, although the LA Times reports that so far only 24 states have taken a hit to tax revenue due to the housing slump. The thing is, however, that the most affected states are also those states that saw the largest run-up in prices and are now ground zero for the mortgage crisis: places like California, Nevada and Arizona. And as state legislators turn up the volume on reigning in industry practices, the problems that have surfaced in a place like Maryland seem more and more likely to crop up elsewhere, even in states with more well-developed legislation. After all, passing legislation is one thing; enforcing it is another.

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