What will happen with the tax revenue now that home prices are falling?  During this past boom home prices shot up and municipalities reap some big paydays.  Now that home prices are falling how will these same municipalities cope with the lower tax revenue?

Example Home sells for $800,000 in 2005 with $10,400 in annual taxes.  Home now sells for $680,000 (15% drop in price) with new taxes of $8,840 a difference of $1,560.  Seems insignificant until you multiply that by thousands of homes sold in California and a housing market that looks like it will have another down year in 2008.

Have municipalities prepared for such a potential short-fall?  This is a serious problem which might be worsened by changes to other taxes such as income tax or sales tax.