As house prices collapse, one of the things that will go down with the prices and the value is the amount of tax that can be assessed. Cities get a lot more taxes from a house valued at 250K than they do from one valued at 100K, and cities are going to be awfully reluctant to lower their assessments as the fair market price on properties shrinks.
I once sold a house for 41.5 K. The city had just assessed it for 45K, but very frankly it would not have sold with that high a price (listen to me laugh uproariously in retrospect -- it is likely over 100K by now!). I recommended that the people who bought it should go to the city and point out that they had paid a fair price, and that the assessment should go down.
I wonder if they did that. Moreover, I wonder if house buyers will have the guts to do that as prices start falling drastically.