There’s a new financial storm coming, and property taxpayers in Rhode Island are about to get caught in it.

The aftermath may force a restructuring of how cities and towns provide services and even how taxes are collected to pay for them.

Here’s what’s brewing.

State legislators have already told city and town officials that because of the huge state budget deficits, school aid to cities and towns may be cut, or at best frozen for the fiscal year that starts July 1. That would be the second consecutive year with no increase in state support.

At the same time, municipal expenses are increasing because of rising health-insurance premiums, pension obligations, salaries and other costs, such as heating the schools.

As if that isn’t enough of a struggle for city officials trying to match tax revenues with spending, there’s more pressure building because of the housing slump that could wreak havoc with property-tax collections. Those are the taxes that pay for schools, police, fire and other city services.

The downturn in the housing market has lowered property values in cities and towns across the state. By one measure, the median price of a single-family house has already slipped more than 10 percent in the last two years. And prices are expected to fall further before the market bottoms out.

When cities and towns do revaluations required under state law, they will find the total value of their residential property has probably declined. With a lower total valuation, municipal officials will have a choice — cut spending to match the new lower level of tax revenues, or raise the tax rate to collect enough money to meet the budget.

Either option will cause howls — from taxpayers who suffer cuts in services, especially when it involves their children in the schools, or from other taxpayers who already say the tax rates are too high. Rhode Island’s property taxes are among the highest in the country.

If tax rates go up because homeowners’ property valuations have decreased, some argue it won’t matter much because homeowners will end up paying the same amount in taxes, assuming spending stays level. That also assumes there has been no other erosion in the tax base because of foreclosures or that the faltering economy hasn’t decreased other revenues, such as hotel and restaurant taxes or commercial real estate taxes.

But people focus on and compare states’ tax rates.

In other parts of the country, where municipal officials have had to adjust to declining property values because of the downturn in the housing market, there have been taxpayer protests:

•A spike in real-estate tax bills in Indiana to cover a declining tax base prompted a type of Boston Tea Party, in which taxpayers dunked tea bags in a canal. The protest caused the governor to propose capping property-tax increases and shifting the cost of schools and other services to the state.

•Legislators in Washington state held a special session to reinstate a cap on property taxes that would limit the growth in revenue from the existing tax base to 1 percent annually.

•Legislators in Georgia have proposed eliminating the property tax, after protests broke out over hikes in the tax.

The taxpayer outrage has put property-tax issues among the priorities of national associations of municipal officials.

The U.S. Conference of Mayors highlighted the problem at its recent conference and reported the value of taxable residential land is expected to decline this year by $1.2 trillion and slash tax revenues by $6.6 billion.

The National League of Cities and Towns agreed. “If the housing market continues to flatten out, or even declines, we’re in for some tough times for cities,” said Christopher W. Hoene, director of policy and research for the organization.

In Rhode Island, there’s already evidence of protests.

There are reports that some property owners who have watched their houses decline in value have asked their towns for new assessments to lower their property-tax bills. Some older homeowners have claimed inequity because they are still paying based on their older, higher valuation while newer residents who recently bought properties are assessed at the current, lower market rates.

In Rhode Island, town officials have to reassess the value of property every three years. Valuations change at different levels in each city and town based on location and the desirability of where people want to live. In some towns, there was such a huge run-up in the value of property in the middle of the decade that the depreciation now may just bring values into a more realistic line. And the total valuation, set several years ago, may actually end up being about the same now as the old valuation.

One of the cities set to revalue this year is Pawtucket.

Deputy Assessor Robert Burns doesn’t think values have slipped far enough to cause a big change in the total value of residential property. And he says that while house values may have inched down, commercial property may have risen, which will balance what was lost on the residential side. That may equalize the total value of property and tax collections.

Still, he said there was cause for concern.

He recalled that during the recession and the credit-union crisis in the early 1990s, when property values, especially in the condo market, tumbled, the total value of the residential properties in many cities and towns slipped. Tax rates had to be increased to bring in enough money to cover budgets.

Daniel Beardsley, executive director of the League of Cities and Towns, also said that the decline in property values bears watching.

He pointed out that for those municipalities that have to raise taxes, there is a state law that caps how much they can raise the tax levy at 5.25 percent this year and 5 percent next year.

He said that when the freeze on state financing of cities and towns is added to rising municipal expenses and declining property values, “It means a perfect storm is developing.”

So far, this year, most of the talk of cutting employees and restructuring government has been at the state level, to fill a $450-million state-budget hole for the next fiscal year. Soon, however, the focus will shift to the cities and towns, especially if the economy continues to skid and property values continue to slide.

In the past, there have been a lot of ideas floated for cutting municipal spending and reducing property taxes.

They include consolidating the state’s 36 school districts into fewer entities and reorganizing transportation, school construction and teacher health care. Other plans call for cost-sharing programs among cities and towns, the elimination of state mandates on how schools spend money, and a statewide school financing formula that would shift the burden over time from the cities and towns to the state.

Their time may be here.

A storm is approaching. It’s going to touch down in the front yard of every property owner.

jkostrze@projo.com