Declining property values may create an ugly scenario for taxpayers when local governments begin preparing next year’s budgets.

Douglas County Appraiser Marion Johnson said the drop in real estate values makes it likely the county’s overall assessed value — the tax base used for determining how much people pay in property taxes — will decline.

If that drop does happen, taxpayers likely will see either a reduction in government services or the unpleasant prospect of paying a higher property tax rate on a home that is worth less money.

“As tough as the 2009 budget was, I think putting together the 2010 budget may be even tougher,” City Commissioner Rob Chestnut said.

How local government leaders will react to a decline isn’t known, in part, because no one can recall Douglas County ever experiencing a contraction in its tax base.

A quick search of county records shows that it has not happened in at least the last 25 years.

With existing home prices expected to drop by 2 percent to 5 percent, the only way for the overall property tax base to grow is through new construction. That’s still an outside possibility in some areas. In Lawrence, builders have started about $130 million worth of projects through the first 10 months of the year. Large construction projects such as Wal-Mart, the Oread hotel and several apartment complexes have led the way.

But the bread and butter of the Lawrence construction industry — single family home construction — has been abysmal. Just 94 new single-family homes have been built through October. Traditionally, Lawrence has built more than 300 new homes a year.

“We’re not really replacing the loss in value with new construction,” Johnson said. “I would say assessed values are at best going to be level, but in all likelihood they are going to see declining assessed values.”