Both buyers and sellers are well aware of the impact of the continuing decline in home values. Buyers love the lower prices (one negative aspect that I am witnessing is that some buyers are in a holding pattern with the expectation that prices may actually be lower in the near future. And if they don't decline, they certainly don't anticipate them going up!) and sellers have realized that their house will not command the price it did just a few years ago.
Many cities and towns rely heavily on property taxes for funding. Assessments tend to lag behind the market. No one complains when the they are below market value but in the very near future, lower adjustments will have to be made to the assessments and that may mean a major reduction in revenues for municipalities. Unless, of course, they increase the tax rate. Many cities have balanced their budget with the help of state and federal assistance but that is expected to end this year. So many towns will be faced with choice of cuts in services or increasing fees and taxes. Should make for some pretty tough choices in the next few years.
Here's the CNNMoney article City budgets slammed by falling property taxes.