One more case of bad timing. Just when local governments desperately need revenue to provide services, the property tax base has been significantly diminished by tax caps, assessment limitations, relief measures, and expanded exemptions, according to a new book, Erosion of the Property Tax Base: Trends, Causes, and Consequences. A variety of policies designed to reduce property tax burdens -- and to accomplish other social and economic goals through property tax exemptions or abatements – has threatened the largest single source of state and local revenues across the country. “A tax with a broad base and low rates is generally simpler, fairer, and more efficient than one that raises the same revenue with high rates on a narrow base,” said co-editor Joan Youngman, senior fellow and chair of the Department of Valuation and Taxation at the Lincoln Institute. But the property tax is a prime target for reduction, limitation, and exemption proposals, not least because it is a highly visible tax, and requires cash payments even if property may not be yielding cash income. State lawmakers may also find political gains in tax limitations that reduce local, rather than state, revenue. But the property tax is a mainstay of local government finance in the U.S., and a revenue source that offers many benefits, including greater stability than many sales and income taxes during economic downturns.
Erosion of the Property Tax Base analyzes efforts to limit property tax growth, reviewing the political, economic, and social reasons for this trend and its implications for local finance. It also examines the growth of property tax exemptions, both for nonprofit organizations and for open space and agricultural land; residential property tax relief measures as well as tax and expenditure limits; the use of override votes to lift tax limits; and the increasing use of property tax abatements as tools to influence business location decisions. The book is based on a 2007 collaborative conference between the Lincoln Institute of Land Policy and the George Washington Institute of Public Policy. The topics covered include:
* The value of housing stock of all residential property and owner-occupied property as a share of GDP, noting that since 2000 there has been a clear upward trend in both;
* Implications of various property tax exemptions on local property tax bases, revenues, and equity;
* Various tools used by state and local governments to provide property tax relief, primarily to residential property owners;
* State-imposed limitations on local governments’ ability to raise property taxes, referred to in the literature as tax and expenditure limits (TELs), which include assessment limits, rate limitations, and revenue and expenditure limits; and
* The growth and impact of tax abatement programs, property tax incentives to support local nonprofit organizations, and incentives to encourage open space through the preservation of land used for agricultural purposes and setasides to create green spaces.