Local Property Tax Research Articles

Constitutionalizing Property-Owning Democracy

Constitutionalizing Property-Owning Democracy

Capacity Building: Reshaping Urban Community College Resources in Response to Emerging Challenges

AbstractUrban community colleges face a myriad of convergent challenges, including the loss of state funding and local property tax support, increased demands for better performance and greater accountability, and record‐high enrollment by the most underprepared students in higher education. Sometimes to make sense of it all, it helps to think of an onion.

Property tax on privatized roads

Roads cover a significant fraction of the land area in many municipalities. The public provision of roads means this land is exempt from the local property tax. Transferring roads from public to private ownership would not only remove maintenance costs from city budgets, but increase potential property tax revenue as well. This paper calculates the value of the land occupied by roads in sample cities and determines the potential revenue increase if they were subject to property tax. Further calculation computes the extent to which the property tax rate could be reduced if the land values of roads were added to the tax base.

Institutionalizing Local Property Tax in China - as Revenue-Service Link and Tool for Higher Efficiency and Accountability via Public Choice

With progress of the housing reform that started in the late 1990s, “home ownership” (with property rights and transferability on the market) among the Chinese people has been increasing rapidly. In the early years of this century, the Chinese government placed on its agenda a new reform to adopt the “real property tax”. At that time, the tax on “real property”, a concept in the Chinese context that covers the structure but not the land on which the structure stands, was called the wuye tax (物业税, which referred only to the structure on the land or the housing unit, for distinction from the real property tax). In October 2003, the Chinese ruling party made a decision “to reform current taxes and charges on real estate, and levy a wuye tax (real property tax) when it is necessary while eliminating related charges”. At that time, the goal of the wuye tax reform was to rearrange the taxes on transactions and possession of real properties. Also, the central government hoped to make the wuye tax an important revenue source for local governments and to rationalize intergovernmental fiscal relations between the central, provincial, and other local governments. From 2003, as China’s economy gradually steps out of the Asian economic downturn that started in 1998, the real property market entered a period of rapid expansion. However, speculation in real property was rampant. In the last 10 years, the price of real property in most cities more than tripled. This problem was more severe in metropolitan areas, such as Beijing, Shanghai, and Guangzhou. Meanwhile, local governments obtained large amounts of revenue from selling the use right of state-owned lands. In response to this abnormal market, the central government frequently adopted monetary, fiscal, and administrative measures as an effort to regulate/control the market. It was against this background that Shanghai and Chongqing, two metropolitan areas, began to levy a real property tax on residential housing from January 28, 2011. As expressed in official documents, the short-term goal of this new tax is to curb sky-rocketing housing prices. Beyond this apparent target, we assume the Chinese central government may be “muddling through” in an effort to determine whether the property tax can be a stone that shoots multiple birds. Among these birds are stable own-source revenue for localities, readjustment of intergovernmental relations, and improvement of local governance in the long term. If we are correct in making this assumption, then the pilot local tax prepares China for some fundamental reform in tax administration, local governance, and government structure in the next few decades in China.In this monograph we argue that the local property tax is one candidate as the “magic” stone; the installation of local property tax can help solve multiple problems that are deep rooted in the society and entangled with many previous reform measures. Our analyses unfold as follows. Section one offers a three-stage framework of China’s financial reforms. Its focal point is that China is now in the third stage wherein it needs to reform the underlying operating mechanisms in order to improve local governance. Section two defines modern real property tax and explains why China urgently needs to introduce this tax as an institution. Section three traces the history of real property taxes in China and compares them with modern real property tax in developed countries. Section four considers the requirements and background of implementing the modern real property tax. Section five analyzes the pilot real property tax in Shanghai and Chongqing and compares them with counterparts in China’s history and the modern real property tax. Section six describes the practice of pilot real property tax in the two metro cities and the effects of the pilot tax on fiscal revenue and housing price. Section seven offers the outcome and analysis on the surveys of residents and government officials on their perception of the pilot tax. Section eight highlights a comparison between two frameworks that have appeared in China. Under the first, local governments depend on land transfer fees to finance infrastructure, and under the second, localities shift to real property tax. Section nine conducts a simulation of real property tax that can be collected with a broader tax base and lower tax rate. Section ten concludes with policy recommendation for the Chinese government in its effort to conduct the third stage of financial reform and improve local governance.

LOST and Found Tax Dollars: Local Option Sales Taxes, Property Taxes, and Own Source Revenue

The relationship between local option sales taxes (LOSTs) and property taxes and own source revenue is not well understood in the literature. This may be in part due to the aggregated nature of the data which fails to capture different motivations for adoption of LOSTs (Sjoquist, Walker, and Wallace 2005). Using county level data from thirty-five states, I find that LOSTs reduce property tax burden and increase own source revenue in some circumstances. When aggregating the data, my results are consistent with previous studies (Jung 2001; Sjoquist, Walker, and Wallace 2005). The primary contribution of the research presented is that I distinguish between two types of counties that use their LOST revenue differently. The first type of county uses LOST revenue to both reduce property tax burden and increase own source revenue, whereas the second type of counties use LOST revenue exclusively to increase their own source revenue. This research is the first step in bridging the LOST literature with the tax mix choice literature.

Small Homes, Public Schools, and Property Tax Capitalization

Efforts to estimate the degree to which local property taxes are capitalized into house values are complicated by any spurious correlation between property taxes and unobserved public services. One public service of particular interest is the provision of local public schools. Not only do public schools bulk large in the local property tax bill, but the inherent difficulty in measuring school quality has potentially undermined earlier attempts at achieving unbiased estimates of property tax capitalization. This particular problem has been of special concern since Oates’ (1969) seminal paper.We sidestep the problem of omitted or misspecified measures of school quality by focusing on a segment of the housing market that likely places little-to-no value on school quality: small homes. Because few households residing in small homes have public school children, we anticipate that variations in their value does not account for differentials in public school quality. Using restricted-access microdata provided by the U.S. Census, and a quasi-experimental identification strategy, we estimate that local property taxes are nearly fully capitalized into the prices of small homes.

Assessing the impact of local taxation on property prices: a spatial matching contribution

This article provides empirical evidence on the impact of local taxation on property prices, controlling for the local public spending, using data on property taxation and real estate transactions, over the period 1994–2004. Our empirical methodology pairs transactions in the same spatial environments. Spatial differencing and Instrumental Variables (IV) methodology allow us to compare sales across municipality boundaries and to control for the potential endogeneity of local taxation and public spending. Our results suggest that the local Property Tax (PT) rate has no impact on property prices, while the amount of taxes paid appears to have a negative effect on property price.

The impact of enterprise zone tax incentives on local property markets in England: who actually benefits?

Research on the impact of property taxes on local real estate markets has a long history in the urban economics literature but few studies have considered this issue in the context of the commercial real estate market or on data from outside the USA. This is surprising given the use which governments make of property tax exemptions to assist local regeneration with the UK Government recently announcing some 24 new enterprise zones (EZs) in England. In this study we use a novel data-set on commercial real estate leases to investigate the incidence of the local property tax savings. Our data-set covers both taxed and tax exempt areas during the operation of the EZ designations in the UK. Our findings show that a large part of the tax savings appears to be captured in higher rents charged by landlords.

Small homes, public schools, and property tax capitalization

Efforts to estimate the degree to which local property taxes are capitalized into house values are complicated by any spurious correlation between property taxes and unobserved public services. One public service of particular interest is the provision of local public schools. Not only do public schools bulk large in the local property tax bill, but the inherent difficulty in measuring school quality has potentially undermined earlier attempts at achieving unbiased estimates of property tax capitalization. This particular problem has been of special concern since Oates' (1969) seminal paper.We sidestep the problem of omitted or misspecified measures of school quality by focusing on a segment of the housing market that likely places little-to-no value on school quality: small homes. Because few households residing in small homes have public school children, we anticipate that variations in their value do not account for differentials in public school quality. Using restricted-access microdata provided by the U.S. Census, and a quasi-experimental identification strategy, we estimate that local property taxes are nearly fully capitalized into the prices of small homes.

Our Own Communities, Our Own Schools: Educational Counter-Narratives of African American Civil Rights Generation Students

This study sought to document the schooling experiences and perceptions of African American students who attended segregated schools in Edgecombe County, North Carolina. Through counter-narratives the participants provided insight into education in Edgecombe County during the 1960s. Findings suggested that schools were social and academic environments where education was valued. Additionally, findings suggested that participants had a deep connection to their segregated schools and therefore believed that integration removed the community involvement and educational environments that African American students needed to be engaged in school and academically successful. Implications for current issues related to the education of African American students are discussed in the conclusion.Keywords: segregated schools, counter-narratives, community, relationshipsSchools across the southern United States and the nation have become increasingly segregated due to legislation and policies that have eliminated busing and other methods of creating racially diverse schools (Kozol, 2005; McPherson, 2011; Mickelson, 2001; Woodward, 2011). As a result, the academic conversation often focuses on the consequences of attending segregated neighborhood schools versus purposefully integrated ones while failing to examine the more substantial issues. Research and policy must move beyond student assignment and address the quality of education and support that need to occur within schools regardless of environment in order for African American students to be successful. Much can be learned from the experiences of students who attended segregated schools throughout the South before Brown v. The Board of Education (1954) and federal court mandates ended racially segregated schooling. Their voices are often excluded from the literature, but without first-hand knowledge of their schooling experiences many current educational policies, including student assignment, will continue to miss the mark for African American students (King, 2005).This article includes the counter-narratives of four African Americans who attended a segregated school in Edgecombe County, North Carolina during the 1960s. The participants' stories paint a vivid picture of the segregated schooling environment and provide insight into the role of education in the lives of African Americans in this area during this time period.Literature ReviewCurrent State of Education for African American StudentsMuch research has been devoted to the disparities that exist today with regard to African American students (Delpit, 2006; King, 2005; Mickelson, 2001; Orfield & Eaton, 1996, Perry, Steele, & Hilliard, 2003). Beyond test scores and dropout statistics that present African Americans underperforming in comparison to White students are the day to day differences that exist in the educational environments and social and academic experiences of many low-income and minority students in comparison to their middle-class and White peers. As Kozol (2005) noted in his seminal text The Shame of the Nation, American schools have become increasingly re-segregated. Many school systems have shifted from the desegregated settings mandated by Brown, to neighborhood schools that reflect the segregated populations of their neighborhoods. For example, in Charlotte, North Carolina many schools currently have minority populations that exceed 80% (Mickelson, 2001), despite the 1971 Supreme Court ruling that supported mandatory busing as a means of achieving school desegregation, Swann v. Charlotte-Mecklenburg 's (1971). These neighborhood schools, supported by local property taxes, have led to schools with high minority and low-income populations that are underfunded and poorly resourced (Eaton, 2008; Kozol, 1991,2005).The variations in environments are one reason for the differences in achievement between Black and White students. Nevertheless, in environments that are racially desegregated, many African American students are still unsuccessful. …

Thirty-Seven and Counting: How Has AEFP Evolved from Its Origins?

It has been a busy time for the Association of Education Finance and Policy (AEFP). Over the past few years the association has acquired a new name, a new journal, and many new members. The 2012 annual conference, convened in Boston last March, proved to be the largest conference in the association’s thirty-seven-year history, with 556 members in attendance. The theme, selected by incoming president Deborah Cunningham, was “Education Finance, Policy, and Practice: The Role of Evidence in a Dynamic World,” which underscores the contemporary challenge to the association: how to apply an increasing abundance of information and sophisticated analytical tools to produce the evidence needed to guide decision making by educational policy makers and practitioners. The Boston meeting was notable not only for the number in attendance. The unique qualities and strengths of the association were in clear display: papers of unusual methodological rigor; an interdisciplinary mix of academics from the social sciences, public policy schools, and colleges of education; educational finance professionals, policy analysts, and practitioners, a mix rarely found in the same place; and sessions addressing today’s hot topics as well as issues that have endured over the years. Having said this, all indications are that AEFP is what it has always been: a small, diverse group of people tackling some really big problems. Of particular note was a trend that has been growing for years but has clearly come into full flower: the large

Rethinking Property Taxation

This report looks at local governments’ biggest source of revenue: property taxes. The authors provide a primer on how the taxes are calculated, and new formulas for understanding an individual’s tax share. The authors also propose an alternative format for local property tax statements that can be used to better communicate answers to taxpayers who wonder why their property tax liability has changed. Local governments in Illinois rely heavily on property taxes as a source of revenue—governments collected approximately $23.4 billion in property taxes. Illinois has the fourth highest property tax burden in the United States. The property tax base in Illinois is determined using a four-step process based on the property’s fair cash value. The sum of the tax bases of all individual properties within a taxing district creates the total tax base. The tax share is the ratio of a property’s taxable equalized assessed value to the total tax base in the taxpayer’s jurisdiction. The authors present a new property tax statement that conveys the changes in tax liability by including information on the jurisdictions’ revenue and tax bases and the taxpayer’s tax shares.

Understanding the consequences of consequentiality: Testing the validity of stated preferences in the field

This study pursues the external validation of stated preference methods by comparing survey responses from verified voters with the outcome of a parallel public referendum on a conservation and preservation program to be funded by a local property tax surcharge. The majority of respondents were unaware of the upcoming referendum, and the experimental design allows us to control for referenda-related information effects as well as respondents’ perceptions regarding the consequentiality (i.e. the potential policy impact) of their survey votes. We find the survey under-predicts “yes” referendum votes at the precinct-level. These differences go away, however, if we focus only on respondents who perceived their survey vote to be consequential. Negative hypothetical bias among inconsequential survey respondents is also evident in the estimation of willingness to pay, and controlling for consequentiality increases construct validity.

Inequality and school funding in the rural United States, 1890

This paper examines the relationship of inequality to school funding in counties of the U.S. in 1890. Inequality, measured here on the basis of farm-size distributions, is found to be negatively related to local school property tax revenues across the whole sample of 1345 rural counties. However, further analysis shows that this relationship is not consistent across the sample. In the North, there is a significant negative relationship between inequality and school funding, and this relationship is shown to be consistent with the fact that assessed values of property did not rise linearly with wealth. Across the South, there is no distinct relationship between inequality and school funding. The results also indicate that inequality in the South cannot directly explain the gap in school funding with the North, in the sense that redistributing farms in the South to match the Northern distributions leads to no predicted increase in school funding.

Is Centralization a Solution to the Soft Budget Constraint Problem?

This paper focuses on the centralization program implemented in Israel in 2004 to analyze whether the administrative subordination of municipalities is an effective policy to deal with problems related to soft-budget constraint of lower level governments. The results consistently show, for different specifications and samples of municipalities, that this program brought a substantial decrease of municipalities’ expenditures (mostly because of decreases on salary payments), and an increase of local property tax collection. Our analysis shows that all of the fiscal impact of the program is due to the appointment of an accountant that reports directly to the central government, a relatively mild form of administrative subordination. In contrast, more intrusive forms of subordination, like the central imposition of a recovery program, do not result in any substantial improvement of municipalities’ fiscal situation. This leads us to conclude that a mild form of administrative subordination is an effective tool to cope with problems related to soft-budget constraints, whereas political subordination is not an effective tool to reach that goal.

Local Government Property Tax Amnesty Programs: Structures and Themes

While the use of tax amnesty programs has been commonplace for decades among sub-national governments in the United States, historically these offers have not been extended to delinquent real property taxes. There have been 29 property tax amnesties offered by local governments in seven states, however, and most of these programs have appeared in just the last 10 years. This paper presents data on these programs, and then provides a narrative analysis of these cases by drawing upon archival data from press releases, media reports, comprehensive annual financial reports, city council minutes, and policy memos. Several themes emerge from this study revealing the role of real property tax amnesty to be more diverse than their state counterparts. The conclusion summarizes these lessons and offers some considerations for policy makers.

Impact of State-Level Tax and Expenditure Limits (TELs) on Government Revenues and Aid to Local Governments

This article investigates the impact of state-level tax and expenditure limits (TELs) on state government revenues and aid to local governments. Using an instrumental variable approach to control for endogeneity, the authors find that the general fund TELs (i.e., revenue and expenditure limits) have led to substantial increases in tax and nontax revenues. States with procedural limits (i.e., those with voter approval and/or legislative supermajority requirements votes) have significantly lower tax revenues. For states with these procedural limits, their ability to impose new or higher taxes is limited by the rules for passing such legislation. This study also finds that states with general fund TELs have higher levels of aid to local governments, while those with procedural TELs have lower levels of aid. Local government property tax limits do not have any impact on taxing authority of states and have only marginal impacts on the state-aid programs.

Local Government Property Tax Amnesty Programs: Structures and Themes

While the use of tax amnesty programs has been commonplace for decades among both states and local governments, historically these offers have rarely been extended to delinquent real property taxes. In the last 10 years, however, there have been 26 property tax amnesties offered by local governments in six states. This paper presents data on these programs, and then provides a narrative analysis of these cases by drawing upon archival data from press releases, media reports, comprehensive annual financial reports, city council minutes, and policy memos. Several themes emerge from this study that reveal that the role of real property tax amnesty is more diverse than their state counterparts. The conclusion summarizes these lessons and offers some considerations for policy makers.

Tax Incentives for Homeownership and the Provision of Local Public Services

There is a substantial literature that assesses the distributional impact of the mortgage interest and state and local property tax deductions and the disparate incentives for buying a home across income groups, but virtually no work exists that evaluates the secondary effect on the provision of local public services. In this paper we evaluate the impact that disparate homeowner tax subsidies have on the provision of local public services, specifically, schools. Performing a path analysis, we find that a 100 percent increase in the average homeowner tax subsidy yields a ten percent increase in local public school spending per student.

Adequate Funding of Education in Georgia: What Does It Mean, What Might It Cost, How Could It Be Implemented?

Adequate education expenditures are what are required to achieve specified educational objectives, such as a specified pass rate on some exam. While defining adequacy is relatively easy, measuring it is another thing. Several methods have been used to estimate the cost of providing an adequate education, but none of them is without its flaws. Based on adequacy studies for other states, we selected a per student expenditure of $7,500 (for FY 2004) as a reasonable estimate of the cost of providing an adequate education in Georgia. To achieve a minimum per student expenditure of $7,500 for all school districts, would have required an increase of 11.8 percent in total state and local spending on education. This increase is before any adjustment for inflation and enrollment growth. This would be a challenge, but not a huge one. To ensure that all school systems in the State have $7,500 per student, the State would either have to require a sizable increase in local property taxes, 5 mills on average, or increase its expenditures on education by up to 82.4 percent, which would allow a substantial reduction in property tax, or some combination of the two. No one knows when or how the Georgia Supreme Court will ultimately rule on the compliant brought by the Consortium of Adequate School Funding in Georgia. But given that most states have lost adequacy suits, the likelihood that Georgia will lose its case is high. The State has several options, but choosing among these options is not easy. The State can assume that it will win the case as it did in 1981, and thus not do anything until the Court rules. (Simply ignoring the issue is tantamount to assuming the State will win.) If the Court does rule in the State’s favor, the State will have no legal requirement to make any changes in the education funding level. However, if the Court rules against the State, the State will be directed to implement changes in education funding, and perhaps major changes. At that point the State can either follow the Court’s ruling or resist the Court, as many other states have done. Alternatively, the State might assume that the Court will rule against it. In this case, the State could choose to begin to address the issue by slowly moving toward an adequate funding of education. But if the Court then rules in favor of the State, the State will have increased education spending to a level that may not have been necessary. Deciding how to proceed is a very difficult decision since there is no one correct decision. It is also a very important decision since the expenditures at issue are very substantial.