Millage Rate Research Articles

The Impact of State Fiscal Preemption on Local Taxing Authorities: A Case of Michigan

This study investigates the impact of state fiscal preemption on local governance structure. Specifically, it focuses on state-imposed tax and expenditure limits (TELs), which constrain local governments’ ability to raise property tax revenues. Using a unique data set on millage rates levied by all local governments in Michigan from 2011 to 2017, the study examines how the state-imposed limitation on local property taxable values affects local taxing efforts. The findings show that the assessment limit results in higher taxing power by cities and special districts. It also indicates local residents’ preferences to be drivers for the greater taxing efforts.

Summaries of Articles

Summaries of Articles

House prices and property tax revenues during the boom and bust: Evidence from small‐area estimates

AbstractAlthough the Great Recession put the US economy into a tailspin, we know little about how the changes in house prices influenced property tax collections. Using local‐level housing data from Zillow® matched to property tax data from 1998 to 2012, two questions are examined. First, the elasticity of property tax revenue with respect to house values is estimated. Second, the timing of this elasticity is determined. The analysis rules out that local policymakers capture the entire increase of house value in property tax revenues but unable to rule out that increases in house values are completely offset by changes in effective property tax rates. Decreases in values have an elasticity between 0.3 and 0.4 and take three years for changes in values to impact property tax revenues. While property tax collections declined, local policymakers adjusted effective millage rates such that revenues did not decline as much as home values.

The Great Recession and Public Education

We examine the impact of the Great Recession on public education finance and employment. Five major themes emerge from our work. First, nearly 300,000 school employees lost their jobs. Second, schools that were heavily dependent financially on state governments were particularly vulnerable to the recession. Third, local revenues from the property tax actually increased during the recession, primarily because millage rates rose in response to declining property values. Fourth, inequality in school spending rose sharply during the Great Recession. We argue, however, that we need to be very cautious about this result. School spending inequality has risen steadily since 2000; the trend in inequality we see in the 2008–13 period is very similar to the trend we see in the 2000–08 period. Fifth, the federal government's efforts to shield education from some of the worst effects of the recession achieved their major goal.

Is energy performance too taxing?

PurposeBuildings contribute significantly to CO2 production. They are also subject to considerable taxation based on value. Analysis shows that while similar attributes contribute to both value and CO2 production, there is only a loose relationship between the two. If we wish to use taxation to affect policy change (drive energy efficiency behaviour), we are unlikely to achieve this using only the current tax base (value), or by increasing the tax take off this current tax base (unlike extra taxation of cigarettes to discourage smoking, for example). Taxation of buildings on the basis of energy efficiency is hampered by the lack of current evidence of performance. This paper aims to model the now-obligatory (at sale or letting) energy performance certificate (EPC) data to derive an acceptable appraisal model (marked to market, being the EPC scores) and deploys this to the entire population of properties. This provides an alternative tax base with which to model the effects of a tax base switch to energy efficiency and to understand the tax incidence effects of such a policy.Design/methodology/approachThe research uses a multiplicative hedonic approach to model energy efficiency utilising EPC holding properties in a UK jurisdiction [Northern Ireland (NI)] as the sample. This model is then used to estimate discrete energy assessments for each property in the wider population, using attributes held in the domestic rating (property tax) database for NI (700,000+ properties). This produces a robust estimate of the EPC for every property in its current condition and its cost-effective improved condition. This energy assessment based tax base is further used to estimate a new millage rate and property tax bill (green property tax) which is compared against the existing property tax based on value to allow tax incidence changes to be analysed.FindingsThe findings show that such a policy would significantly redistribute the tax burden and would have a variety of expected and some unexpected effects. The results indicate that while assessing the energy performance of houses can be a complex process involving many parameters, much of the explanatory power can be achieved via a relatively small number of input variables, often already held by property tax jurisdictions. This offers the opportunity for useful housing stock modelling – such as the savings possible from power switching. The research also identifies that whilst urban areas display the expected “heat island” effect in terms of energy consumption, urban properties are on average more efficient than suburban/rural properties. This facilitates spatial targeting of policy messages and initiatives.Research limitations/implicationsAnalogous with other studies, data deficiencies introduce the risk of omitted variable bias. Modelling of the energy efficiency in the sample is limited to property attributes that are available for the wider population of properties. While this limits the modelling exercise, it is a perennial issue facing mass appraisal worldwide (where knowledge of the transacted sample attributes generally exceeds knowledge of the unsold properties). That said, the research demonstrates the benefits of sharing data and improving knowledge of the housing stock, as taxation databases would be stronger, augmented with EPC-derived property attributes for example.Originality/valueThe EPC lead in time for wide residential coverage is likely to be considerable. The paper contributes to emerging literature and policy debate surrounding the effect, performance measurement and implementation of energy efficiency certification, through a greater understanding of the sectorial and geographical dispersion of energy efficiency. It provides high level research to help guide policy and decision-making, identifying key locales where there is more of a physical problem and locations where there is more to gain in terms of targeting energy improvement and/or encouraging behavioural change. The paper also allows a glimpse of the implications of a change towards a taxation regime based on energy efficiency, which contributes to the debate surrounding the “greening” of property based taxes.

A Spatial Analysis of Florida County Governments' Unreserved General Fund Balances

The most recent Great Recession brought our attention to the issue of fiscal sustainability of local governments. Local governments often rely on their general fund balances to deal with contingencies and economic downturns. Empirical research, however, produces mixed results and is inconclusive about what determines the size of local savings. No previous research on this topic has considered strategic interactions and the spatial relationship among local governments. Using a panel dataset of all the county governments in Florida from 2007 to 2011, this study examines the factors that affect the size of unreserved fund balances and empirically tests the spatial effects concerning local fund balance policies in Florida. Empirical findings indicate the importance of the spillover effects of a county's millage rate change and reliance on intergovernmental transfers. This research contributes to the literature by accounting for the spatial effects in local fund balance behavior.

LOCAL GOVERNMENT RESPONSES TO EXOGENOUS SHOCKS IN REVENUE SOURCES: EVIDENCE FROM FLORIDA

Little is known about how cities and counties respond to negative shocks in their fiscal resources, such as those that occurred after the Great Recession. We provide evidence from the state of Florida on the millage rate and expenditure adjustments that cities and counties make in response to a loss in their two most important fiscal resources — the property tax base and intergovernmental transfers. These adjustments are hypothesized to vary with the monopoly power possessed by the local government. Our findings support this hypothesis and indicate that fiscal stress results in higher millage rates and cuts in expenditures. The cuts are targeted toward capital expenditures and less essential public services.

From property taxes to consumption taxes: An empirical analysis of changes in tax revenue diversification of Florida counties

This study explores factors affecting changes in tax revenue diversification in Florida counties using socioeconomic, taxpayer, and institutional characteristics. The data cover 30 years and are analyzed using panel data analysis. The findings show that taxable consumption value, the number of interstate highways, the charter, and the form of government are associated with a greater degree of revenue diversification. Taxable property value, the presence of a metropolitan statistical area, the proportion of homeownership, the proportion of Democrat voters, income, and property tax millage rate are negatively associated with revenue diversification.

The millage rate offset and property tax revenue stability

One of the alleged virtues of the property tax is that it produces stable revenues regardless of price movements in real estate markets. One explanation for this is that local governments adjust their millage rates to offset changes in their property tax base. Little evidence, however, exists on the strength of this millage rate offset mechanism. We hypothesize that the importance of this mechanism will vary among local governments depending upon the monopoly power that they possess. The results provide strong support for our hypothesis.

House Prices & Property Tax Revenues During the Boom & Bust: Evidence from Small-Area Estimates

Although the recent housing crash put the U.S. economy into a tailspin, we know very little about how the massive increase and decrease of house prices influenced property tax collections. Using local level housing data from Zillow matched to property tax data from 1998 to 2012, two questions are examined. First, the elasticity of property tax revenue with respect to house values is estimated. Second, the timing of this elasticity is determined. The analysis is able to rule out that local policy makers capture the entire increase of house value in property tax revenues but unable to rule out that increases in house values are completely offset by changes in effective property tax rates. Decreases in house values have an elasticity of between 0.3 and 0.4 and take three years for changes in house values to impact property tax revenues. While property tax collections declined, local policy makers adjusted effective millage rates such that revenues did not decline as much as home values.

FISCAL ILLUSION FROM PROPERTY REASSESSMENT? AN EMPIRICAL TEST OF THE RESIDUAL VIEW

The textbook view of the real property tax is that the millage rate is simply a residual, determined by dividing the revenue to be raised from property by the taxable base of assessed values. In such a case, changes in assessed values are neutral with respect to property tax revenue as it can be offset or adjusted by changing the millage rate, and reappraisals of property assessments simply serve the purpose of maintaining horizontal equity across individual households. Critics of this view claim that policy makers do not fully revise the millage rate in response to changing assessed values, allowing them to effectively raise revenue without raising tax rates. Using data from Virginia cities and counties between 2000 and 2008, this paper estimates the response of levy growth rates to assessed value growth. Unlike the previous literature testing these competing claims, this paper is able to disentangle assessed value growth from other forms of economic growth, including the market values of property. Our findings suggest that mass reappraisals per se provide some cover for politicians to raise levy growth rates, but the growth in aggregate taxable assessed values is largely irrelevant.

How Do Cities and Counties Respond to Changes in Their Property Tax Base?

Over the past decade, the per capita property tax bases of local governments have experienced large upward and downward movements as the result of the boom and bust in real estate markets. This paper provides some evidence on how local governments balance their budgets as their tax base changes. The results suggest that millage rates are adjusted in an attempt to stabilize property tax revenues. The millage rate offset is nearly complete for counties, but less than complete for cities. Cities alter selected expenditures to keep total expenditures in line with total revenues.

Who supports portable assessment caps: The role of lock-in, mobility and tax share

Popular support for property assessment caps has been explained as attempts to protect long-time home owners and to constrain local public expenditures. However, in the absence of a binding cap on millage rates, an assessment limit simply lowers the tax share of low-mobility homeowners at the expense of high-mobility homeowners. A recent amendment in Florida made existing exemptions portable, lowering the tax share of high mobility households and raising the tax share of low mobility households. Examining vote share by precinct, we find that more mobile households support portability but that precincts with larger exemptions do not. We also find evidence that voters understood how the amendment impacts their tax share. Support for portability is higher when a city has many out-of-state and thus “exemption-less” immigrants and support is lower when mobility in the rest of the tax jurisdiction is high. These findings suggest that voters alter assessment rules to minimize their own tax share.

School District Leadership Stability: The Relationship between the Stability of a Board of Education and the Superintendent

Board of education membership changes that are numerous or frequent appear to cause some level of disruption to the educational process in a school district. A board of education that is changing can be vulnerable to special interest groups. The purpose of this study is to determine the interrelationships among the following five variables and board of education membership stability: (1) changes in student scores on the Ohio tests of achievement, (2) changes in the district's operational millage rates, (3) changes in the number of staff conflicts and anxiety, (4) changes in the percentage of enrolled minority students, and (5) changes in overall student enrollment.

Council-Manager Conflict and Cooperation in Times of Fiscal Distress

the midst of trying times. Revenues have not kept up with the demands for public services. Governments across the country are cutting back services, reducing their operating hours, and in some cases, lay ing off public employees and contracting out their responsibilities. Florida's local governments have been hit especially hard. The decline in the hous ing industry and an increase in property foreclosures have resulted in a significant reduction in property taxes. In Florida, local governments receive most of their rev enues from property taxes. Unlike many oth er states, Florida does not have a state income tax to ensure stable revenue patterns over time. Florida residents are also known for resisting tax increases. When Gov. Charlie Crist was running for office, he promised voters that if elected, he would lower prop erty taxes. During the spring 2007 legisla tive session, the governor and the state leg islature mandated a reduction in the millage rate imposed by local governments. The loss of revenue was exacerbated on

Evidence on voter preferences from unrestricted choice referendums

From 1939 to 1968 Florida used a unique referendum system to set property tax rates for public school operating expenditures at the median millage rate selected by voters. These referendums revealed the entire distribution of voter preferences, which is not possible in the standard up or down referendum. We are the first to use the Florida referendum data. The form of the ballot played an important role in how people voted. Voting machine elections were much more likely than paper ballots to result in rejections of the recommendations of school boards, and produced much greater dispersion of expressed preferences.

Motivations, Obstacles, and Resources: The Adoption Of The General-Purpose Local Option Sales Tax in Georgia Counties

Local governments in Georgia have been authorized since the 1970s to levy a 1 percent general-purpose Local Option Sales Tax (LOST), which is earmarked for property tax relief. Using data during 1975 to 2002, this study examines the adoption of the LOST through a discrete-time event history analysis. The dependent variable is the probability that an eligible county will adopt it in a particular year. This probability is negatively related to the obstacles prohibiting the innovation and positively related to (1) the motivations to innovate and (2) the resources for overcoming the obstacles. The findings suggest that the motivations are higher in counties with higher property tax millage rates and the potential of sales tax exportation; the obstacles include high existing sales tax rates and severe tax competition; and the major resource for overcoming these obstacles is the adoption of the LOST in other Georgia counties.

Does the Local‐Option Sales Tax Provide Property Tax Relief? The Georgia Case

This study examines the effect of a one percent local‐option sales tax (LOST) on property tax level, millage rate, and total spending level in Georgia counties. The study covers a 13‐year period for 136 Georgia counties. The findings suggest that the law, which requires rollback of property taxes when the LOST is used, led to actual property tax relief as well as millage rate reduction. Regression results show that counties collecting the LOST tend to have per capita property taxes that are an average of $12 or 1.8 mills lower than counties that do not collect the tax. Whereas an extra dollar of LOST revenue provides about 28 cents in property tax relief, it leads to an increase in total spending of about 48 cents. In sum, the LOST has achieved the objectives of property tax relief, but on balance it is more an augmentation of than an effective substitute for property taxes in Georgia counties.

DYNAMICS IN THE STRUCTURAL FORM OF PROPERTY TAXES∗

Because the property tax is structurally tied to market values of dwellings through the assessment function, rapidly increasing market values may beget rapid increases in property taxes. Public awareness of this process was instrumental in California's 1978 passage of the Jarvis-Gann Amendment. Millage rates should be indexed to counterbalance changes in market values.