Property Tax Web Series

Abstract

We use newly collected data in 38 states on property tax rates, assessment values, and property tax levies between 2000 and 2016 to explore the impact of the Great Recession and falling housing prices on local property tax revenues. We specifically study the role of property tax limits on the tax base, and on the relationship between the property tax base and property tax revenues. Assessment limits reduced the average correlation between changes in home prices and assessed values by almost half, from about 0.65 to 0.36. We find an average elasticity between the property tax base and property tax levied of about 0.57, with larger changes in tax revenues in response to increases in assessed values (0.61) than decreases (0.47). This is evidence of the property tax being a “residual” tax, where policymakers offset changes in the tax base by adjusting the property tax rate in the opposite direction, with slightly more offsetting when the tax base declines. The combination of assessment and broad rate limits significantly reduced the ability of policymakers to do millage offsetting and pushed jurisdictions toward a rate-based system, with elasticities for both positive and negative shocks around 0.8. Levy limits had little effect on property tax revenue, but states with more stringent levy limits had slower property tax growth in response to positive shocks in the tax base, with an elasticity between 0.2 and 0.3. We present results in four states: California, Massachusetts, Michigan, and Texas to illustrate the interaction between housing markets and state property tax structures on local property tax revenues.

This paper was presented by Thomas Brosy (Urban-Brookings Tax Policy Center) on November 1, 2024 as part of the 2024-2025 Syracuse-Chicago Webinar Series on Property Tax Administration and Design. William Gentry (Williams College) was the discussant for this presentation.