6.2 Property Taxation in the Present
6.2.1 Continued Reliance on Property Tax Revenue
Property tax revenue is the single largest source of local government tax revenue throughout the United States (Petersen and Strachota, 1997).
‘‘Thus, while local revenue systems now are rather diversified, the property tax still accounts for three-fourths of all local taxes, and nearly half of all locally raised general revenues’’ (Petersen and Strachota, 1997).
The property tax is the only tax to be levied in all fifty states and Washington D.C. (Brunori, 2003). As an ad valorem tax, property taxes are based on the estimated value of the property (Petersen and Strachota, 1997). The dollar amount generated by the property tax is a product of the tax rate and the tax base. With a constant assessment ratio, it is assumed that the tax base increases in direct proportion to the growth in market values. In such a case, a constant property tax rate generates a stable revenue stream (Petersen and Strachota, 1997), which makes this revenue source attractive for local government financing.
Figure 6.3 illustrates the proportion of total local government tax revenue that was generated through property taxation during the time period 1988–2003 using census data.3As can be seen from Figure 6.3, a significant proportion of total tax revenue for local governments is generated through the property tax, ranging from 72.74% to 77.9% of total tax revenue.
On average, local governments throughout the United States generated
Figure 6.3 Local property tax revenue as a proportion of total tax revenue 1988–2003.Data Source: U.S. Census Bureau.
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three-fourths of their total tax revenue from property taxation during the time period. In addition, this trend in property tax reliance was generally increasing between 1988 and 1994, at which point property taxation peaked and subsequently declined. Figure 6.3 shows a substantial decline in property tax revenue during the latter half of the 1990s followed by a subsequent increase in property tax reliance again in the year 2000. This decreasing trend seems to correspond closely with the economic boom of the 1990s, which led to surpluses in many states followed by various tax relief measures. However, as the recession set in at the end of 2001, the proportion of total local government tax revenue generated from the property tax — which is considered the most stable revenue source during recessionary times — again increased rather substantially. Between 2001 and 2002 the proportion of tax revenue generated through property taxa- tion increased by almost 2% in a single year. Thus, it is evident that local governments continue to rely on property taxation for a significant portion of their total tax revenue.
Although property tax rates for state and local governments have grown only marginally over time, property tax revenues have grown consistently due to the appreciation of real property value (Brunori, 2003). Figure 6.4 illustrates the amount of state and local revenue generated through property taxation during the time period 1988 to 2003 in constant dollars. As can be seen from Figure 6.4, the differential between state and local govern- ments in terms of the aggregate amount of property tax revenue collected is rather substantial. This shows that local governments are much more
Figure 6.4 State and local government property tax revenue 1988–2003.Data Source: U.S. Census Bureau.
reliant on property taxation as a revenue source than state governments, which are typically more dependent upon the sales and income tax to generate revenue. Figure 6.4 also shows the consistent upward trend in total revenue generated from property taxation by local governments, which grew by over 47% during the time period.
This continued reliance on the property tax has been somewhat dependent on the type of local government. Large cities and special districts generally rely on property taxation the least, because of greater diversity in their revenue structures and utilization of user charges and fees, respectively. On the other hand, independent school districts and counties typically rely more heavily on property tax revenue. Figure 6.5 illustrates the proportion of local government property tax revenue that was collected by each type of government for the 2001–2002 fiscal year.
As can be seen from Figure 6.5, the largest proportion of property tax revenue for the fiscal year was generated by local school districts with 44% of all property tax revenue collected by that type of governmental unit. The type of government generating the second largest proportion of total property tax revenue for the fiscal year was counties, followed closely by municipalities, with 23% and 22%, respectively, collected by those types of governmental units. Figure 6.5 also shows that special districts collected the lowest proportion of property tax revenue for the 2001–2002 fiscal year, with only 4% of total property tax revenue generated by that type of governmental unit.
Figure 6.6 provides data on the proportions of own-source revenue and total tax revenue generated from property taxation by type of govern- ment for the 2001–2002 fiscal year, which provides a greater indication of each type of governmental unit’s reliance on property taxation.
The first data series illustrates the proportion of total tax revenue that is
Figure 6.5 Proportion of total local government tax revenue collected by government type 2001–2002.Data Source: U.S. Census Bureau.
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generated through property taxation for each government type. The second data series portrays the proportion of total own-source revenue that is attributable to property taxation for each type of government. As can be seen from Figure 6.6, school districts generated the single largest portion of their total own-source revenue through property taxation with 79.32%, while special districts generated the least with only 16.61% of total own- source revenue generated from property taxes. These findings are con- sistent with the data provided in Figure 6.5. In addition, over 96% of total tax revenue generated by school districts for the fiscal year was through property taxation. While special districts generate the least amount of own- source revenue from property taxation, the proportion of total tax revenue generated by the property tax is much higher at almost 70%.
Also highly dependent on property taxation are townships followed by counties. For the 2001–2002 fiscal year, townships generated over 72% of total own-source revenue and over 91% of total tax revenue through property taxation. Some have suggested that this reliance on property taxation is due to the fact that townships do not receive much intergovernmental funding compared to other types of governmental units (Brunori, 2003). Thus, reliance on the property tax as a source of revenue is partially associated with the type of local government generating the revenue.
Reliance on property tax revenue has also shown to vary by regions throughout the country. In general, local governments in the South and Figure 6.6 Proportion of government revenue generated from property taxation by government type 2001–2002.Data Source: U.S. Census Bureau.
West typically rely less on property taxes than governments in the Northeast and Midwest (Brunori, 2003). For example, Alabama and Hawaii collected the least in property taxes as a proportion of personal income in 1999, while Connecticut and some of its neighbors collected the greatest proportion (Brunori, 2003). Figure 6.7 illustrates the proportion of government revenue generated from property taxation by U.S. region for the 2001–2002 fiscal year.4As can be seen from Figure 6.7, the proportion of total tax revenue generated from the property tax during the 2001–2002 fiscal year was significantly greater for the Midwest and Northeast regions, with property tax revenue comprising 85.64% and 92.34%, respectively. In the South and West regions only 66% of total tax revenue for each region was generated through property taxation during the same time period. In addition, the Midwest region generated the single largest proportion of own-source revenue through property taxation, with almost 43% of total own-source revenue for the region attributed to property taxation. The other three reg- ions, however, are relatively similar with respect to the proportion of total own-source revenue generated through property taxation, ranging from 30.01% in the South to 34.64% in the West. Thus, regional differences are more apparent when examining the property tax’s contribution to total tax revenue, rather than the property tax’s relationship to own-source revenue.
Nonetheless, it is evident that the property tax still represents a significant portion of local government finance.
Figure 6.7 Proportion of government revenue generated from property taxation by U.S. region 2001–2002.Data Source: U.S. Census Bureau.
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