A sharp rise in property-tax collection has been recorded recently. Many local governments see the rise in property tax revenue as an opportunity to invest in infrastructure while citizens feel the impact on their pocketbooks.
Major cities generate significant revenue from property taxes
New Yorkers have seen the sharpest rise in their property tax base recently. This is the second largest increase in the property-tax base during the last two decades.
It’s great news for Mayor de Blasio, who has already been proposing an income tax increase on the wealthy in order to fund his universal pre-kindergarten plan.
Not everyone is happy with their revenue from the property tax though. The city of Chicago still needs an additional $560 million to pay for police and fire pension funds. In order to cover that amount, Chicago would need to increase its property tax by 71.6 percent – effectively making it the highest in the country.
A predicted downside to such an extreme rate hike is that it could drive away businesses and residents, actually leaving the city with less property-tax revenue in the future. Crain’s has tried to predict the consequences of property-tax increases in Chicago by observing the impact of similar measures on Boston, Atlanta, Philadelphia and Scranton, Pa.
Atlanta increased its property-tax rate by 36% in 2009 while Scranton increased their rate by 49.9%. If Chicago did the same, its commercial tax rate would surpass even that of Detroit, which currently has the country’s highest commercial tax rate.
Since it is highly unlikely that Chicago will take a page out of Atlanta and Scranton’s playbooks, it will need to pursue other sources of revenue in order to balance its budget.
The consequences and implications of this sharp rise
Total national property-tax revenue jumped to $182.8 billion in the final quarter of 2013. The last time a similar sharp increase occurred was just prior to the market crash in 2008.
Brooks Rainwater, director of research for the National League of Cities in Washington, feels that cities will prosper as a result of this increase in revenue. But unlike other tax levies, property-tax assessments can take a year or more to translate into revenue for the government.
Opportunity for government bonds
The recent recovery from 2008’s market crash has decreased risk of credit-rating cuts for local governments. Lack of risk may increase bond prices as local governments use their extra money to retire obligations by re-paying bondholders.
Budget stimulator for local governments
Local governments collect 98% of property taxes. Since property-tax collections account for an overwhelming majority of local government revenue, it’s no surprise that they welcome the increases.
In Nashville and Davidson County, Tennessee, a 13% rise in property-tax collections from 2012 to 2013 has prompted an investment in local infrastructure, such as police and fire stations.
Houston has similarly used its extra budget revenue to invest in libraries and parks.
Washington’s 5% increase in property-tax revenue is being used to invest in schools and affordable housing.
San Jose’s Mayor, Chuck Reed, says that the extra money will help ease the costs of employee healthcare and pensions.
Citizens feel the tax increase
The Boston Globe reported the story of Norah Gilbert, a resident of Dedham whose property-tax bill increase significantly from $4,900 in 2010 to $7,500 in 2013. An average resident of Dedham will pay 68% more in property-taxes this year than they did 10 years ago.
The officials of Dedham have invested the additional revenue in the city’s infrastructure. Younger residents are finding it easier to cope with the tax situation, unlike many older residents who live alone. Residents on fixed incomes are growing increasingly worried about the property-tax hike.