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Inequities From Property Tax Limits Grow With Rising Home Values, Report Shows

June 30, 2021 GMT
Fresno, California. Photo by Denis Tangney Jr/iStock via Getty Images
Fresno, California. Photo by Denis Tangney Jr/iStock via Getty Images

CAMBRIDGE, Mass., June 30, 2021 /PRNewswire/ -- In Fresno, California’s fifth-largest city, someone who has owned a median-priced home for 11 years—the average length of ownership there—paid less than $2,000 in property taxes last year, more than $1,400 less than the new owner of an identical home, who paid more than $3,400. This disparity between the tax burden for new and longtime homeowners grew by more than 14 percent last year alone in Fresno, recently named the nation’s hottest housing market by the Los Angeles Times for its fast-rising real estate values. This tax disparity has more than tripled in Fresno over the past five years, according to the annual 50-State Property Tax Comparison Study by the Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence.

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The 50-State Property Tax Comparison Study explores several key factors influencing property taxes, providing a comprehensive analysis of effective property tax rates—the tax paid as a percentage of market value—in 123 cities and towns in every U.S. state and Washington, DC.

Fresno is one of 29 large cities included in the report where assessment limits cap annual growth in the assessed value of individual properties, a policy that favors longtime homeowners. The faster real estate prices rise, the more assessment limits shift the tax burden to newer homeowners, whose properties are assessed closer to the market value. Overall, in the 29 cities with these assessment limits, new homeowners paid 30 percent more in taxes last year than those who have owned their homes for the average duration within their city. That difference was more than double the 14 percent disparity in the same cities five years earlier.

In addition to providing data on effective tax rates, the study explains why property taxes vary so widely from place to place. The extent to which a city relies on the property tax is chief among the reasons. Cities with high local sales or income taxes do not need to raise as much revenue from the property tax and thus have lower property tax rates on average. For example, Bridgeport, Connecticut, has one of the highest effective tax rates on the median-valued home, while Birmingham, Alabama, has one of the lowest. But the average Birmingham resident pays 39 percent more in total local taxes than the average resident of Bridgeport when accounting for sales, income, and other local taxes.

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Property values are the other crucial factor explaining differences in tax rates. Cities with low property values need to impose a higher tax rate to raise the same revenue as cities with high property values. For example, the effective tax rate on the typical home in Detroit, which has the lowest median home value in the study, is three times higher than in San Francisco, which has the highest median home value, after accounting for assessment limits. In Detroit, raising $3,379 per home—the national average tax bill on a median-valued home—would require an effective tax rate 20 times higher than in San Francisco.

Other drivers of variation in property tax rates include the different treatment of various classes of property, such as residential and commercial, and the level of local government spending.

Among the largest cities in each state, the average effective tax rate on a median-valued home was 1.4 percent in 2020, with wide variation across cities. Four cities have effective tax rates that are at least double the national average—Aurora (IL), Bridgeport (CT), Newark (NJ), and Detroit. Conversely, eight cities have tax rates of half of the average or less—Honolulu, Charleston (SC), Boston, Denver, Charleston (WV), Cheyenne (WY), Salt Lake City, and Birmingham (AL).

Highest and Lowest Effective Property Tax Rates on a Median-Valued Home Among Largest Cities in Each U.S. State (2020)

Highest Property Tax Rates

Lowest Property Tax Rates

1

Aurora (IL)

3.25%

Why: High property tax reliance

49

Charleston (WV)

0.59%

Why: Classification shifts tax to
business, Low property tax reliance

2

Newark (NJ)

3.20%

Why: High property tax reliance

50

Denver (CO)

0.52%

Why: Low property tax reliance,
Classification, High home values

3

Bridgeport (CT)

3.00%

Why: High property tax reliance

51

Boston (MA)

0.48%

Why: High home values,
Classification shifts tax to business

4

Detroit (MI)

2.83%

Why: Low property values

52

Charleston (SC)

0.48%

Why: Classification shifts tax to
business, High home values

5

Portland (OR)

2.48%

Why: Assessment limit shifts tax
to newly built homes

53

Honolulu (HI)

0.31%

Why: High home values, Low local
gov't spending, Classification

Note: The rankings for both residential and commercial property include 53 cities—the largest city in each state plus Washington, DC, and the second-largest cities in Illinois and New York because property taxes in Chicago and New York City are structured differently than property tax systems in other parts of those states.

Commercial property tax rates on office buildings and similar properties also vary significantly across cities. The effective tax rate on a $1 million commercial property is 2 percent, on average, across the largest cities in each state. The highest rates are in Detroit and Chicago, where rates are more than twice the average for this group of cities. Rates are less than half of that average in Cheyenne (WY), Seattle, and Charlotte.

Highest and Lowest Effective Property Tax Rates on $1 Million Commercial Property Among Largest Cities in Each U.S. State (2020)

Highest Property Tax Rates

Lowest Property Tax Rates

1

Detroit (MI)

4.16%

Why: Low property values

49

Virginia Beach (VA)

1.03%

Why: Low local gov't spending,
High property values

2

Chicago (IL)

4.03%

Why: High local gov't spending,
Classification shifts tax to business

50

Boise (ID)

1.03%

Why: Low local gov't spending,
High property values

3

Bridgeport (CT)

3.67%

Why: High property tax reliance

51

Charlotte (NC)

0.91%

Why: Low property tax reliance

4

Providence (RI)

3.61%

Why: High property tax reliance

52

Seattle (WA)

0.83%

Why: High property values, Low
property tax reliance

5

Des Moines (IA)

3.42%

Why: Low property values, High
property tax reliance

53

Cheyenne (WY)

0.67%

Why: Low property tax reliance

The report is available for download on the Lincoln Institute website:
https://www.lincolninst.edu/publications/other/50-state-property-tax-comparison-study-2020

The Lincoln Institute of Land Policy seeks to improve quality of life through the effective use, taxation, and stewardship of land. A nonprofit private operating foundation whose origins date to 1946, the Lincoln Institute researches and recommends creative approaches to land as a solution to economic, social, and environmental challenges. Through education, training, publications, and events, we integrate theory and practice to inform public policy decisions worldwide.

The Minnesota Center for Fiscal Excellence was founded in 1926 to promote sound tax policy, efficient spending, and accountable government. As a non-profit, non-partisan group supported by membership dues, the center pursues its mission by educating and informing Minnesotans about sound fiscal policy; providing state and local policy makers with objective, non-partisan research about the impacts of tax and spending policies; and advocating for the adoption of policies reflecting principles of fiscal excellence.

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SOURCE Lincoln Institute of Land Policy