Tag Archives: property taxes

American property taxes have feudal roots

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American property taxes have a long history in English law:

The origins of the property tax aren’t American at all. It, instead, has roots that date back to Europe’s feudal system. First instituted in England by William the Conqueror in 1066, the early tax system worked this way: A king (or conqueror) took over all the land in a given territory. He would then divide it among his lieutenants and supporters, who would pay him (with money or services) in order to keep that land. In return, landholders enjoyed the king’s protection and were able to rent the property out to others—who would live and work the land—for a fee. The punishment for nonpayment was forfeiture of the land, which could result in a considerable loss of money and status. At the time, this system was called “free and common socage,” according to John Joseph Wallis, an economic historian at the University of Maryland. The person who held the land was called a socman, his taxes, socage. The arrangement created a way for people to own land while still having to remain loyal to the crown, which also had rights to the land.

After expansion across the Atlantic started, King James made sure that this system traveled overseas with the first settlers at Jamestown, so that he could partake in the profits of exploration of the new land. The charter of the Virginia Company held that—as in feudal times—the king would protect the lands in Jamestown, and in return, the people living on the land would pay him a share of their profits there. All land of the colony would be held in “free and common socage,” according to the Virginia Company charter. This meant that land could be bought and sold in the colonies, as long as the new holder of land continue to pay the king.

And why did the system persist even after the American Revolution?

It’s a peculiar note of history that the founding fathers, who spoke often of abolishing the feudal system, kept this remnant of the Old World. But the rationale is very simple: They needed the money. In fact, the federal government levied a national property tax in 1798, 1814, 1815, 1816, and 1861. The tax in 1798, for example, charged households for their slaves (50 cents), houses, and land. It raised $2 million, according to Wallis. These taxes usually outraged residents, who would often revolt, but the system of collecting property tax remained. That’s because property taxes were locally spent and collected in the beginning, and often paid for things like roads and canals that property owners would be able to see, and that increased the value of their property.

If indeed property taxes are the most hated tax for Americans, I wonder if residents would prefer the alternatives. One advantage of the property tax is that the monies are often spent closer to home, usually on local school districts and municipal services. Eliminate the property tax and taxes may be collected by governmental groups further way that have fewer responsibilities to local residents. Americans may not like property taxes but they do like local control.

 

Winfield, major hospital reach agreement for $900k annual grant

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Winfield is a small suburb with money problems; the hospital in town is expanding and has money. Solution? A sizable annual grant from the hospital to the village:

Winfield will receive a $900,000 annual grant over each of the next five years from Northwestern Medicine Central DuPage Hospital as part of an agreement finalized Monday, officials said…

“We recognize the unique economic challenges facing Winfield,” CDH President Brian Lemon said in a statement released Monday afternoon. The hospital, he said, “is committed to working with the village to ensure Winfield remains a great place to live, raise families and receive high-quality health care. Our collaboration with the village of Winfield is designed to encourage economic development while stimulating the village’s economy.”…

CDH made the new offer after Winfield trustees rejected the hospital’s first proposal to give the village an annual $500,000 grant. The board was seeking roughly $1.4 million a year from CDH to help pay for the services Winfield provides to the hospital…

Winfield trustees even voted to put an advisory question on the March 15 primary election ballot that would ask voters if the village board should begin taxing CDH’s operations. The village clerk would have submitted that ballot question to DuPage County election officials had an agreement not been finalized Monday, but officials said it’s no longer necessary.

I wonder how common such agreements are. The hospital provides jobs and status yet is quite the growing facility exempt from the local property tax rolls. Here is how the Village of Winfield described the issue in October 2015:

CDH was established approximately 50 years ago as a small hospital in Winfield’s town center. In the 1990’s, the hospital began a series of major expansions of its campus through numerous property acquisitions. The majority of the purchases were commercial properties located in the town center.
The hospital now controls nearly 60% of the property in the Village ’s town center and has expanded its footprint across both of the downtown’s major arteries – Winfield and High Lake Roads.
CDH has benefited from the expansions. It is now a nationally-ranked hospital and by far the most profitable hospital in Illinois according to tax filings compiled by Crain’s Magazine. CDH has averaged a yearly profit of $160 million over the past five years with growing reserves of approximately $2 billion in cash and investments. Meanwhile the Village has continued cutting staff and services to cope with lean budgets and leaner forecasts.

Is this solely the case of the big non-profit hospital dwarfing the small village? However, Winfield has its own issues including very rancorous infighting among local political officials and candidates (I have not seen many suburb with such regular negative interactions) and a limited tax base (as the community debates whether to expand it).

Maybe this annual grant is a decent solution to the issue: the hospital is unlikely to move and the village needs money. I imagine hospital officials appreciate the village threatening to put something on the ballots unless money is provided and the village is probably not entirely happy with the amount of money. In the end, this seems like a payoff. Do these two parties really need each other and how much is this worth annually?

Chicago keeps a low residential property tax rate to keep residents?

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As the Chicago Tribune highlights the low residential property tax in Chicago compared to nearby communities, could this be a tactic to stem the population decline of the city?

Chicago homeowners pay less in property taxes than the vast majority of their suburban neighbors, even with Mayor Rahm Emanuel’s record property tax increase applied. But business properties are taxed differently in Cook County, resulting in higher tax rates on those parcels in Chicago than nearly all collar county suburbs. Those conclusions emerge from a Tribune analysis of tax rates applied on 2015 bills in 388 city and suburban locations in Cook and the five collar counties.

While housing owners pay less, the business owners of Chicago pay more than their counterparts in the suburbs:

The story is different, however, for those who own city manufacturing plants, offices and shopping centers. They already pay more in property taxes than their counterparts in most suburbs outside Cook County. That gap will only become wider after Emanuel’s tax hike, with Chicago business property owners being taxed at higher rates than those in all but seven collar county towns…

There are plenty of collar county suburbs with room for all types of business development that start to look even more attractive than Chicago, at least in terms of property taxes. In places like Joliet, Downers Grove and Naperville, tax bills on business properties would be half that of equally priced parcels in the city…Deputy Mayor Steve Koch dismissed the business tax differences found in the KPMG study, saying they were not enough to sway business location decisions. He noted recent decisions by Motorola Solutions to move to the city from Schaumburg and ConAgra Foods to move to Chicago from Omaha, Neb., when everyone knew the big property tax hike was coming.

The Tribune suggests one reason for the low residential property tax rates is to not anger voters:

“Because we didn’t have in our leadership the political will to actually tell taxpayers and voters that (more money was needed), frankly folks were sold some snake oil, and they got to believe they could have very low taxes and still have adequate service, and after a while that doesn’t really work,” Martire said. “They should have been (raising property taxes) for a long time, and the pain would have been significantly lower.”

Politicians do need votes. But, to return to the suggestion I made in the opening sentence, I wonder if this is also about keeping residents in Chicago. City leaders argue that businesses are not going to avoid Chicago just because of higher taxes. Chicago has other benefits including other notable businesses, lots of office space, lots of human capital, and numerous attractive cultural and entertainment options. In other words, enough businesses will pay these higher property tax rates in Chicago because there is still money to be made in the city.

Yet, homeowners also consider property tax rates as they look for housing. While Chicago doesn’t suffer from the kind of affordable housing issues as San Francisco or Manhattan, it is still quite expensive in some neighborhoods while suburbs throughout the region provide all sorts of additional housing options as well as jobs and other amenities. Why should many residents stay? Lower property tax rates may just help. And for its international prestige – the seventh-rated global city – Chicago has lost plenty of people in recent decades with a peak of just over 3.6 million in 1950 to just over 2.7 million people today.

Votes and people staying could go together: residents who think the politicians are on their side and then show it by not raising their residential property taxes may be more likely to stay in Chicago.

The “Black Tax”: higher property taxes for black homeowners in order to eventually seize homes

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A new study looks at a practice common in Chicago and other cities where raised property taxes for black residents helped others take their homes:

Kahrl’s case study, which was released this month by the Journal of Urban History, traces the practice of tax-lien speculation to a 1951 reform in Illinois state law called the Revenue Act. During the same years when “redlining” emerged as a severely racially discriminatory mortgage practice, assessors in cities such as Chicago systemically over-valued homes in black neighborhoods for property-tax purposes…

Tax-lien speculation proved to be one hell of a business. Over the course of six months in 1973, for example, Gray acquired the deeds to 93 homes in Chicago’s Woodlawn neighborhood for a total of $70,000. Each parcel was worth as much as $20,000 at the time—and potentially much, much more to speculators once all the neighborhood’s black residents had been evicted…

Not every tax-lien sale resulted in a transfer of deed, but they always resulted in a transfer of wealth. Many homeowners managed to pay off their liens at high interest rates—often 18 percent, the legal ceiling—along with a host of fees. Making real money depended on finding the poorest and most vulnerable owners in the poorest but most over-assessed neighborhoods. This practice was perfectly legal. The “Black Tax” was law…

The remarkably resilient predatory-tax-lien business continues to thrive, despite efforts at reform. The industry is enormous. Late in 2014, the Abell Foundation published a report on the state of the practice in Baltimore City. In 2013, the city sold tax liens for more than 2,000 owner-occupied homes. Almost one-tenth of these liens were attached to water bills. In 2014, of some 6,690 tax liens sold, 2,236 were for owner-occupied homes.

Given the interest, fees, and court costs, a homeowner’s $500 delinquent tax or water bill can mushroom to $3,000 over a two-year window—the time an owner has to pay down the lien. According to the report, there were 2,805 pending tax-lien foreclosure cases in Baltimore City in 2014. Noting the difficulty in tracking these tax-foreclosure evictions, the Abell Foundation report’s authors warn that in Baltimore, the “tax sale can lead to evictions, homelessness, and property vacancies and abandonment in a city already plagued by all three.”

More inequality via race and property in the United States. As if residential segregation wasn’t enough – ongoing lending practices and tax policies continue to make it difficult for blacks and other poor residents to build wealth over time.

When American communities try to limit the number of churches in city limits

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This is a fascinating look at how American municipalities deal with the “problem” of too many churches. For example, here is the experience of Stafford, Texas which did not have a property tax and was located near highways outside Houston:

By 2006, there were 51 religious facilities in Stafford’s 7 square miles, according to city filings. And, at that time, the city had just a little over 300 acres that remained undeveloped.The costs in Stafford’s case were starting to outweigh the benefits…

Scarcella and city officials spent years poring through legal filings and spent a good dose of cash on attorneys to successfully craft a land use ordinance that would require a public hearing and process for new “places of assembly” — such as bowling alleys, dance halls, museums and religious facilities.To obtain a specific use permit under the regulation, applicants would have to address and adhere to a list of requirements related to elements such as acreage, parking and traffic mitigation.

The pushback was tremendous, Scarcella said, noting the town attracted national media and plenty of negative attention…

“I’m held in a fairly decent regard within my church, and I have a deep belief in Christ, and I believe in people’s right to worship, and I admire them for doing that,” he said. “But I also recognize that there needs to be a balance.”

 

Too many religious facilities that don’t pay property tax means that a community may not have a sufficient tax base to maintain all the infrastructure that religious facilities would use. One sociologist estimated that $71 billion in taxes is left on the table by religious institutions. Additionally, there is an opportunity cost involved where the land might have been used for purposes that would pay property taxes and perhaps even add sales tax revenues.

All of this could lead to a humorous situation: how about a suburban community near the nexus of multiple highways that zoned solely for industrial parks and churches/religious facilities? Given that many churches today have a tenuous connection to the community in which they are located, attendees don’t mind church shopping via car, and large churches want plenty of land and interior space for their campuses, this could minimize the pain for a number of other nearby communities.

Ferguson doesn’t get much revenue from the Fortune 500 companies in town

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Many suburban communities give tax breaks to corporations so that they locate in their community. Ferguson, Missouri is one such case where Emerson Electronics and other businesses don’t pay as much as they might in local taxes:

In 2014, the assessed valuation of real and personal property on Emerson’s entire 152-acre, seven-building campus was roughly $15 million. That value has gone up and down over the last five years as Emerson has sold off some buildings and built others, but it has not exceeded $15 million in the period since the data center was completed. So what happened to that brand-new $50 million dollar building?…

For tax purposes, Emerson’s Ferguson campus is appraised according to its “fair market value.” That means a $50 million dollar solar-powered data center is only worth what another firm would be willing to pay for it. “Our location in Ferguson affects the fair market value of the entire campus,” Polzin explained. By this reasoning, the condition of West Florissant Avenue explains the low valuation of the company’s headquarters.In fact, the opposite is true: The rock-bottom assessment value of the Ferguson campus helps ensure that West Florissant Avenue remains in its current condition, year after year. It severely limits the tax money Emerson contributes to the Ferguson-Florissant district’s struggling schools (Michael Brown graduated from nearby Normandy High School, a nearly 100 percent African American school that has been operating without state accreditation for the last two years), and to the government of St. Louis County more generally. On the 25 parcels Emerson owns all around St. Louis County, it pays the county $1.3m in property taxes. Ferguson itself receives far less. Even after a 2013 property tax increase (from $0.65 to the state-maximum $1 per $100 of assessed value), Ferguson received an estimated $68,000 in property taxes from the corporate headquarters that occupies 152 acres of its tax base—not even enough to pay the municipal judge and his clerk to hand out the fines and sign the arrest warrants.

St. Louis County doesn’t just assess Emerson a low market value. It then divides that number in three—so its final property value, for tax purposes, ends up being one third of its already low appraised value. In some states, Ferguson would be able to offset this write-down by raising its own percentage tax rate. Voters would even be able to decide which services needed the most help and raise property taxes for specific reasons. But Missouri sets a limit for such levies: $1 per $100 of property. As Joseph Pulitzer wrote of St. Louis during the first Gilded Age, “millions and millions of property in this city escape all taxation.”…

Emerson Electric isn’t the only business on Ferguson’s West Florissant Avenue. The street is also home to a number of big box stores including a Home Depot, a Walmart, and a Sam’s Club, located at the city’s northern limit. These companies all came to town in 1997 through something called tax increment financing—known (to the extent it’s known at all) by the acronym TIF. Along with low appraisals and tax abatements, TIF districts are one of Missouri’s principal tools for encouraging new development.

The conclusion here is that these tax policies reproduce the economic inequalities in Ferguson. Hence, the community has to find alternative sources of revenue, such as targeting motorists.

Here is where this gets trickier: if Ferguson didn’t offer these deals, could it have attracted these businesses? If many suburbs participate in the game of tax breaks, wouldn’t someone else offer good tax breaks? Where race matters here is that communities like Ferguson – lower income, transitioning from white to black over recent decades – have to offer even better tax breaks to compete. But, for all of these communities, it is a race to the bottom as a better deal to attract a corporation means less revenue for the city. Still, local politicians can sell the jobs created or the prestige generated. But, as this article points out, the jobs and prestige may not help much in the long run.

What you might need here is a metropolitan wide policy against such tax breaks or TIF districts to reduce the competition. Or, perhaps some tax revenue sharing program where sales tax and property tax dollars are partly redistributed to reflect who shops at or works at these facilities (they all don’t come from the community in which the firm is located). Yet, such policies require a lot of political will and again encounter the problem of race as communities, especially wealthier ones, will not want to share their revenues with others.

When housing values rise, so do property taxes and concerns about how those taxes are collected

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Austin, Texas is a hot real estate market which means housing prices are going up – which means property taxes are also rising and this has some homeowners up in arms about how the city and state pursue property taxes.

The arrival of this year’s appraisal notices — which in Travis County showed homes’ average market values jumped 12.6 percent and average taxable values rose 8 percent for 2014 — is sparking a push for reform. Similar jumps have occurred in Williamson and Hays counties.

Real Values for Texas, a statewide group advocating for property tax reform, local officials and others say they believe enough momentum is building around the state to put pressure on the Legislature to fix what they say is a flawed property tax system. The issue is an especially hot one in Austin, where property values have risen at a much faster rate than wages in recent years, leaving more and more area homeowners saying they are struggling to pay their property tax bills.

At issue is what can be done. Market forces generally dictate home values. And with no state income tax, the state government and local taxing entities rely heavily on property tax for revenue to fund schools and many local services…

A key problem, critics say, is that the current system has shifted a disproportionate share of the burden of paying for schools and local services on homeowners, in favor of commercial and corporate interests who can afford to appeal their values and win big reductions year after year. The share of property taxes from homeowners to support public schools grew from 45 percent to 54 percent over a 12-year period, while commercial and industrial owners’ share has declined to less than 20 percent. (Other sectors, from oil and gas to personal property, make up the rest.)

One way to read this would be to see this in a long line of American homeowner complaints about property taxes. This has been a common theme in recent decades, famously illustrated by the Prop 13 campaign in California in the 1970s. Homeowners may enjoy owning a home but they tend to resent continually rising requests for money for local governments, even as they tend to want good, or even better, local services. Most homeowners want rising housing values as this increases the value of their investment yet don’t necessarily want to pay for it while living there.

Yet, the property tax reform suggestions here are interesting. Just how much should local homeowners pay compared to corporations? Is the best comparison to look at the rates each pays or the cumulative percentages each group contributes to the local pot of tax money? This could be related to a larger issue that goes beyond property taxes: what kind of tax breaks should corporations get from municipalities? This is a difficult issue to sort out as communities like jobs and important businesses yet homeowners tend to resent “handouts” for corporations that they think could afford to pay more.

Northern Virginia residents unhappy about paying higher taxes and getting fewer local services

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Echoing residents of many American communities, Northern Virginia residents don’t like the idea of paying increasing local taxes and not getting higher levels of local services:

At packed public meetings and in angry phone calls, local officials say, the same message is echoing from all sides: We’re fed up.

“It’s very frustrating, right now, to try to manage expectations,” said Sharon Bulova, chairman of the Board of Supervisors in Fairfax County, which, like neighboring Loudoun County, is locked in a battle over school funding that could lead to a higher tax rate — and even larger monthly payments…

Cuts to libraries, parks, schools and bus routes since the 2008 recession have negatively affected the quality of life of some residents in this part of Virginia, where top schools and amenities have long been a magnet for families. When much-needed infrastructure projects were launched, officials often paid for them by creating special tax districts and other charges that they passed on to increasingly resentful residents and businesses.

In Fairfax, sewer rates have nearly doubled since 2008, to $6.62 per 1,000 gallons of water, while real estate property taxes have climbed nearly 20 cents during the same period to a current level of $1.085 per $100 of assessed value. That means a house worth $500,000 in 2008 would have had a property tax bill of $4,450, and a house of the same value today would have a bill of $5,425.

Fairfax officials recently advertised a new residential property tax rate cap of $1.105 per $100 of assessed value, which will allow the county to raise the rate by up to two cents to fill a $64?million funding gap projected by school district officials. There is also a push to raise the tax rate in Loudoun, to bridge a $40?million school funding shortfall.

When there is plenty of suburban growth, new money is rolling in from developer fees and new taxpayers. But, in prolonged economic downturns, it is difficult to generate the same levels of money.

I wonder if either of these arguments would work with suburban taxpayers:

1. The reduction in service levels is probably quite limited.

2. These are still some of the wealthiest counties in the United States.

It is not as if these relatively wealthy counties will suddenly become like Third World countries. However, neither of these might matter as residents moved there in part to benefit from these local services.

Note: this is not just a problem in northern Virginia. For example, New Jersey leads the country in property taxes and the bill keeps growing in a number of New Jersey communities.

Illinois property taxes second-highest in the nation

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A new report shows at the end of 2012 Illinois had the second-highest property taxes, just behind New Jersey:

Property taxes in Illinois average 2.28 percent of a home’s value, according to the Urban Institute. In New Jersey, they’re 2.32 percent, and in lowest-taxing Hawaii, they’re 0.27 percent. (The lowest among mainland states is Alabama, at 0.46 percent.)All the states that ranked ahead of Illinois in the 2007–11 chart saw their tax rates go up in 2012. But the rate in Illinois went up more…

What’s moving us up the list? Home values are down but taxing bodies’ appetites are up, as Costin sees it. Illinois home values fell farther and are improving more slowly than those in many other states. The latest Case-Shiller index data, which came out on New Year’s Eve, showed that while home values in the nation’s ten major cities have recovered, on average, to June 2004 levels, they’re only back to February 2003 levels in Chicago. At the same time, Costin says, “most local taxing bodies do the maximum increase they can do under the law each year.” Lombard and Lake County are notable exceptions, he says; both have reduced their rates.

When they’re asking for more total dollars in taxation on a smaller pot of aggregate home values, the tax rate is what goes up. It doesn’t necessarily mean that the amount of tax you have to pay goes up, as Cook County pointed out earlier this year.

While there are concerns about the federal budget as well as the monetary issues of the state of Illinois, these rising property taxes hint at another concern: the need for tax revenues for lower levels of government. These property taxes primarily go for local schools, cities, and other local services. See where property taxes go in one town in DuPage County. Or how one Chicago suburb is thinking about privatizing more of its roads to pay for their maintenance.

It is interesting to note that property taxes are higher in specific states but not others. For example, much of the Northeast and upper Midwest has higher property taxes but while Kansas and Texas do, Oklahoma does not. And, California does not. In a state where one city went bankrupt are others have looked to outsource municipal services, the property tax revolts of the 1970s (see Prop 13) have successfully kept property tax rates down (though home values are still high). Yet, if the money doesn’t come through property taxes, it likely comes from other sources.

Chicago suburb of Long Grove wants to privatize almost half of its public roads

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Maintaining roads is expensive and the Chicago suburb of Long Grove has a potential solution: privatize a lot of its public roads.

Facing an annual funding gap of more than $1 million, Long Grove trustees have twice in recent months affirmed a plan that could privatize nearly half of the village’s public roads — transferring the cost of upkeep and plowing to the residents in the process…

Experts in public planning and municipal finance agree that Long Grove has hit upon an unusual potential solution to a commonplace problem. They say other communities also struggling to make ends meet could follow suit as aging roads deteriorate and revenue streams dry up. Yet such plans could eat away at the public’s trust in local leadership even as they mitigate public deficits, warned Joseph Schwieterman, a DePaul University transportation professor.

“It’s going to create resentment that city hall has broken its contract to fix the roads, and that could lead to turmoil that tears at the social capital of a community,” he said.

What has surprised some in and around well-to-do Long Grove is that the community — with its spacious home lots, ample green space and refined, rural character — finds itself in the situation at all. Recent census figures count it among the wealthiest villages in the Chicago area based on median income. Yet having more affluent residents doesn’t necessarily equate to a strong tax base, especially in towns that have little or no industry…

Local leaders first realized in the 1970s that to pay for maintaining roads without a property tax, something had to give, said Long Grove Village Manager David Lothspeich. After that, the board allowed public streets in new subdivisions only if they were main roads, and eventually entire subdivisions sprang up without a single public road, he said.

It sounds like a set of trade-offs: the community has a particular image and character involving big lots, nice homes, and no property taxes but to help maintain that character means limited commercial development. However, having less commercial or industrial development means fewer sources of property and sales taxes that can be used to maintain the community’s infrastructure. The money has to come from somewhere…

However the money is raised in the future for roads, it will be interesting to see how this affects the community’s character and image. Will people move away? Will it be as attractive?

Another suburb dealing with a similar issue is Winfield. The village has had difficulty paying for road maintenance and the debate in recent years has been whether to allow commercial development along the Roosevelt Road corridor that passes through the southern part of the community but it currently limited to larger lots.