The Way We Tax Properties Is Broken. Here Are 5 Steps to Fix It.
Over the past few weeks, we have identified issues within the property tax assessment process. We started with an in-depth look at assessment inequity examples in Buncombe County that revealed just how subjective assessments can be, and how this subjectivity results in great burdens for low-income homeowners.
Last week, we zoomed out to a national scale and summarized that on average low-cost homes are being assessed as a percentage twice as high as expensive homes. We also explained how this issue is a compounding one for minority communities which make up a large portion of the over-assessed population.
Now that the problem has been identified, it makes sense to look at some possible solutions. It is now well known that there are inequities present in assessment processes across the United States, and a federal organization tasked with coming up with solutions has recently been established.
Though it is a nationwide issue, solutions will have to come from the bottom-up, with each county or municipality understanding the issues within their assessment process and creating targeted solutions that help the people who have been disadvantaged by inequities in the system.
The team at Urban3, a geoanalytics firm, has outlined 5 key approaches that should be a part of any proposed solution to this problem. First, they suggest we “fix the bell”.
Image via Urban3.
“Fix the bell” refers to the distribution of homes by price. For any given city, it is likely that the majority of homes are around the median price, and fewer homes exist on either end of the value spectrum, as seen in the graph above.
It can be hard to assess accurate value on the ends of the spectrum because sales of these homes are less common; this causes there to be more deviation in the accurate vs. assessed value of expensive and low-cost homes. That in turn results in uncertainty at either end of the spectrum, influenced by the use of averages in the assessment math; each end of the home-value spectrum gets pulled toward the middle.
Analysts at Urban3 have learned that there is potential to intervene in the process to create more certainty on the tail-ends of the home values. This intervention could come in the form of more advanced math, or additional practices to verify and validate estimates. More simply, we need to be looking closely at the value of homes at the end of the spectrum to ensure that we are generating consistent and valid home assessments for both low-cost and expensive homes; this should prevent low-cost homes from being overvalued and high-cost homes from being undervalued. Check out this article for a more detailed explanation of the distribution of home values.
Image via Urban3.
Next, Urban3 explains flattening the “J-curve” will be instrumental in creating equity in the assessment system; this means eliminating the regressive nature of the assessment outcomes. While there are existing measures meant to flatten this curve, such as the appeals process, they are underutilized by the lower-income householders being over-assessed. This is because the assessment appeal process is oftentimes confusing, to anyone, and many people who are getting inflated assessments do not have the time or money to make an appeal.
This will require taking a deep dive into the math and understanding how we use it to assign value. Currently, the common method of assessing home values involves separating the housing stock into “tax neighborhoods,” and then letting the algorithm run within these neighborhood boundaries. The team at Urban3 is concerned about this, as inequity undeniably has a geographic component and it is possible that using these tax neighborhood boundaries is only reinforcing the cycle of geographic inequality. It will be important that future solutions take a critical look at how these tax neighborhoods are created, and what is the outcome of creating them.
Image via Urban3.
How might we advance past this somewhat arbitrary method of organizing housing stock for assessments? The solution could be found in math and analytical strategies that help pull relevant characteristics from across neighborhood lines, with geography, zoning, and access to resources in mind. The concern from Urban3 is that this method of breaking up housing into tax neighborhoods is not purposeful, or specific enough to create fair outcomes.
Image via Urban3.
With the complexity in the current assessment system and the inevitability of adding more complexity to create equity in the outcomes, it will be crucial to make the solutions as transparent as possible. As we have seen, the complexity in the system makes it opaque to taxpayers and intimidating to homeowners who do not have the time or energy to weed through the assessment appeal process.
Making the assessment process approachable will go a long way toward creating more equitable outcomes. Creating visual aids, explaining the assessment processes without jargon, and using accessible formats should all be standards for any future changes to the process. The solutions proposed may be complicated, but the complexity of the solutions should not be a barrier for regular citizens to get involved in the conversation.
Image via Urban3.
Finally, it will be crucial to take a systems approach to find solutions. There are many different individuals and institutions that are involved in the process. Making sure they are all engaged in creating equity will generate the best outcomes. Creating solutions that have downstream positive effects on the process will be instrumental in creating equity.
Every place has a different way of doing reassessments. Some are much more relaxed on standards than others. For example, California ties its assessments directly to the sale of a property, so the assessed value is the amount it was sold for. This method greatly decreases the level of regressivity in assessments found in every other state, so much so that it was omitted from Christopher Berry’s research on this topic. Though this method of assessment creates its own issues due to the myriad of outside influences on any given home sale (or lack thereof), it could be a step toward the right direction in generating more equity in property assessments.
Deschutes County, Oregon does a great job of making its assessment process transparent and accessible to everyday citizens. Instead of burying their assessment details in dense government documents, they created a fun video that explains how their property taxable value is determined. This is one simple way any governing body could make its process more taxpayer-oriented.
This series of articles I’ve been sharing over the past few weeks on property assessment inequities takes a look into one small part of housing inequity in the United States, but it is by no means comprehensive in examining the inequities present in our tax methodologies. The regressivity in the property tax system results in disproportionate burdens on low-income communities, making it harder for these communities to build wealth and invest in other areas of their neighborhoods.
I’m hopeful that the growing interest in this complex issue may mean it is eventually resolved.. The solutions should include all of the pieces mentioned throughout this article. It is promising that the federal government is tasking itself with creating more equity in assessments, but throughout history, these types of top-down methods of solving problems have often had unintended negative effects. Truly effective and comprehensive solutions will be built by many hands, with input from individuals affected by every step of the assessment process.
Cover image via the New York Public Library.
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