Intra-Metropolitan Area Fiscal Capacity Disparities and the Property Tax

The purpose of this study is to assess the extent of variations in the revenue capacity of select local governments in the Washington, DC area using the Representative Revenue System developed by the U.S. Advisory Commission on Intergovernmental Relations, and to investigate what impact a shift to a real property tax on land only would have on the resulting differences. Revenue capacity is the hypothetical ability of local governments to raise revenue from their own available resources.

The research results reveal that there are substantial differences in revenue-raising ability across the metropolitan area, but particularly, among the suburban jurisdictions. Moreover, when revenue capacity is recalculated assuming a real property tax on land only, we found that this had a slight effect on ameliorating differences in revenue-raising ability. However, additional studies need to be conducted to see to what extent these findings reflect the “typical” situation within other metropolitan areas.

Findings:

• There were substantial variations in the revenue capacity of local governments in the Washington, DC, area. Virginia counties tend to have above average revenue capacities and Maryland counties tend to have below average revenue capacities.
• The major disparities were between suburban jurisdictions. Washington, DC, the core center city in the metropolitan area, had an average revenue capacity while there was substantial variation across suburban governments.
• Overall, there were relatively small changes in the local governments’ revenue capacities and in the extent of fiscal disparities in the metropolitan area when these measures are recalculated assuming real property taxes are levied on land only. However, these changes, though small, were in the direction of reducing fiscal disparities.