In the early 1970s, the property tax was one of America’s favorite villains. Homeowners had seen their tax bills soar to new heights. Stories of corrupt assessors filled the news. And policy makers across the spectrum concluded that local governments were maladministering the property tax at the expense of the residents they were supposed to serve.
In his 1972 State of the Union address, President Richard Nixon called the property tax “oppressive and discriminatory.” In the presidential election that year, all the major candidates addressed the property tax during their campaigns. After the election, Senator Edmund Muskie of Maine, who had been defeated in the Democratic primary, commissioned a detailed investigation of state and local property taxes. “The perpetuation of archaic, unfair—and too often secretive—systems of property taxation undermines the credibility of government at all levels,” Muskie said at a Senate hearing in 1973, shortly after the study was complete. “It is a national outrage that in an age of computer technology, most governments fail to administer property taxes fairly.”
Over the course of the next decade, the technology Muskie had alluded to evolved dramatically. Major advances in computing power, along with the emergence of a generation of well-trained, tech-savvy assessors who could harness it, revolutionized one of the most bedeviling aspects of the property tax: determining the market value of every property. At the center of this revolution was a small organization that had been established in 1974 in Cambridge, Massachusetts, to study and teach land policy.
As much an art as a science, the assessment of real estate values—also known as valuation, or appraisal—has been a challenge of the property tax for centuries. In 17th-century England, government officials conducted assessments by counting the hearths and stoves in each home. Later, a tax on every window was intended to function in much the same way, but it spurred people to board up windows or build houses with fewer of them. Parliament repealed the tax in 1851.
By the early 20th century, assessors typically used one of three basic methods of determining a property’s value, all of which are still in use today. The first compares each property to recently sold properties nearby. The second looks at the income the owner could receive by leasing the property. And the third estimates the cost, in labor and materials, of rebuilding a given structure, plus the value of the underlying land. The third method, known as the “cost approach,” was widely adopted in the 1920s and 1930s. To calculate the value of the land, assessors relied on the price of recently sold vacant parcels in the same area. These were common in rural areas or new suburbs, but rare in established cities.
“Land value sales are like hen’s teeth—you can hardly find them,” said Jerry German, who became an assessor in Cleveland, Ohio, in 1974, when many calculations were still done manually. “You’d lay the map of the jurisdiction on the floor or some giant table. Appraisers would look at the map and say, ‘It appears in this area, land is going for about a dollar per square foot.’ . . . I can remember our senior appraisers walking around with little slide rules in their pocket to do calculations.”
What all three valuation methods had in common is that assessors made individual calculations for every property and recorded them by hand on property record cards, which were often stored in long rows of filing cabinets. The process was vulnerable to errors, inconsistencies, and corruption, with little transparency as to who decided each property’s value, how the calculation was made, or who else might have influenced the decision.
By the time German arrived in Cleveland, a handful of cities had been quietly laying the groundwork for computerized assessment for more than a decade. During the 1960s, advances in computer technology collided with new data requirements, as many states mandated the accurate disclosure of real estate sale prices for the first time. Assessors used the data to identify the characteristics of a property that influenced its price, such as square footage, the number of bathrooms, and location. Large jurisdictions that could afford early computers—and consultants with the special expertise to program them—could now calculate property values automatically. The new practice, Computer Assisted Mass Appraisal (CAMA), represented a leap forward, but it also had serious drawbacks. “The worst thing for the assessor, aside from the expense, was the inflexibility of it,” German said. “Everything was hard-coded in there, and once you . . . set your path and programmed everything in, it was hell and high water to get anything changed.”
When the Lincoln Institute of Land Policy was founded as a school in 1974, its first executive director, Arlo Woolery, saw an opportunity. One of the organization’s priorities was promoting a well-functioning property tax. By helping assessors computerize their work, the Lincoln Institute could provide the kind of support that had the potential to change local practices.
The Lincoln Institute held its first Colloquium on Computer Assisted Mass Appraisal in 1975. Only a handful of the roughly 13,500 assessing jurisdictions in the United States used computers to conduct mass appraisals then—“probably no more than 400 and possibly fewer than 200 jurisdictions,” the appraisal expert Richard Almy estimated in a paper prepared for the colloquium. The Lincoln Institute’s director of education, Charles Cook, who had worked previously for a private mass appraisal firm, began to convene and train assessors in an initiative to improve computerized appraisal and expand its use.
Recognizing that the cost and inflexibility of assessing software put it out of reach for most cities and towns, the Lincoln Institute developed software in the early 1980s called SOLIR (Small On-Line Research), which assessors could use and customize themselves with an off-the-shelf Radio Shack TRS-80 computer. This represented a breakthrough. For the first time, CAMA was accessible to local assessing offices without large budgets or computer programming skills.
The Lincoln Institute provided SOLIR free to assessors who took a weeklong training course, releasing regular updates to the software for several years. The project made the Lincoln Institute feel less like a research organization and more like “a computer startup company,” said Dennis Robinson, who recently retired as the Lincoln Institute’s executive vice president and chief financial officer. Robinson was hired in 1982 to oversee software development and training. He remembered “a coffee-stained, dirty, wrinkled carpet. That was our computer room. There was a bank of eight or so Radio Shack computers with programmers in there working on SOLIR.”
The first assessors to use the software helped to improve it by testing its limits and recommending new features. At their request, the Lincoln Institute created a module that could help determine the value of land separate from any buildings—a critical function for maintaining up-to-date assessments.
By the late 1980s, private software and consulting companies were incorporating the SOLIR technology into their own products, and the Lincoln Institute stopped developing its own software. But the Lincoln Institute continued to conduct research on innovative applications of CAMA and to convene and train assessors as the technology advanced. In the 1990s, assessors began using geographic information systems (GIS) software to develop location-based property records. By integrating these records with their CAMA systems, they could, among other things, measure the effects of neighborhood features, such as schools or parks, on the value of land. “They took these tools and did very creative, sophisticated things,” Robinson said.
Today, CAMA has become central to property tax systems in the United States, Canada, and Western Europe. Many governments in Eastern Europe, Latin America, Asia, and Africa have also adopted some version of the tool, in some cases using satellite imagery or aerial photography to leapfrog over the paper records that undergirded the first CAMA systems.
In China, which is preparing to institute its first property tax, local officials in the fast-growing technology hub of Shenzhen recently developed cutting-edge applications of CAMA. They pioneered a system known as GAMA, which combines GIS with CAMA to build detailed three-dimensional models that account for factors such as views and the paths of light and sound. These added considerations can create differences of up to 20 percent in the value of apartments or condominiums within the same building.
Altogether, the advances in CAMA over the past few decades created a sea change in the administration of the property tax. “Computerized assessment might seem obvious today,” said Lincoln Institute Senior Fellow Joan Youngman. “But it provided the infrastructure needed to assess every property at its true market value—the underpinning of any fair and equitable property tax system.”
Will Jason is director of communications at the Lincoln Institute of Land Policy.
Photograph: Computerized assessment, which the Lincoln Institute helped usher in during the 1970s and 1980s, has led to a more equitable property tax system. Credit: Courtesy of Data Cloud Solutions, LLC.
Amid Falling Revenues, Some Cities Turn to the Property Tax
By Liz Farmer, Dezembro 10, 2020
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As most major cities grapple with lost revenue due to the pandemic, some are turning toward the property tax as a way of filling the gap. Perhaps nowhere has this decision been more controversial than in Nashville, where the largest tax increase in the city’s history has already survived one attempt to overturn it.
Like other cities that rely on tourism, Nashville has suffered in the wake of the pandemic—most notably in entertainment and retail tax revenue. More than half of the city’s estimated $280 million in reduced revenue for the fiscal year that started July 1 is due to the sales tax. The city finance department attributes nearly all the lower-than-expected revenue to COVID-19, but a tornado that ripped through the area earlier this year also played a role.
Deputy Finance Director Mary Jo Wiggins said that Nashville’s economy makes it “subject to a higher volatility in our activity taxes.” Meanwhile, the metro region’s property tax rates had been historically low in recent years. “Increasing the property tax rate in fiscal 2021 provides greater stability in our tax revenue base,” she said.
Nashville isn’t the only place trying to lean more on the stability of the property tax in the recession. Houston this year used an exemption for declared disasters—in this case, COVID-19—to set a tax rate that would increase property tax revenue by more than the state’s limit of 3.5 percent per year.
And in Chicago, the council recently approved Mayor Lori Lightfoot’s proposed property tax increase (among other revenue-raising remedies) to plug a $1.2 billion projected budget deficit. The legislation also includes a plan to raise property taxes each year with inflation, tying it to the consumer price index.
All told, most cities are bracing for revenue shortfalls between 5 and 9 percent, according to research by Andrew Reschovsky, professor emeritus of public affairs and applied economics at the University of Wisconsin-Madison and a former Lincoln Institute fellow. Reschovsky estimates the total revenue loss across all cities at $165 billion.
Lincoln Senior Fellow Joan Youngman notes that the property tax tends to be a more stable source of local revenue, for several reasons. Real property is a long-term investment, and in a downturn its values are generally not as volatile as retail sales or income. Local governments often have some ability to adjust the tax rate in response to changes in the tax base, and a multiyear assessment cycle can allow officials time to anticipate and respond to shortfalls.
“Revenue from tourism, entertainment, and travel can be subject to much more immediate and dramatic declines,” Youngman said. “That is why a mix of revenue sources on different cycles can be very helpful.”
Still, the pandemic-driven recession has created some unusual revenue scenarios and the property tax is no exception. Assessors in New Orleans and in Cook County, home to Chicago, have taken the unusual step of reassessing properties ahead of schedule to account for business losses from the pandemic. In New Orleans, Assessor Erroll Williams made across-the-board cuts in 2021 assessments for hotels, restaurants, and other commercial properties by as much as 57 percent. And in Cook County, Assessor Fritz Kaegi is planning to reevaluate every property in the county, a move that is also expected to lower tax bills for commercial properties.
Back in Nashville, the circumstances around the consolidated city-county Metro government’s property tax increase were also unusual. The Metro council approved increasing the rate by 34 percent—a large jump by any standard but particularly for a region with a low-tax culture.
But the rate increase came on the heels of one of the lowest property tax rates in decades. Moreover, Nashville residents already paid some of the lowest property taxes in a state that has among the nation’s lowest effective rates. Tennesseans on average pay less than $900 a year in property taxes, compared with more than $1,600 nationwide, according to the Lincoln Institute’s state-by-state property tax database tool.
Bill Purcell, mayor of Nashville from 1999–2007, said the city erred when it did not take advantage of an opportunity to increase revenue after its last four-year reappraisal in 2017, which recorded soaring property values. State law does not allow revenues to rise automatically when the property values increase. After a general reappraisal, counties and municipalities must advertise intent in the newspaper and hold a public hearing before they adopt a resolution or ordinance establishing a tax rate that would generate greater overall tax revenues than were billed in the year before the reappraisal. Nashville did not take this step after the 2017 reappraisal, and instead reduced the tax rate by 30 percent to keep collections level.
Stagnating the city’s largest revenue stream created budget pressure and lawmakers resorted to one-time measures to fix budgets. By 2019, Comptroller Justin Wilson began warning the city of a state takeover unless it could balance its budget.
“The Great Recession had long passed, employees had been promised raises, the city was growing substantially, and there was no adjustment of revenue to meet those needs,” said Purcell, adding that the property tax increase was a politically uncomfortable but necessary move.
Nashville’s new rate is $4.221 per $100 of assessed value—in line with its 25-year average. And because that rate is only applied to a small portion of the assessed value, it remains one of the lowest effective rates (0.67 percent) among Tennessee’s largest cities and counties.
“It is extremely difficult to raise taxes during a crisis,” said Youngman. “This shows the importance of continual adjustments to keep values and collections current, with appropriate relief measures targeted to taxpayers in need.”
Liz Farmer is a fiscal policy expert and journalist whose areas of expertise include budgets, fiscal distress, and tax policy. She is currently a research fellow at the Rockefeller Institute’s Future of Labor Research Center.
Photograph: Nashville, Tennessee, skyline. Credit: Michael Warren/Getty Images.
The Lincoln Institute's C. Lowell Harriss Dissertation Fellowship Program assists PhD students, primarily at U.S. universities, whose research complements the Institute's interests in land and tax policy. The program provides an important link between the Institute's educational mission and its research objectives by supporting scholars early in their careers.
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