Targeted Reforms Are the Best Way to Promote Property Tax Equity Without Harming Local Services

Local public services are cornerstones of our communities, ensuring that our children are educated, our communities are safe and healthy, and public spaces like parks and libraries can be enjoyed by all. Unfortunately, local governments’ ability to provide these services is under threat as state legislators across the country have called for inequitable and costly across-the-board property tax cuts under the guise of addressing housing affordability. Most of the proposals this year have failed to benefit those most impacted by affordability — low-income homeowners and renters — while restricting the ability of local officials to raise the revenue they need to support their communities.

States can ensure property taxes are not overwhelming residents without threatening funding for local services by providing targeted, income-based assistance to support families struggling to keep up with higher property taxes. States can also provide stability and increase equity by enhancing local governments’ capacity to conduct regular, unbiased property assessments. Above all, legislators should pursue targeted, cost-effective solutions that maintain or even improve local governments’ response to the rising costs of providing public services, not policies that leave our cities and schools struggling to keep up.

To better balance residents’ affordability needs with local governments’ revenue needs, states should:

• Tie property taxes to people’s ability to pay by creating or expanding refundable circuit breaker tax credits and providing them to renters. Circuit breaker credits prevent property taxes from overwhelming people’s budgets by capping property tax bills at a percentage of household income. Because circuit breakers are tied to income, they best reach households whose property tax bills are unaffordable. Across-the-board measures (like rate cuts, assessment caps, or limits to local governments’ ability to raise revenue) mainly benefit wealthy property owners and provide little assistance to those most impacted by high property tax bills. Instead, circuit breakers make each recipient’s tax bill more affordable based on their income.

  Circuit breakers should include renters, who pay property taxes as part of their rent. Renters have lower incomes than homeowners on average and are typically left out of most property tax exemptions, such as homestead exemptions or credits available to homeowners. To address this inequity, Maine’s circuit breaker — the Property Tax Fairness Credit — is available to renters and assumes that their “property tax paid” is equal to 25 percent of their gross rent. (Maine’s circuit breaker is also available to people who don’t file income taxes, which helps the credit reach people living on fixed or very low incomes).

• Provide stability to people living on fixed incomes through deferral programs. If states are looking for lower-cost options that assist people most impacted by rising property taxes, they should consider creating or expanding property tax deferral programs. These programs allow people on fixed incomes (such as retirees or people with disabilities) to delay paying their property taxes until they sell their home, when they will have much more cash on hand to pay the bill. Because this policy delays rather than reduces payment, property tax deferral prevents an overall funding decrease for local governments while keeping property taxes affordable for people with low incomes.

• Invest in administrative changes to make property assessments fairer and more routine. More frequent, less-biased assessments would make property tax bills less volatile and easier for households to manage. Properties sometimes go years or even decades without being physically reassessed, and sudden increases can be challenging for people with limited income to meet. Ideally, reassessments should occur annually to provide maximum predictability and stability.

  States have an important role in improving local governments’ assessment practices. They can invest in better software and data analysis capacity to share with local assessors’ offices. Standardizing and automating reassessments would also make the process fairer. Across the country, lower-value homes are frequently overvalued for property tax purposes, whereas higher-value homes are undervalued. Making reassessment processes more standard and less vulnerable to human error (unintentional or intentional) would result in fairer, more accurate tax bills for property owners. Cook County, Illinois, and Maricopa County, Arizona, for instance, have both adopted better appraisal software that has allowed for more frequent and fairer assessments.

Property taxes are vital for funding local investments. Through targeted changes, state lawmakers can address the impact of property taxes on low- and moderate-income homeowners and renters while ensuring robust funding for schools, public safety, and local infrastructure.