Property Tax as a Local Tax Revenue Stream

            From our class discussion and guest speakers, it has become increasingly apparent that property taxes play both an influential role in setting local budgets and as a critical source of local tax revenue for many municipalities. Property tax is a necessary evil, as it helps pay for essential and beneficial services such as education, health, safety, and routine infrastructure maintenance. In certain geographic regions, people are even willing to pay substantially higher property taxes in order to gain access to elite public schools and a superior quality of life relative to their surrounding communities. 

Quantitative research conducted by Urban Institute and Brookings Institution’s Tax Policy Center revealed, in the U.S. as a whole, approximately 75 percent of local revenue was from property tax, in 2010. This percentage fluctuated up and down based on geographic region and time. For instance, in Alabama, property tax accounts for 44 percent of local tax revenues and, in 1977, 85 percent of local revenues were from property tax. 

Unfortunately for homeowners, property taxes are a readily augmentable revenue stream for local politicians and budget analysts, especially when there is an urgent need to balance the budget – which is often a legal requirement at the local level. Since the onset of the Great Recession, there has been an increase in property taxes as a share of total tax revenue, from 72.2 percent in 2007 to 75.1 percent in 2010. 

But politicians and analysts beware, as dependency on one revenue source can be overly burdensome to homeowners, property owners or real estate investors. For example, localities with minimal commercial and industrial properties (due to exclusionary zoning) must rely almost solely on residential property taxes for revenue; consequentially, their revenue is more at risk to the ebb and flow of the housing market. In keeping with the ethos of sound personal investing, revenue diversification should be part of a locality's long-term tax strategy.

In highly suburbanized New Jersey, homeowners suffer from some of the highest property tax burdens in the country with the average homeowner paying $7,870.28 a year. From my perspective, contributing to this situation is a combination of irresponsible government spending; high service costs due to the prevalence of organized labor in the Northeast; and the lack of zoning diversity within its over 566 municipalities. Further magnifying this situation is the fact that NJ is highly segregated in terms of socio-economic status. 

In order to adequately prepare for the rise and fall of economic tides and ensure tax affordability for property owners, local governments should collaborate with one another to share services and work toward diversifying their tax base.