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 Parliament repealed the tax in 1851.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.

Related

Life of an Idea: The Origins and Impact of the Lincoln Institute of Land Policy

Virtual Valuation: GIS-Assisted Mass Appraisal in Shenzhen

In Los Angeles, someone who has owned a median-priced home for 14 years—the average length of ownership in the city—paid about $4,400 in property taxes last year, or about $3,600 less than a new owner of an identical home, who paid nearly $8,000. This gap between the tax bills for new and established homeowners grew by $400 last year alone, and has increased by $1,500 in the past four years, according to the annual 50-State Property Tax Comparison Study by the Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence.

Los Angeles is one of 29 large cities included in the report where assessment limits cap annual growth in the assessed value of individual properities, a policy that favors longtime homeowners. When real estate prices rise, these assessment limits shift more of the tax burden to newer homeowners, whose properties are assessed closer to the market value. Overall, in the 29 cities with these assessment limits, new homeowners paid 30 percent more in taxes last year than those who have owned their homes for the average duration within their city, more than double the 14-percent disparity four years earlier.

The 50-State Property Tax Comparison Study explores several key factors influencing property taxes, providing a comprehensive analysis of effective property tax rates—the tax paid as a percentage of market value—in 123 cities in every U.S. state and Washington, DC.

Drawing on data for 73 large U.S. cities, the study explains why property taxes vary so widely from place to place. Reliance on the property tax is chief among the reasons. Cities with high local sales or income taxes do not need to raise as much revenue from the property tax and thus have lower property tax rates on average. For example, Bridgeport, Connecticut, has one of the highest effective tax rates on the median-valued home, while Birmingham, Alabama, has one of the lowest. But the average Birmingham resident pays 32 percent more in total local taxes when accounting for sales, income, and other local taxes.

Property values are the other crucial factor explaining differences in tax rates. Cities with low property values need to impose a higher tax rate to raise the same revenue as cities with high property values. For example, the effective tax rate on the typical home in Detroit, which has the lowest median home value in the study, is three times higher than in San Francisco, which has the highest, after accounting for assessment limits. In Detroit, to raise $3,206 per home—the national average tax bill on a median-valued home—would require an effective tax rate 23 times higher than in San Francisco.

Other drivers of variation in property tax rates include the different treatment of various classes of property, such as residential and commercial, and the level of local government spending.

Among the largest cities in each state, the average effective tax rate on a median-valued home was 1.4 percent in 2019, with wide variation across cities. Four cities have effective tax rates that are at least double the national average—Aurora (IL), Bridgeport, Newark(NJ), and Detroit. Conversely, seven cities have tax rates less than half of the average—Honolulu, Boston, Charleston (SC), Denver, Cheyenne (WY), Birmingham, and Nashville.

Commercial property tax rates on office buildings and similar properties also vary significantly across cities. The effective tax rate on a $1 million commercial property is 1.9 percent, on average, across the largest cities in each state. The highest rates are in Detroit, Providence, Chicago, and Bridgeport, where rates are at least two-thirds higher than average. Rates are less than half of the average in Cheyenne, Seattle, and Charlotte.

The report is available for download on the Lincoln Institute website:

https://www.lincolninst.edu/publications/other/50-state-property-tax-com…

Will Jason is director of communications at the Lincoln Institute.

Photograph credit: © iStockphoto/benkrut.