Transitioning Out of Capped Property Assessments

Assessment caps lead to inequities because the same growth limit is applied to high and low growth properties. For high growth properties that fall under the cap, the assessments are artificially lowered relative to prices, resulting in lower effective tax rates. This paper presents a method of transitioning out of a capped system where instead of an allowed percentage increase in assessments, there is a limited rate of value that can be recaptured, defined as the difference between market value and capped assessed value. Unlike the assessment cap approach, which benefits properties that are appreciating in value, this value recapture approach shifts the burden to high growth properties that have benefited from the cap.

Capped assessments create well-known inequities, both horizontal and vertical. Using Gini measures of equity to analyze New York City (NYC) data, this paper shows that the value recapture approach can achieve assessment equity while moderating annual assessment increases. The modified Kakwani Index is used to measure vertical equity and a novel index for horizontal equity is introduced as the ratio of the within-group Gini to the citywide Gini. The within-group Gini is the weighted average of the subregion Ginis. Horizontal equity exists when all the subregions have the same Gini as the citywide Gini, or when the ratio is 1. Using NYC data, this research shows that it is possible for the ratio to reach 1 within five years of transitioning out of capped assessments.