Association for Public Policy Analysis & Management

Panel: Fiscal Consequences of Local Government Policies

(Public and Non-Profit Management and Finance)

Property taxes have been a major revenue source for local governments. They may, however, decline substantially during economic recessions. This presents a major fiscal challenge for local governments to maintain public service quality. Governments have devised public policies to address this challenge, such as village dissolution, authorization for school districts to levy income taxes, and establishment of special service areas. It remains unclear whether or not these policies produce positive effects on local property values. Four papers in this panel examine four different policies and their effects on property values. The first paper examines the spillover effects of transportation investments on property values in Minnesota. More specifically, it explores the link between accumulated transportation capital stocks and county annual property tax revenues and the ROI (return of investment) of additional transportation investments on property tax bases. The second paper examines the consequences of the school district income taxes in Ohio, and finds that the use of the income tax inadvertently reduces property values, and thus weakens a school district’s property tax base. The third paper is the first study to investigate whether village dissolution, as a form of general-purpose government reorganization, will affect the property tax base by exploring the amount that home buyers are willing to pay to live in a village that has recently dissolved in New York State. The fourth paper uses both qualitative and quantitative analysis to investigate the fiscal consequences of the use of special service areas by local governments in the Chicago metropolitan area. These four papers contribute to the literature on how public policies may be capitalized in local property values. The papers show that public policies may have undesirable effects, especially when the policies negatively affect property values. Findings from these papers help policymakers develop better-informed public policies.