Association for Public Policy Analysis & Management

In this paper, we estimate the returns to scale in property assessment. We study the effects of alternative policy options for small tax assessing jurisdictions other than consolidation, that may enable them to save operational costs while improving quality of assessment. Property assessment is closely tied to property levying function, both reflecting local fiscal autonomy of the local governments. However, there are apparent trade-offs for greater accountability and local autonomy. Smaller assessing units often are challenged by lack of own-source revenues and human resources that lead to sub-optimal provision of assessment services. Therefore there may be potential cost benefits from economies of size as long as the assessment services, provided by each assessor does not diminish in quality as the number of parcels one overlooks increases. This paper is an empirical study on whether merging property assessing function among local assessing units leads to cost savings, in the context of New York.

We focus on tax assessing jurisdictions in New York that unified their assessing functions with their neighbors, while maintaining their authority to levy property taxes by forming a coordinated unit. We test whether such decision may lead to cost savings and estimate the returns to scale in property assessment by using cost function approach. We address the potential selection bias of each jurisdiction's decision to form a coordinated unit using multiple instrumental variables, constructed by using spatial information on intersection of borders and the history of inter-municipal cooperation in providing public services among neighboring jurisdictions. We find suggestive evidence on economies of scale among larger assessing jurisdictions, and increase in adjustment costs among smaller jurisdictions that combine tax assessing function with its neighbors in New York. We use administrative and survey data on town and city governments in New York State from 2003 until 2014 to estimate the extent of scale economy in assessment. This study will contribute potentially to the equity and efficiency literature and substantively to the practice of property tax administration. Although we use a sample of tax assessing jurisdictions in NY, the population of this study is all local governments that play the role of tax assessment in a decentralized property tax system. On a broader scale, this paper extends the perennial discussion on equity and efficiency in public service provision to the study of property tax administration.