States that limit property tax increases hurt low-income families, per report

Limits on property tax growth have shifted burdens "onto the backs of those families who already struggling the most.”

FAIRFAX, VA - DECEMBER 28:  Residents wait in line to pay taxes at the Fairfax County Government Center December 28, 2017 in Fairfax, Virginia.  (Photo by Chip Somodevilla/Getty Images)
FAIRFAX, VA - DECEMBER 28: Residents wait in line to pay taxes at the Fairfax County Government Center December 28, 2017 in Fairfax, Virginia. (Photo by Chip Somodevilla/Getty Images)

State laws limiting the amount of money cities and towns can raise in property taxes each year have hamstrung municipal budgets and schools, engendered racial inequality, and further burdened low-income people, according to a new report from the Center on Budget and Policy Priorities (CBPP).

A total of 44 states and the District of Columbia have at least some limit on the amount local communities can raise property taxes — the primary funding source for important government services such as schools, police, and fire protection.

In Massachusetts for example, communities cannot raise the amount of local revenue it receives through property taxes more than 2.5 percent each year without first getting approval from voters by referendum. Michigan has property tax limits written into its constitution that essentially cap the annual growth in taxable property value to the rate of inflation or 5 percent, whichever is less.

The CBPP, which focused on the laws imposed in Massachusetts, New York, Oregon, and Michigan, found that such measures create a host of problems.


“Harsh limits on property tax growth has forced harmful cuts in funding for these crucial services. They’ve also caused localities to shift who pays for these services away from the wealthy and onto the backs of those families who already struggling the most,” said Michael Leachman, the CBPP’s senior director of state fiscal research during a conference call with reporters on Wednesday.

“They also tend to lock-in racial inequalities,” Leachman added. “And, if that were not enough, in some states because of these limits, the owners of two very similar homes can be paying very different sets of property taxes.”

Since the late 1970s, when states began imposing such laws, cities and towns have been forced to balance their budgets through sources other than property taxes. In 1977, property taxes made up 50 percent of the total revenue that local governments raised on their own. By 2015, that percentage had dropped to 39 percent.

That loss in revenue is often not covered by state or federal governments, even when there are provisions in the law requiring states to cover the expenses. Federal aid to local governments has dropped significantly as well, from over 8 percent to less than 4 percent of local revenues between 1977 to 2015, according to the CBPP’s former Deputy Director Iris Lav during the conference call.

During the recession, cities and towns in Michigan faced deep budget cuts and losses in revenue. But its property tax limit “makes it nearly impossible” for those communities to recover because it limits revenue growth during an economic recovery, while allowing taxable values to fall during recessions, said Lav, who co-authored the report.


New York enacted its cap in 2011 but has already seen cuts in services. Between 2011 and 2016, as the national economy grew, county spending and services such as education, social services, and community services all declined, Lav said.

The report cited a 2017 Cornell University survey, which found that (excluding New York City) 77 percent of the cities and towns in New York State and 58 percent of the counties reported moderate or significant fiscal stress. Over three-quarters of local governments claimed the cap impaired their current budgetary needs and 88 percent said it impaired their future needs.

To avoid significant spending cuts, cities and towns have resorted to other means to raise that money. For instance, towns have raised sales taxes or imposed fees on services such as sewage, trash pick-up, community college classes, or on school athletics or extracurricular activities. Those methods disproportionately impact low- and middle-income families because a flat fee is a bigger share of their income than it would be for a wealthier family.

Worse, the CBPP cited a 2015 U.S. Justice Department report that found that cities and towns have supported their budgets by imposing fines for infractions, misdemeanors, and felonies as well as court-related fees. Those fees can have a severe impact on lower-income families and people of color — including jail time for failing to pay fees.

Also, property tax limits can provide greater tax savings for white homeowners, who are more likely to own expensive homes than people of color who often live in lower-value areas due to historic racial segregation, according to the CBPP report.

Instead of capping property tax increases, the CBPP recommended states expand the use of property tax credits, or refunds called “circuit breaker” programs, which are typically offered elderly, disabled, and very low-income households to all residents whose property taxes exceeds a specified proportion of their income. States could also raise income taxes or state inheritance taxes that typically impact people with higher incomes and use that money to restore state aid or support schools or local services.