“Property Tax Base” is a good, concrete metaphor, one that readily evokes images of homes, apartments, shopping malls, office towers, industrial parks, and other properties that generate the revenue cities need to educate children, maintain roads and parks, operate libraries, care for the elderly, conduct health inspections, patrol streets, and provide myriad other services to individuals and the general public. That same metaphor, though, can also evoke images of boarded up homes, stores, and factories—in short, properties that generate little or none of the revenue cities need to fund the services listed above. The image, in this context, is of an eroding tax base.
And yet it’s hard to picture an eroding tax base in the hospitals, museums, state facilities, university research laboratories, and institutional buildings that tend to cluster in the cities. These are usually well-maintained properties where people earn a living caring for the sick, preserving our history, delivering state services, discovering new knowledge, or providing charitable services. These activities are conducted on property exempted from property taxes and thus excluded from the property tax base.
And there’s the rub, reported Governing’s Brian Peteritas in November 2012. “A pattern of property disappearing from tax rolls has developed across many of the nation’s urban cores as cities grapple with dwindling tax bases.” Where’s the proof? “In 16 of the 20 most populous cities with available data, tax-exempt properties today account for a higher share of the total assessed value then (sic) they did five years ago.” The extent to which this trend affects a city’s fiscal capacity depends on other factors, such as the amount of funds the city receives from state and federal agencies and its ability to levy other taxes besides property taxes.
Some cities that depend heavily on the property tax try to recover some of the foregone tax revenue by negotiating “payments in lieu of taxes” (PILOT) with the properties’ nonprofit owners. A Lincoln Land Institute survey found that at least 218 localities in 28 states initiated PILOTs since 2000, Governing reported. But “PILOT revenue hardly registers on most city budgets, generating only 0.13 percent of a typical locality’s general revenue, according to the [Lincoln Land Institute] study.”
Besides negotiating PILOTs, city officials are taking a close look at the legal criteria used to determine an organization’s tax-exempt status. Some are also examining how people who work in the city but reside elsewhere benefit from city services. “In Ohio and Kentucky, workers pay some income tax to their place of employment. But in other areas, the tax structure often doesn’t link the user of a service to its cost,” Peteritas stated.
Despite these and other efforts, though, “a comprehensive solution to replenish municipal coffers and shift the tax burden away from residents has yet to emerge,” he added. And yet, Peteritas suggested cities are at a crossroads, quoting University of Illinois at Chicago’s College of Urban Planning and Public Affairs dean, Michael Pagano, who stated, “What we’re facing is one of those once in-a-many generation opportunities to fundamentally revisit the social compact between a city and a region.”
