The Changing Property Tax in the West: State Centralization of Local Finances

Abstract

Diminished local government autonomy and increased fiscal centralization in the hands of state government are the consequences of the restrictions on the local property tax imposed in the western states in the past twenty years. While the trend is a national one, it is more evident in the West than in other regions. Statewide voter initiatives account for some of the restrictions, particularly the more severe ones, but legislatures and governors also impose these limitations. In tracing the recent course of the centralization of local finance, this article details the property tax restrictions adopted in individual western states, examines the initiative and conventional legislative sources of these actions, and provides quantitative and qualitative evidence for the centralization thesis. In many western states the property tax has lost much of its local character, becoming in large part a fiscal and political tool for state policymakers.The property tax in the western states, as in other parts of the United States, is the traditional fiscal mainstay of local government. This one revenue source generates more than $32 billion for local governments in the thirteen western states, more than a third of their locally raised income. 1 It also has significance in statewide terms, as a key fiscal link between the states and their local governments. Frequently the property tax is an issue in the budget deliberations of legislatures and governors and in the actions of statewide electorates.What makes an analysis of this relationship timely near the close of the twentieth century are the profound changes in the character of the property tax that have occurred in Sokolow / The Changing Property Tax in the West 85

Fiscalisation of Land Use, Urban Growth Boundaries and Non-central Retail Sprawl in the Western United States

“…In Arizona, Nevada and Utah, the state legislature took similar steps. (Sokolow (2000) offers a comprehensive survey of property-tax limitation in the western US. See Chapman (1998) for a summary of the local public nance consequences of California's 1978 passage of Proposition 13.)…”

Indiana's Property Tax Caps: Old Idea, New Approach, and Surprising Incentives

“…Joyce and Mullins () draw the association between revenue limits on local governments and state aid, but also point out that a trend of increasing state aid seemed to predate those limits. Sokolow () argues that the effect of these restrictions is to diminish local fiscal discretion while increasing the state role in local finance, indicated by the increasing state share of state and local government revenues and increasing state aid to local governments; also, state legislatures are often preoccupied with issues regarding local finances. Skidmore () finds that local governments subject to TELs as well as those in a state with a state‐level TEL receive more state aid, but the interaction term of state and local limits demonstrates a negative association with state aid.…”

Fee for Service: Proposition 13 and Municipal Revenue Substitution

“…There has likewise been wide variation in the proposed conduits of circumvention. For example, several authors have attributed circumvention of property tax limits to an increase in state power or, conversely, devolution to lower levels of government (Rueben 1995;Sokolow 1998;Skidmore 1999;Sokolow 2000;Citrin 2009). Other authors have pointed to the increase in "off-budget-enterprises," frequently taking the form of accounting tricks or innovative financial debt products (Bennett and DiLorenzo 1982;Marlow and Joulfaian 1989).…”