Policy Research

The Millage Rate Offset and Property Tax Revenue Stability

Keith R. Ihlanfeldt, Kevin Willardsen

Summary

The article examines the popular claim that property taxes are resilient to economic downturn and attempts to provide specific details on why this occurs. The study achieves this by testing popular claims that cities simply offset millage rate to compensate for diminishing property tax bases. The article examines cities in Florida and does not find any evidence that direct offsetting methods are in place. It ultimately determines that many cities are not able to raise property tax rates due to the threat of capital investment moving away. It continues to find that cities with larger monopoly control tend to raise millage rates more than those with nearby regions for capital to flow. The study then further posits that lagged assessment values may be a significant factor in resilience.

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Policy Implications

This article can be used in examining/estimating the property taxes for a city. The article suggests that although property taxes tend to be resilient to downward economic trends, strictly raising the millage rate can be potentially detrimental when nearby alternatives exist for people to relocate. Additionally assessment value lag is suggested as a potential source of revenue stability that may not be explicit. For this reason municipalities may seek to assess the efficiency of their assessor’s office.