This year in Jefferson City (as with every year) there are numerous proposals to implement such changes.

We have an example of this in California. In 1978, the state passed Proposition 13, which limited the increases in property assessments and taxes (although, to be clear, Proposition 13 went further than the proposed changes in Missouri would). Proposition 13 has certainly had its intended effect of making it easier for California residents to stay in their own homes. However, it has also reduced mobility, dramatically increased alternative taxes, limited homeownership opportunities, and caused substantial tax disparities for similar properties with similar services. I would not say that it has been an overall win for the state.

I support changes to our reassessment and tax system that keep assessments accurate while addressing the tax rate aspect of property taxes, as Senate Bill (SB) 711 did in Missouri about fifteen years ago. That bill required real estate tax rates to roll back no matter where the rate was in relation to its voter-approved rate cap, and that was a beneficial change. It is time now to expand the roll back provisions to personal property taxes, county commercial surcharges, and property taxes levied by the Kansas City school district.

A much more radical change I would like to see is an end to reassessments of individual properties. This is a costly and cumbersome process that is not needed in the days of Zillow. We could change the entire process to:

• Set home values at sale price (assuming a fair market transaction).
• During the biennial reassessments, determine the average increase for an area, such as a county, and raise or lower everyone’s assessed value by that amount, leaving an option for appeals in unusual cases and additional increases for home improvements, etc.
• Then—and this is key—roll back everyone’s taxes by the same percentage to offset the assessment increase. This eliminates the unfair tax hit that people whose assessments go up more than average currently face.
• Reset values at sale, as happens now.

This proposal doesn’t favor seniors over others, doesn’t lead to dramatic differences in property assessments and taxes for similar homes, and keeps the base broad. As I like to say, assessments should be as accurate as possible and the tax base should be as wide as possible so that the tax rate can be as low as possible for everyone to fund the necessary functions of local government.

As for senior citizens, funding the existing property tax “circuit breaker” program to help low-income seniors stay in their homes with targeted tax refunds is a better way to achieve this goal.

That about sums it up for me.

The post On Property Taxation appeared first on Show-Me Institute.

Funds raised from the tax increase will be directed toward priorities such as hiring 16 new certified teachers to help struggling students and restoring technology and student club funding. Proponents of Proposition R say that without additional funds, home values will decrease due to declining academic performance. Opponents believe the additional funds won’t be used wisely, in which case the increased tax rate will lower the value of their homes.

Analysts at the Show-Me Institute have looked at how school quality and tax rates affect home prices. In Real Estate Assessment and Property Taxation, analysts demonstrated that the quality of schools and their related tax rates are capitalized into the value of property. As the video below explains, homeowners in the Clayton and Ladue school districts in Richmond Heights pay substantially more for comparable homes with better performing schools and lower tax rates.  

In short, homeowners and voters want to get the most bang for their tax bucks. The following data on school performance and school funding may shed some light on what’s going on in the district.

First, the graph below shows how Mehlville and the districts around it performed on the MAP test in 2015 in both math and science.

Mehlville doesn’t look great. In fact, the district has the second lowest math scores in the area.

But, if we look at a second data set—college readiness indicators like average ACT scores, college remediation rates (the percentage of students who enroll in courses they should have completed in high school), and the number of AP courses the district is offering—Melville is performing better than other districts in the area (see table below). 

Even with reports of losing teachers to neighboring districts, Mehlville is able to offer a large number of AP courses and prepare students for college at about the same rate as neighboring districts with more teachers and administrators (as our next graph displays).

The graph below presents teacher/student and administrator/student ratios. Mehlville has more students per teacher than Kirkwood, but fewer students per teacher than Lindbergh, even though both are better-performing districts. Mehlville also has the highest student-to-administrator ratio in the area.

Finally, relative to other school district property tax rates in the area, Melville has the lowest rate:

So what should we make of all of this? Frankly, it’s tough to say. In some ways, it appears that Mehlville is operating efficiently. With fewer teachers and administrators and a lower tax burden, the district is achieving about as well on several key indicators as other districts. In other ways, it appears that the district is lagging behind.

The real question is whether new dollars will do anything to move the needle on student performance. Simply hiring more teachers and investing in technology and student clubs doesn’t seem particularly compelling. What’s more, will raising taxes hurt Mehlville’s competitive edge in recruiting new homeowners? Without strong answers to these questions, it is hard to determine if taxpayers should get behind any effort to increase tax rates in the district.

The post Melville School District Wants to Raise Property Tax Rates appeared first on Show-Me Institute.

I think it is a long-term issue, one going back to the beginning of the current assessment system in 1985. But let’s start with the most recent, completed assessment in 2011. Jackson County had a 2010 census population of 674,158; Saint Louis County’s was 998,954. But the 2011 residential valuation in Jackson County was $5,256,120,571. Saint Louis County’s was $13,437,507,980. Thus, Jackson County has 67 percent of the population of Saint Louis County but just 39 percent of the residential real estate valuation. That is strange, and I have to believe, wrong.

And it appears to have always been this way, which means either it’s correct, funny as it may be, or that it was wrong from the beginning. In 1985, the first modern Missouri reassessment, Jackson County had a residential value of $1,478,895,251. Saint Louis County had a 1985 valuation of $4,023,318,297. Jackson County then was only 37 percent of the total. (All totals from the State Tax Commission.)

The poorer areas of Kansas City are included in the Jackson County assessment in a way that the poorer areas of Saint Louis City are not included in the Saint Louis County assessment. (Saint Louis City is not in Saint Louis County, for you Kansas City-area readers.) That would explain some of the discrepancy, but not all of it.

Jackson County and Saint Louis County are the only two large counties in the state. I cannot believe that one of them has just 39 percent of the total residential value of the other. Long-term under-assessment has to be the reason.

These low assessments have not been a good thing for most county taxpayers. The low assessments would generally have been made up with higher tax rates than in Saint Louis. Indeed, the average school district tax rate in Kansas City is higher than in Saint Louis, to give just one example. The average rate is $5.84 in Jackson County vs. $4.77  in Saint Louis County. To be fair, the existence of the Special School District in Saint Louis accounts for the bulk of that difference. Another example is that the two counties themselves have almost the exact same tax rate, even though Saint Louis County has about 300,000 unincorporated residents but Jackson County has only about 20,000. Jackson County’s rate should be lower.

For people with substantial property under-assessments, this trade-off would still have them come out ahead. For people with more accurate assessments, they would have come out behind.

Accurate assessments are not important because they lead to more money for government. I don’t care about that – I don’t even want that. Accurate assessments are important because, first, that is the law, and second, an accurate assessment system leads to a more fair property tax system for everyone.

The post Jackson County Assessment Facts, Part 2 appeared first on Show-Me Institute.

Here are some interesting numbers comparing Jackson County assessments to Saint Louis County. When I began this research, I thought the reason for the current assessment controversy would point to not increasing the values as much as they could have during the real estate boom that ended in 2007. That, of course, is not automatically a bad thing, but the point here is to discuss assessment accuracy, not tax levels. The problem, remember, in Saint Louis during the 2000 – 2007 period was more about tax entities not rolling back their tax rates than assessment increases. (Aside from the awful and illegal “drive-by” assessments of 2001, which was indeed an assessment issue.)

From 2000 to 2011, Jackson County residential assessments went up 59.6 percent. Saint Louis County, which we all know was pretty aggressive in reassessment, went up 59.7 percent. But from 2000 to the peak year of 2008, Saint Louis County went up 79.1 percent; Jackson County went up less at 68.8 percent. The difference is that Jackson County assessments decreased less from 2008 to 2011 as the real estate market declined. (Remember, the decline in real estate values began in 2007 but was not reflected in Missouri assessments until 2009.) Those assessment totals are very close to standard real estate indexes for the two areas, by the way, which is strong evidence in both counties’ favor. The key takeaway is that Jackson County was almost as aggressive as Saint Louis County in increasing assessments during the boom, so why is Jackson County so under-assessed now? (If it indeed is, though I do believe the many reports of crazy under-assessment in Jackson County.)

Going back further, from 1985 to 2011, Jackson County residential assessment increased 255 percent while Saint Louis County increased 234 percent. So, if Jackson County is so under-assessed, it has not come from a lack of reassessment increases, either during the go-go years or the total period. So what is the issue, if indeed there is one? I’ll look at it another way in Part 2.

The post Jackson County Assessment Facts, Part 1 appeared first on Show-Me Institute.

At least the City of Saint Louis attempts to value its land (as does Saint Louis County). Many Missouri counties do not make any distinction between the land and the building or home on a piece of property. They should. Land and improvements are separate assets with different values and should be measured independently. Valuing the land and the improvement separately makes for both better assessments and a more fair and consistent tax system.

There is often a disconnect between good economics and smart politics. That is a prime reason why land taxes — property taxes on the value of land only — are so rare in the United States. Economists almost universally support land taxes because land is immobile and non-distortionary. You cannot move it and somebody is always going to own it. Furthermore, if you tax the land and not the improvement, you encourage people to invest in their property. If you add on to your home and expand your business, you are not punished with higher taxes under a land tax.

But land taxes made for bad politics. Missouri, like most states, established its tax system when it was (and, in our case, still is) an agrarian state. Guess who dislikes taxing land instead of buildings or homes? Farmers, not surprisingly. But now beneficiaries include urban condo owners who are often not assessed anything for the very valuable land they sit upon. This can be particularly troublesome when combined with tax subsidies. Some subsidy programs only apply to the building and not the land. Cities or counties that utilize those programs but do not assess the land separately risk turning what is supposed to be a partial abatement into a full abatement. That could reduce the tax base even more than intended, with corresponding higher marginal taxes on everyone else.

Land taxation has worked elsewhere, most notably in Pittsburgh. Unfortunately, the only city in Missouri that had it, Kansas City, recently eliminated it. Lawyers and politicians, not economists, recommended that terrible decision. Nevertheless, Missouri can obtain some of the benefits of land taxation simply by requiring counties to judge the value of the land in assessments. Having more taxable value in the land will encourage investment in your property, because the value of the land will not change if you, for example, build an addition.
Missouri needs greater consistency in appraisals and assessments. All county assessors should be required to break out the land and improvement values. Furthermore, they should be required to accurately reflect the difference, as opposed to haphazardly guessing. We should not have situations where one valuable urban parcel is set at $0, and another a short distance away is set at $79,800. If we are going to rely on a system of property taxes to fund local governments, we need to make it a more accurate system.

David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post Missouri Urban Assessments Need Greater Consistency appeared first on Show-Me Institute.

The tax increase is needed, according to supporters, in order to (among other things) pay for the operations of a new building the district purchased in 2010. The school district says their projections on revenue were off, but it is not their fault:

“It was so unprecedented. At that point and time, it was hard to imagine that kind of downturn,” said Susan Dielmann, district spokeswoman.

That statement is referring to a choice made in late 2009/early 2010, and it is just crazy. By that time, it was apparent to many people that we were in for a long and difficult economic recovery, and the idea “everybody just assumed the economy would be terrific by 2011” is preposterous. From USA Today in late 2008 (emphasis added):

Others are gloomier. They expect continued job losses and depressed consumer and business spending throughout the year because of tight credit conditions. The resulting damage to the consumer and business psyche will change the very nature of the economy for years to come.

Many families within the Ladue School District send their children to private schools. So, it should hardly surprise people that many taxpayers within the district who do not, will not, or never did use the public schools are opposed to a dramatic tax increase to pay for something the district probably should not have bought in the first place.

On the other hand, someone once did a study demonstrating that high MAP scores have a positive effect on property values within the Ladue School District, so there is no denying that if the tax increase is necessary to maintain the quality of the schools that the taxpayers will recover a portion of those taxes via property values and sale value. However, it is hardly obvious that the new tax dollars are required to maintain the high district rankings and educational quality. Supporters of the proposal obviously think it is, and opponents think it is not. I do not live in the Ladue School District so I cannot say, but the relationship between per-pupil expenditures and school achievement is far from exact. (Clayton and Ladue certainly spend a very high amount per student and are terrific schools, but there are plenty of counter-examples.) 

Even if the tax increase maintains or improves the school quality, some of that property value increase will be offset by lower values due to the higher taxes. That study also demonstrated the positive effects that low taxes can have on property values. I do not pretend to know how the exact relationship (MAP scores vs. tax rates) would work out going forward. The gains from education quality (if the higher taxes lead to that, which is far from certain) may outweigh the loss from higher taxes. But I do predict that, if this passes, more residents in the Ladue School District will appeal their property tax assessments to try to capture some of the real estate decline and offset the higher tax rate. That will limit the effectiveness of the tax increase.

Election day next week is going to be very interesting in the Ladue School District. I fail to see how a tax increase this substantial is going to benefit the people of the district. The 49 cents per $100 of assessed valuation comes out to an average property tax increase of $766 within the city of Ladue itself. (Hat tip to here for that number, though the rest of the piece is awful.) This is a lot of money to correct a mistake.

The post The Ladue Schools Proposed Tax Increase appeared first on Show-Me Institute.

The post Property Taxes in Missouri: Can School Quality and Tax Rates Affect Home Prices? appeared first on Show-Me Institute.

Property taxation levels — along with the quality of public services they support — affect the value of houses and other property through a process known as capitalization. All else being equal, a house with a higher property tax bill will sell for less than a similar house with a lower tax rate because the buyer will include the cost of higher future taxes in the offer. On the other hand, people are willing to pay more for a home in a good school district than for the same home in a poor school district. Both cases are examples of capitalization, and the purpose of this case study is to examine its effects on housing prices in the municipality of Richmond Heights, Missouri.

There are two categories of taxable property in Missouri: “real” and “personal.” Real property is land and buildings. Personal property is vehicles and equipment.  Real property is subdivided into three subclasses: agricultural, residential, and commercial. Both the method of assessing real property and the taxation levels levied upon it depend on the subclass.

The assessment of real property is divided into the value of the land itself, and the value of the improvements (e.g. the house or office building) on the land. The values of the land and improvements are added together to form the appraised value. An assessment ratio is then applied to the appraised value to determine the assessed, or taxable, value. The assessment ratio is the multiplier applied to the three subclasses of real property. The ratios are 32 percent for commercial property, 19 percent for residential property, and 12 percent for agricultural property.

However, Missouri law dictates that both the assessment ratios and the tax rates be uniform for the land and the improvement. For example, take two neighboring homes, each with a total appraised value of $200,000.  If one has land valued at $80,000 and a house valued at $120,000, and the other has land valued at $60,000 and a house valued at $140,000, the total taxes paid will still be exactly the same. Please see Table 1 in the appendix for an example of how various appraised values translate first to assessments and then to tax dollars.

Related Links

Companion Policy Study

Commentary: A $ 109,000 School “Voucher”: A Story of Tax Rates and School Districts

Commentary: Changes to Property Assessment System Would Improve Fairness

Video: Property Taxes in Missouri: Police, Fire, Municipal Bands?

The post Homes, Taxes, and Schools: The Effects of School District Rankings and Property Tax Rates on Property Valuations in Richmond Heights, Missouri appeared first on Show-Me Institute.

Here is the Show-Me Institute’s latest study on property assessments and taxation in Missouri.

The post David Stokes Appearing on KMBZ with Chris Merrill Monday Morning appeared first on Show-Me Institute.

In Saint Louis County, the assessor physically inspects every property over a six-year cycle. I was amazed to read that Jackson County let certain neighborhoods go so long without physical inspections. From the article:

[Jackson County Assessor Curtis] Koons, who came to Jackson County from Cass County in September 2007, said the last inspection of county residential properties was at least 14 years ago, and the last thorough physical inspection, where every house was measured, dated back at least 25 years.

I thought Jackson County was in violation of state law, but apparently it is not. Saint Louis County cites state law in support of its six-year inspection cycle, but apparently that law applies only to Saint Louis County. More precisely, it appears the six-year rule is part of the county’s assessment maintenance plan as approved by the state tax commission (I have requested a clarification, and will update this post with a comment when I receive an answer).

State law or not, allowing so many properties to go so long without an exterior physical inspection is crazy. You can accomplish a lot with a physical inspection just by viewing the home from the sidewalk and offering an interior inspection if the homeowner wants one — which they almost never do.

Jackson County’s plan to update its assessed values will eventually work out. By that I mean that in a few years when the entire county’s assessment schedule has been updated, tax rates can be equalized (i.e., lowered) to adjust for the higher assessments. But for now, the homeowners in this first round will see much higher assessments without corresponding decreases in rates, and the tax bills they receive in October will be killers.

Title reference here.

The post Maybe They Should Try Drive-By Assessments in Jackson County appeared first on Show-Me Institute.

If you go out and build your dream home with a worth of $500,000, should your county begin taxing you at a rate based on a half-million dollar property as soon as you lay the cornerstone, or wait until the house is completed and you move in? I have to believe that every single person reading this (which is a very large number of people, I trust), thinks the full assessment should start when the house is complete. In Missouri, in fact, that is exactly how it works. The full assessment applies according to the date of the final passing inspection / occupancy permit / utility hookup, and the annual taxes are prorated for that year. (Unlike cars or boats, which are taxed as of Jan. 1, real estate can be prorated for taxes; also, the land would have been fully taxable during contruction.) Presumably, the land for the power plants was fully assessed during the construction, and the building was assessed at 50 percent (the article does not make a distinction). That seems perfectly reasonable to me. Now that the project is finished, the company is paying taxes based on its full assessment. Anyway, the final decision should rest with the voters who elect, or unelect, the assessor — not on a lawsuit.

The single silliest (putting it nicely) statement in the article belongs to one of the lawyers in the case:  

“It’s been difficult for school districts to have a voice in the assessment process,”

I will gladly stand corrected if anyone can show me one place anywhere in Missouri law that says school districts are supposed to have a voice in assessments — or any taxing district of any type, for that matter. TIF commissions and tax exemptions are not an answer to this challenge; they deal with rates and abatements, not assessments. Assessors are supposed to be independent, so that they can set market assessments as fairly as possible, from which various taxing districts can set their rates. School districts are in no way, shape, or form supposed to have a voice in those valuation decisions. It is just an unbelievable statement.

The post Dreadful Assessment Lawsuit in Platte County appeared first on Show-Me Institute.