Academic journal article Public Administration Quarterly

Benchmarking Property Taxes in a Metropolitan Area

Academic journal article Public Administration Quarterly

Benchmarking Property Taxes in a Metropolitan Area

Article excerpt

INTRODUCTION

Scholars of local public finance have long been interested in the ways that neighboring jurisdictions can influence each other's fiscal policies. The public economics literature has extensively examined the impact of tax differentials on the incentive to move resources across regions (Beck, 1983; Wilson, 1986; Zodrow & Mieszkowski, 1986). Because capital and labor are the primary drivers of economic growth, local officials may seek to set their tax policies in a way that will entice businesses and workers to relocate to their jurisdictions. Jurisdictions with tax burdens that are relatively lower than their neighbors' tax policies would be expected to benefit from this movement. This creates the conditions for tax competition, a pattern of fiscal policy in which local officials strategically set their taxes in response to the taxes imposed by neighboring jurisdictions (Brueckner, 2003).

Within a context of administering fiscal policy in this type of competitive framework, local officials must actively observe the tax policies of their neighbors. They do so to determine whether the tax rate chosen is both adequate to meet the revenue needs of the city, yet not so high as to discourage investment or upset local voters. Many public officials look to their neighbors for information on whether to raise property tax rates and generate additional revenue. Such comparisons are difficult to make, however, because neighboring jurisdictions may have dramatically different economic conditions and service needs and therefore have distinct tax policies. Revenue benchmarking, or the generation of comparative tax data for use in planning and management, is in high demand for municipalities interested in assessing how their tax burdens compare to other similar local governments.

In 2012, several cities in the Phoenix metropolitan area began a collaborative effort with Arizona State University's Center for Urban Innovation its partner the Alliance for Innovation in order to develop high quality benchmarking data for a variety of measures of public performance. The objective was to develop comparative data for a group of neighboring cities in the Phoenix area. The group initiated a plan to undertake a series of studies of different service areas and public functions. The first functional area examined was property tax policy. Revenue policy was a priority for the group because city council members were interested in the political implications of service and tax differences across jurisdiction boundaries. Other sources of benchmarking data, such as the International City/County Management Association's (ICMA) Center for Performance Measurement (CPM) survey data, in which some of the metro cities participated, facilitate comparisons with similarly-sized cities throughout the country, but do not provide concentrated coverage within metropolitan regions. The Valley Benchmark Cities (VBC) group was organized with the explicit goal of developing detailed performance measures for as many cities in the metropolitan region as is feasible. Following the review of property taxes, the VBC group's subsequent studies have examined building permitting costs, public safety costs, water sustainability plans, and infrastructure expenditures, police and public safety performance, libraries, and park amenities.

In addition to achieving concentrated local coverage, another goal of this research collaboration was to overcome concerns held by many local officials in the Phoenix area that sharing detailed performance and cost measures with neighboring communities may result in unfavorable or inaccurate comparisons. Simple counts of service outputs or per capita expenditure data would not take into account cross-city differences in service needs or production costs. ASU's Center for Urban Innovation and the Alliance for Innovation (a nonprofit organization with approximately 400 member communities committed to developing and sharing innovative actions to improve local government) provided resources that helped to overcome these concerns and increased local officials' willingness to share data. …

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