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Property Taxes During the Pandemic

Posted on June 22, 2020
Ariel Jurow Kleiman
Ariel Jurow Kleiman
Andrew Hayashi
Andrew Hayashi

Andrew Hayashi is a professor at the University of Virginia School of Law, and Ariel Jurow Kleiman is an assistant professor at the University of San Diego School of Law.

In this article, the authors propose property tax reforms that would allow local governments to raise property tax revenue while protecting vulnerable taxpayers. They also discuss the legal changes necessary to make local tax policies responsive to local economic conditions, and the administrative and procedural changes that should be made to ensure continued democratic participation in property tax reform during the pandemic.

Copyright 2020 Andrew Hayashi and Ariel Jurow Kleiman.
All rights reserved.

State and local governments employ 20 million workers and contribute more than twice as much to national GDP as the federal government.1 Counties alone employ 3.6 million people.2 If the recession forces large-scale layoffs by state and local governments it will not only have a dramatic impact on employment — with all of the collateral consequences on health and welfare that unemployment brings — but it will also curtail the important public services that these workers provide, including police protection, medical and social services, and education. Ensuring the continuation and stability of public programs matters not only for alleviating suffering during the pandemic, but it will also affect the pace of the economic recovery and the lasting effects of the pandemic on this generation. For example, significant disruptions to primary education will have effects on students and their families that long outlast the coronavirus, aggravating preexisting social inequalities and perhaps even reducing long-term economic growth.

Minimizing the economic damage from the coronavirus pandemic requires stabilizing both local government expenditures and household incomes. The best way to achieve both goals is by borrowing, which passes some of the burden of the downturn to a future time when employment and tax revenues have recovered. But this option is largely unavailable. Local governments have limited ability to finance current budget deficits because of structural balanced budget limits, so current expenditures track current revenues more closely than they do at the federal level. The Federal Reserve’s Municipal Liquidity Facility goes some of the way to addressing short-term financing gaps, but the facility helps only with short-term delays between expenditures and receipts, and only states and medium to large localities have direct access.3 It is true that states can obtain emergency financing on behalf of smaller cities and counties, and they should do so aggressively. But short-term financing will not change the fact that much of the pain of the recession will be shared between local governments and their residents. Borrowing will not rescue local governments from fiscal disaster.

The local government response to the crisis therefore requires a careful balancing of the harms caused by reduced government expenditures and by increased taxes. Because the real property tax makes up nearly half of local government own-source revenue — more than any other own-source revenue component4 — it must play an important role in local governments’ responses to the recession. This article proposes property tax reforms that would allow local governments to raise property tax revenue while protecting vulnerable taxpayers. These policies will be especially helpful to address the pandemic-induced contraction, but they would also make the property tax a more useful fiscal instrument during normal times. We also discuss the legal changes necessary to make local tax policies responsive to local economic conditions, and the administrative and procedural changes that should be made to ensure continued democratic participation in property tax reform during the pandemic.

Balancing Government Revenues and Household Finances

The real property tax is valuable to local governments in part because property tax revenue is fairly stable over time, particularly when compared with sales and income tax revenues, both of which drop quickly when residents become unemployed and curtail spending.5 The primary reason for this stability is the ubiquity of state and local rules that limit annual increases in tax rates, property assessments, or revenue.6 These rules effectively cause increases in property values to be phased in over time, which has the result that falling property values do not immediately reduce property tax revenue if the fall in value was preceded by several years of growth. Moreover, many jurisdictions do not assess all properties each year, which reinforces the lag between falling home values and falling tax revenue.

This lag between trouble in real estate markets and falling taxes creates a buffer for local budgets during a downturn.7 Buoying local revenue is important during a recession — and especially important during a recession caused by a public health crisis — because first responders such as firefighters, police, and public hospitals are largely funded at the local level. Longer term, maintaining local revenue means maintaining important public services as well as municipal employees’ jobs.8

At the same time, stable revenue collection means stable levies on taxpayers, even those suffering from unemployment and falling incomes. During economic downturns, inflexible tax levies can be financially crippling for households.9 The challenge for local governments is to strike a balance between raising revenue to ensure the provision of important local services without unduly burdening homeowners. Although the right balance depends on the financial circumstances of households and the budget of the local government, tailoring property tax policies to local economic conditions often requires more municipal tax authority than states generally grant. This needs to change.

Provide More Tax Autonomy to Local Governments

Forty-six states limit local governments’ ability to increase property taxes.10 Of these, 14 states restrict property assessment; 35 impose a ceiling on tax rates; and 34 limit how much property tax revenue can increase from one year to the next.11 In some states, local governments cannot exceed these limits under any circumstances.12 Others allow local governments to exceed limits if they obtain voter approval in an election.13 Although this democratic guardrail may have some merit in ordinary circumstances, requiring electoral approval for a tax increase in a time of social distancing makes adjusting property taxes imprudent and probably impracticable. The fiscal rigidity created by this requirement may mean looming disaster for localities.14

Some states have property tax limits enshrined in their constitutions, meaning that statewide electorate approval would be necessary to amend local property tax policies. However, other states impose limits by statute.15 In these places, state legislatures can and should amend laws to allow local governments greater fiscal flexibility in responding to the pandemic. To provide maximum authority to differently situated local governments, policymakers should eliminate voter approval requirements for property tax increases, if not permanently then for two to three years to allow time for recovery from the crisis.

Although we are deeply ambivalent about the merits of property tax limits imposed by states on localities, if they are to remain a permanent feature of state law, they should at least allow local governments expanded fiscal authority in the event of an emergency. Rhode Island offers an example of such an emergency workaround, allowing a locality to exceed the property tax revenue limit if it “experiences or anticipates” an emergency.16 Colorado’s Taxpayer Bill of Rights provides a similar, albeit more restrictive, provision for non-property taxes, which is triggered if the local government declares a state of emergency.17 States without emergency workarounds should consider inserting them into existing property tax limits. In states where emergency workarounds exist, local governments should take advantage of them, declaring a state of emergency or taking other required actions to allow for tax increases as necessary.

Maintain or Increase Total Property Tax Collections

With their newfound freedom, local governments should raise the amount of revenue collected from the real property tax. The increase could be a temporary one adopted to fund essential government services while revenues from other sources have largely disappeared. In the short run, raising property taxes is unlikely to generate much avoidance behavior, making it relatively efficient. To the extent that the revenues are used to fund crucial services that are salient during the pandemic and that residents can reasonably expect to benefit from, a property tax increase may be more politically acceptable compared with other tax increases. And, since the property tax spreads the burden of funding these services widely and in proportion to home prices, which are a reasonable proxy for household wealth, it is also fair.

The virtues of the property tax become especially apparent when compared with alternative tools for raising revenue, such as local sales taxes or fees and fines. The current recession is characterized by a dramatic withdrawal of demand for local goods and services induced by social distancing. Increasing sales taxes, one of the primary alternative tax instruments for local governments, is therefore likely to raise little additional revenue. Moreover, the unemployment effects of further discouraging spending would be doubly harmful. By contrast, the unemployment effects of increasing property taxes, which largely fall on construction and development, are unlikely to matter much in the short term.

If local governments are unable to raise revenue by increasing the rates on a broad-based tax, they may adopt ad hoc fees, fines, and charges that are within their authority.18 During the Great Recession, local governments adopted or increased a hodgepodge of fees and charges on things like sewers and waste management, school lunch programs, parking, hospitals, and airports, among other public services.19 These charges are idiosyncratic, have narrow application, and also have a disparate impact on the poor and racial minorities.20 As one egregious and well-documented example, budget constraints in Ferguson, Missouri, led the city to raise revenue through excessive imposition of criminal fines and penalties.21 To prevent such poorly conceived revenue grabs, states should move aggressively to loosen property tax restrictions to enable local governments to raise revenue from a broad base of residents fairly and efficiently.

Where Should the Revenue Come From?

In most jurisdictions, the property tax exhibits only mild progressivity because of homestead exemptions for a portion of the assessed value of a property or circuit breakers for low-income homeowners. Tax authorities should increase the progressivity of their local property taxes by adopting graduated rate structures, imposing a higher effective tax rate on more valuable properties. To avoid incentives to subdivide properties, property values should be calculated on a per-square-foot basis. A progressive rate structure results in a more equitable distribution of the tax burden and makes it possible to either maintain or increase existing property tax revenue while lowering the burden on less wealthy households. A progressive rate structure also has a stabilizing effect on household income and wealth because effective property tax rates rise and fall with property values.

In the short term, with so much commanding legislators’ attention, states may find it difficult to navigate the political shoals necessary to change the property tax rate structure. One alternative is to raise property tax rates across the board, while also enacting or expanding property tax relief programs that target low-income and middle-income households. For instance, means-tested circuit breakers provide property tax relief based on income, and can be expanded to cover more households. Another alternative is to extend tax deferral options, which are already available to the elderly and disabled in many jurisdictions, to more homeowners. For example, individuals with incomes below a specified level or recipients of state or federal unemployment benefits, including those eligible for the new Pandemic Unemployment Assistance program because of COVID-related disruptions to their employment, could elect to defer payment of their real property taxes. Existing deferral rules generally require that the tax be paid when the property is sold, but expanded deferral eligibility — which would create a tax lien on the property — could require that those newly eligible must repay the deferred liability in installments before sale. Property taxes that are deferred, not cut, represent an asset that the local government may be able to finance by borrowing from the state or private lenders.

Introducing progressivity in the real property tax, either through a graduated rate structure or by raising rates and providing targeted relief, serves the two objectives of stabilizing local government revenues while reducing the tax burden on struggling households. Providing property tax relief is especially important because many homeowners are liquidity-constrained. By offsetting painful declines in employment or income, tax relief can allow them to continue to spend on local goods and services to support the local economy. Moreover, tax relief reduces the likelihood that homeowners will default on their home mortgages or property tax bills, and thus could forestall a potentially disastrous wave of mortgage or tax lien foreclosures.

Property Taxes and Foreclosures

Even during a conventional recession, the stress and hardship caused by rising unemployment and falling incomes makes housing security particularly important. Stable housing and neighborhoods are important for maintaining the networks of community support that fill the gaps of government assistance programs. Dislocation because of home foreclosures compounds this stress, particularly for children who may have to change schools. Foreclosures increase crime and can lead to a downward spiral of home prices and property tax revenue. The importance of housing security is even greater during the current pandemic, during which public health is best secured by social distancing under stay-at-home orders. Foreclosures and evictions that result in people moving in with friends, relatives, or crowded homeless shelters threaten to exacerbate the public health crisis and disrupt the lives of those affected. For these reasons, property tax policy during the pandemic should focus on promoting housing stability by avoiding driving homeowners into default and foreclosure.

Many homeowners will be unable to pay property taxes during the COVID-19 crisis and perhaps for some time thereafter. When a homeowner is delinquent in paying property taxes, the tax collector has the right to protect its claim by filing a lien against the property as early as the first day of the year after the year of assessment.22 Even before foreclosure, tax liens can cause stress and make it difficult for taxpayers to secure credit. To prevent these problems and promote housing stability, homeowners should be given longer grace periods to pay the back taxes; for example, one additional year. New York and New Jersey have made changes along these lines, and other states should follow suit.

Most states provide homeowners the opportunity to cure their deficiencies before foreclosures are final. In some states, homeowners have the right to redeem their homes after the foreclosure, although the redemption period can be as short as three to six months.23 Other states mandate a pre-foreclosure waiting period of several years, during which the homeowner can pay the taxes and penalties.24 To ensure that homeowners have adequate time to recover from financial distress, states should allow taxpayers at least one year, and ideally longer, to cure any property tax deficiency accrued during the COVID-19 crisis. The proper period will depend on the length of the crisis and its economic aftermath. Ideally, the waiting period should allow reasonable opportunity for out-of-work individuals to regain employment and to prioritize repayment of debts that bear on their personal wellbeing, such as mortgages. If property tax liens are sold to investors, states should reduce the statutory interest and penalty rates payable to tax lien purchasers for at least several years following the COVID-19 crisis. Investors should not profit from those left most vulnerable by this catastrophe.

A well-designed property tax can not only reduce the number of tax lien foreclosures, but also the number of mortgage defaults and foreclosures.25 Many homeowners have surprisingly little cash on hand, often living month to month with income just covering their expenses. The surprising illiquidity of many homeowners means that small fluctuations in their cash expenses can have large effects on their spending and ability to meet their obligations. During the Great Recession, many households saw their mortgage payments rise and cut their discretionary spending, even if their homes had increased in value.26 Homeowners who received property tax cuts increased their discretionary spending, became less reliant on expensive consumer credit products, and were less likely to default on their mortgages.27 Cutting property taxes for low- and middle-income homeowners not only provides tax relief to those who need it most, but also provides good bang for the buck in terms of economic stimulus and reduces the likelihood of mortgage defaults and foreclosures, which have negative spillover effects on adjacent homes and neighborhoods.

The interaction between property taxes and mortgage default is complicated by the option of forbearance for mortgage principal and interest that has been extended to homeowners with loans owned by Fannie Mae or Freddie Mac. A homeowner with a mortgage typically makes monthly contributions to an escrow account out of which the property taxes are paid by the mortgage servicer. As a result, the property tax expense is incurred in monthly increments rather than in two big semiannual payments. Escrow is a helpful budgeting aid. But how will property tax payments be made by borrowers who take advantage of mortgage forbearance? Will servicers continue to collect monthly contributions for property taxes and homeowner’s insurance, or will they shift the obligation back on homeowners? It would be best for servicers to continue to collect monthly escrow contributions so homeowners are not surprised by unexpectedly large property tax payments when they come due. But if local governments provide the kind of property tax relief that we argue they should, then they must communicate with mortgage servicers so that any reduction or deferral of property tax liability shows up immediately in the form of reduced escrow contributions.

Modifying and Modernizing Public Notice Requirements

Seventeen states require local governments to provide notice and hold public hearings when property tax revenue increases above a specific level.28 These laws, called “truth in taxation” or full disclosure laws, are typically intended to alert residents when public coffers swell because of property appreciation. The laws often require cities and counties to notify taxpayers via newspapers or print mailings and to hold public hearings to enable residents to voice opinions about the revenue increase.29 In the absence of notice and hearings, local governments are usually required to reduce property tax rates to the level necessary to shrink revenue to previous levels.30

States should modify these public disclosure requirements to reduce burdens on local governments in the current circumstances. First, if a local government is fortunate enough to have increased revenue from prior years’ property appreciation, it should be allowed to retain the extra revenue even if it cannot hold a public hearing. This temporary liberalization would provide relief to local governments already struggling to maintain local services and would accommodate ongoing social distancing requirements.

Second, for future years, the statutes should be updated to accommodate notice and public engagement methods that are both less resource-intensive and more effective. For instance, instead of newspaper notices and print mailings, governments should be able to satisfy the requirements by posting notices online and sending them via email. Additionally, and particularly if social distancing continues, virtual public hearings should be allowed. Statutes could allow local governments to satisfy the requirements with alternative notice and hearing methods, such as voter surveys, social media campaigns, and targeted outreach via community organizations. Such alternative methods could better satisfy social distancing requirements while broadening and deepening community engagement.


Cities and counties are battling the pandemic on the front lines, providing essential services from healthcare to trash pickup. Their needs are large, but their revenue options are limited. The property tax has promise and is already a stable source of revenue in lean times. If given the power to adjust property tax rates, local governments can design progressive property tax systems that shore up public coffers without increasing burdens for low- and middle-income homeowners. To do so, in addition to or instead of progressive rates, cities and counties should consider providing or expanding targeted property tax relief to those who need it. They should also reform property tax rules to reduce home foreclosures, which compound the negative consequences of recessions by destabilizing families and communities. Lastly, the procedures that govern the property tax process must be updated to accommodate social distancing. Voter approval and public hearings are nonstarters; local governments cannot act nimbly in the face of such requirements.

Cities and counties will survive this crisis. They have the tools to do so, and the property tax is one of their best. State legislators must give them the power to wield it flexibly and fairly.


1 See Andrew F. Haughwout et al., “Helping State and Local Governments Stay Liquid,” Federal Reserve Bank of New York (Apr. 10, 2020).

2 See Tripp Baltz and John Herzfeld, “Counties Miss Out on Stimulus as Outlays Rise, Revenue Falls,” Bloomberg Tax (Apr. 22, 2020).

3 The facility will be used to buy notes from counties with at least 500,000 residents and cities with at least 250,000 residents. See the Federal Reserve, Monetary Policy, Policy Tools.

4 U.S. Census Bureau, 2015 State & Local Government Finance Historical Datasets and Tables (2015) (download “US Summary & Alabama-Mississippi” spreadsheet, “Table 1. State and Local Government Finances by Level of Government and by State: 2015,” and compare local government revenue from own sources (column 4, line 7) to property taxes (column 4, line 9)).

5 See, e.g., James Alm, “A Convenient Truth: Property Taxes and Revenue Stability,” Cityscape (2013).

6 See Joan M. Youngman, “The Variety of Property Tax Limits: Goals, Consequences, and Alternatives,” State Tax Notes, Nov. 19, 2007, p. 541.

7 See Tracy Gordon, “State and Local Budgets and the Great Recession,” Brookings (2012) (noting that local budgets dipped two to three years after property values fell during the Great Recession).

8 Justin Marlowe, “The Fairest Tax During a Recession May Be the Least Popular,” Governing (2019) (finding that county governments that relied more heavily on property taxes suffered smaller and less persistent increases in unemployment during the Great Recession; conjecturing that more stable property tax revenue allowed these counties to maintain their municipal workforces).

9 Andrew Hayashi, “Countercyclical Property Taxes,” Va. Tax Rev. (forthcoming 2020).

10 See Ariel Jurow Kleiman, “Tax Limits and the Future of Local Democracy,” 133 Harv. L. Rev. 1884, 1958-60, table 5 (describing and tallying property tax limiting laws across the United States).

11 Id.

12 Id. at 1919-20, table 1 (tallying tax limit rate and levy limit overrides in all states).

13 Id.

14 See Charles K. Coe, “Preventing Local Government Fiscal Crises: Emerging Best Practices,” 68 Pub. Admin. Rev. 759, 759 (2008) (listing tax levy limits as a leading cause of local government fiscal distress).

15 Examples of such states include Delaware, Illinois, Iowa, and Rhode Island. See, e.g., Del. Const. Art. VIII (requiring uniform taxation, but not prescribing specific rate or levy limits on property taxes); Ill. Const. Art. IX, section 4 (providing property tax rules without specific rate or levy limits, although requiring uniform tax rates within property classifications, and prescribing maximum ratios between high- and low-tax classifications); Iowa Const. (discussing no limit on property taxes); and R.I. Const. (discussing no limit on property taxes).

16 R.I. Gen. Laws section 44-5-2(d)(2).

17 Colo. Const. Art. X, section 20(4) (allowing tax increases during emergencies, but requiring two-thirds majority approval of the governing body as well as retroactive approval by the electorate).

18 Studies often find that property tax limits and similar restrictions increase local governments’ reliance on user fees and charges. See, e.g., Gary M. Galles and Robert L. Sexton, “A Tale of Two Tax Jurisdictions: The Surprising Effects of California’s Proposition 13 and Massachusetts’ Proposition 2-1/2,” 57 Am. J. Econ. & Soc. 123 (1998) (finding that local governments responded to tax limits by increasing nontax fees); Ronald J. Shadbegian, “The Effects of Tax and Expenditure Limitations on the Revenue Structure of Local Government, 1962-87,” 52 Nat’l Tax J. 221 (1999) (finding that tax and expenditure limits drive governments to shift to non-property tax revenue, such as user fees and charges, as well as sales and excise taxes); and Colin H. McCubbins and Mathew D. McCubbins, “Proposition 13 and the California Fiscal Shell Game,” 2 Ca. J. Pol. & Pol’y, at 20-22 (2010) (finding that Proposition 13 led to increased fee revenue in California).

19 Lincoln Institute for Land Policy, “Cities Increasing Reliance on Fees as Other Revenues Fall” (May 7, 2015).

20 Jurow Kleiman, “Nonmarket Criminal Justice Fees,” San Diego Legal Studies Paper No. 20-434 (Jan. 30, 2020) (explaining why fees implemented in some settings, like the criminal justice system, can be inefficient, inequitable, and predatory).

21 Mildred Wigfall Robinson, “Fines: The Folly of Conflating the Power to Fine With the Power to Tax,” 62 Vill. L. Rev. 925 (2017).

22 E.g., N.M. Stat. Ann. section 7-38-48 (“taxes on real property are a lien against the real property from January 1 of the tax year for which the taxes are imposed”); and John Rao, “The Other Foreclosure Crisis: Property Tax Lien Sales 12,” National Consumer Law Center (2012).

23 Id. at 35 (listing states with redemption periods of six months or less, including Arkansas, Delaware, Maryland, and Massachusetts).

24 Id. (listing tax foreclosure waiting periods of two to five years in states including California, Nevada, New Mexico, Utah, and Virginia.)

25 Other things will affect the default decision; people may prioritize maintaining access to revolving credit rather than keeping current on their mortgage when in distress. Sewin Chan, et al., “Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays,” 48 J. Money, Credit & Banking 393 (2016).

26 Hayashi, “The Quiet Costs of Taxation: Cash Taxes and Noncash Bases,” 71 Tax L. Rev. 781 (2018).

27 Hayashi, supra note 9.

28 Jurow Kleiman, supra note 10, at 1946-56, table 4.

29 E.g., Ariz. Rev. Stat. Ann. section 42-17107; Fla. Stat. Ann. section 200.065 (2019). Even amid the coronavirus pandemic, some counties have continued to hold public hearings, despite the public health risks. E.g., Mark Schultz, “Facing ‘Unknown Future,’ Chatham County Manager Proposes a No Tax-Increase Budget,” The News & Observer, May 5, 2020.

30 Id.


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