me Jme 189-nrinute debate and>mnd voice vote on the floor ti theU.S. House of Representatives to elimin-ate FY 19 funding for ACfR shotidkaca!.l toarmxforaR whocare~utthe future of ferferrdianr and mopem-tive intergovemmentaf refatiorm. It’snot just ACfR that is at *e here it’sthe devaluing of federalism. fn the ~Congreaswaxwillisrg to establish institu-tions sucJrACJR and heed their recrrm-mendations. ‘ffrday, this is less so.

Fortumtely, on August 3, the fullSenate voted to restore funding forACIR at $985,000. But this amount isnot sufficient for ACIR to maintain itscurrent level of services.

ACIR is not just another federalagency. It is an exemplary institutionalexpression of the intergovernmentalpartnership that once animated ourfederal system. ACfR is the nation’sonly official, independent, bipartisanforum-funded by the federal gover-nment and states—where leading fed-eral, state, and local officials and pri-vate citizens wme together to addressmajor intergovernmental issues andforge consensus approaches to thesematters. Yet, the House memberswho were present on the floor onJune 18voted ax ifAC~ were aburearr-cratic nonentity. Hence, ACIR, whichamounts to a whopping .00012 percentof federal spending, could be zeroedout of the budget, along with otheI

small agencies. Even if ACIR survivesth~ year’s budget cycle, it will cmrtin-ue to have to fight for its esistence.

The effort to eliminate ACIR isalI the more distur’tring now that wehave entered an exciting era in whichmany muntries are trying to decen-tralize. power to promote demncracyand prosperity. Even Russia ia at-tempting to establiih a constitutional-ly democratic federal system. Theylmk to us for leadership, and ACIRhas helped them in their efforts to in-stitute federalism.

The founders of our nation in-vented modern federalism, and theexperiment was a remarkable suc-cess. Yet, what are we doing now? Weare concentrating power in Washing-ton, piling up national debt, loadingmandates on state and local govern-ments, and preempting state and I@cal powers at unprecedented rates.We are in the process of dismantlinga system that has worked extremelywell for over 200 years.

Unfortunately, the trend towardcentraliition has eclipsed the con-cept of federalism, which is the under-pinnirrg of our constitutional system.The federal government has elimi-mted much of its institutional capacityto foster inherent and mperative in-tergovernmental relatiom. OMB’S in-tergovernnren@ division was abnkhedin 1983; GAO’S intergovernmental unitwas down~ded and dovmsized to nearextinction; CRS has nriniial irrtergov-emmental capability; offices of irrter-govemmental research and innova-tion irr the major federal departmentsare shadows of their former selvesACfR’s,appropr’iations were cut by 52percent during 19S6-89; and the con-gressional subcommittees hatig ded-icated intergovernmental jurisdictionfncus little on intergovernmental af-fairs. Indeed, the Senate’s Subcom-nrittee on Intergovernmental Relationsw ahlished in 19S7arrd its fmctions

*wti into the Suhrrrnrittee onGovernment =Iciency, Fedemlisrn andthe District of Colmrrbn.

Given this deteriorating intergov-ernmental climate, it ixno wonder thatACIR no longer holds a secure andspecial place as the nation’s official fo-rum for mnstitutiomlly co-equal fed-eral and state colleagues and their lo-cal and private-citizen partners. Nowonder the stat e and local officials andpublic members of ACfR fulffll theirCommission reapnsibilities faithfullywhile the mngressional and federalexecutive members are less attentive.~Is is not to say that they do not care,but, tnday, an institution like ACIRbarely registers on their radar screens.As a Senate member of ACfR ac-knowledged, “there is no poIitical cap.ital in intergovernmental relations.”

ACIR is about the only organiza-tion remaining that is focused on irrter-govemental relations. The natiomlassociations of state and local officialsare not sufficient to ffl the vacuumwere ACIR to cease functioning.These organizations serve differentpurposes than ACIR. ~ey areprirnar-ify lobbying organizations that f~ onday-to-day pnticy developments. ACIRis the last standing intergovernmentalinstitution established by the federalgovernment during the era of cuop-era.tive federalism. If Congress doesnot fund the Commission next year (orin subsequent years), ACIR will closedown after over three decades of muchacclaimed public service.

All the outstanding work done byACIR on institutional, legal, fisml,and administrative federalism cannotbe fatily detailed even in an entire is-sue of Intergovemrnental Perspective.Many people depend on ACIR’S bal-anced, well researched and insightfulpolicy reports. ACIR has providedmuch in the way of analysis and recom-

(continued on page 35)

2 Intergovarrrmental ParswM/Summer 1593

In-menbl Summer 1993, Vol. 19, No. 3

10

13

16

19

21

Local Property Taxes:Emerging TrendsPhilip M. Dearborn

Assessments and Property Taxes:Today and TomorrowJohn 0. Behrem

The Property Tax:Local Revenue MainstayHugh Mields, Jz

Two-Rate Property Taxesand Urban DevelopmentJohn E. Anderson

Modern Technoloavfor the Mass App;;iserDavid L. Jensen

26 Assessment Innovationin Orange County, FloridaRichard W Rourk

SteffJohn Kincaid

Executive Director

Joan A. CaseyPamela L Reynolds

cO-RditOl’s

Intepvmmental Pewtive(ISSN0362-S507)is publiihedfour times a yew by theUS. Adtiq Commissionon Intergo%mmental RelationsWashington, DC 20575(202)653-5640

2 A View from the CommissionMary Ellen Joyce

4 ACIR News

8 STATEMENTWorkgroup on Stata end Local

Parfnerehip with the FaderelGeographic Deta Commlttae

24 Intergovernmental Digest

30 Grants Notes

The Cbaiimm of theAdvi.soy Comm&ion on Inter@venunentd ReJationsha &ttnnimd that tipublica-Iionof thi.s~tidicd K wwaIY in thet-lion of thepublic bwius quind by law of thh Commi.csion.Useof3iUId.Sforprintiw thh documenthas beenapprovedbytie Diwtor of the 013iceof M~ent md Budget.

~CIR News

ACIR’S Uncettain Future

On June 18, 1993, the U.S. Houseof Representatives approved, by avoice vote, a floor amendment to elirrr-inate fundirrg for ACIR for FY 1994.On August 3, 1993, however, the fullSenate approved FY 1994 funding forACIR irr the amount of $985,000.

President CIiiton’s FY 194 ap-propriation request of $1,859,000 forACIR—arr irrcrcase of $39,~ overthe FY 1993 appropriation-had beenapprOved by the House Committee onAppropriations. When the bill reachedthe House flmr, Rep. Joel Hefly (R-CO), supported by RepresentativesBill Orton (D-UT) and Jirrr Ughtfont(R-IA), offered an amendment to re-duce ACIR’S appropriation amount tozero. Rep. Steny Hoyer (D-MD),Chairman of tbe House Appropri-ations Subcommittee on ~easury,Postal Service and General Govern-ment, spoke against the amendment indefense of ACIR.

If funding for ACIR is not restoredtbrougb House-Semte action, AC~will be rrqrrired to close dom on Sep-tember 30, 1993.

Speaking for the amendment toeliminate funding for ACIR, Repre-sentative Llghtfoot wid

I served on the Comm&ionwhen I was rankirrg member on the

Submmmittee on House Gover-nmentOperations a few years back.The Commission does do, I thirrk,goud work; but I thirrk we havereached the poirrt in time when wehave to make a decision betweenwhat do we want and what do wereally need. 1tbirrk in this case, if wedraw Orat definitive lie betweenwhat we warrtmrd what we need, yes,we want it, but do we need it? I thinkwe W have to cume down on theside of saying we do not.

Unfortunately, we hate to dothese kinds of things, but at thesame tirrre, if we are goirrg to chipaway at the deficit, every little mv.irrg that we can make mmrts.

Speaking against the amendment,Representative Hoyer said

The appropriation for th~agerrq is $1.8 million, not a lot ofmoney, but inrpurtant money. Arrd ifyou talk to your Governor, to yourmayor, if you tik to your mrrntryjudge or mmrty exative, they willall telf you that the work product ofthe ACIR is very usefrd to them in-g out their duties, arrd bringsto them ideas that have been triedarrd found to be sumedul irr otherparts of the mmrtry, either irt terrrrs

of satig money or delivering theproduct to the Arrrerican public.

ACIR is highly regarded for itsdissemirration of useful, objectiveinformation on many aspects offederalism and iutergovemmentaIrelations.

For that reason, Mr. Chair-man, the committee decided tokeep ACIR in. We did not expandits fundirrg, but we believe this is asmall, but useful, agency as we tryto better detemine the best mis ofresponsibility at the Federal, State,and local levels.

Farewell to the ChairmanOn June 10,1993, an appreciation

dirrner for Robert B. Hawkins, Jr.,ACIR’S longest serving chaimran, washeld at the Arrrry-Navy Club in Wash-irrgton, DC. Former Commissionmember David Nething hosted theevent, which was attended by currentand former members and other ACIRfriends. Dr. Hawkirrs received cmrgrat-ulations from many people across thecuuntry, including a resoIrrtion honor-ing his service from the DelawareGeneral Assemblv.

Former presi~ent Ronald ReaganaPPOmted Hawkins chaimran on June25, 1982. His last temr on ACIR

ACIR’S Approprlstlon Request Comparedto Toisl Federsl Government Budget Authority ($1,517.2 billion) Recommended for W 1994

(0 = $1 billion)

(dot too small to show relationship)

tACIR Annmnriatiorr Reauest —$1.859 million.. . . .. . . .. . . . . . .

4 Intergwsrnmenti PampUva/Swmar 1933

Vlvlan E. Watts participated Ina symposium on correctionsin Tampa, Florida, May 23-26,1993, hosted by the council ofState Governments and theAmerican Probation and Pa-role Association. Picturedwith Ms. Watts (l-r) are NACOFirst Vice President EarbaraSheen Todd, Pinellas C:#r:::(FL) commissioner;Carpenter, former chair ofNACO, S Justice and PublicSafety Steering Committee;and R, William Ide, presi-dent-elect of the American❑ ar Association.

Photo courtesy ofCounty News.

expired on June 30, 1993. Hawkinssaid, “It has been a tremendous plea-sure and privilege to serve as Chair-man of ACIR. When PresidentReagan invited me to serve irr hisadministration, I told him that I didnot want to move to Washington towork irr the White House. I reallywanted to work with ACIR because it’sirr touch with grassroots governmentand stands for a core vahre of our greatdemucracy-federalism. Federalism iscritically important today, not only forthe United States, but also for theworld, because federalism is aboutself-government in a free society, andit’s about sharing power among di-verse communities and peoples.”

“Working with all of the local,state, federal, and public members ufACIR has been a great experience,”he added. “We haven’t always agreedon issues, but we have tried to worktoward consensus arrd break newground on matters of overriding impor-tance to intergoverruuental ceopem-tion, such as mandates preemption,irrtergovemnrental regulation, federaland state constitutional law, grant re-form, devolution, metro~hm gover-nance, daal economic regulation, andmany specific. policy areas, such aswater governance, welfare, infrastmc-ture, and environmental protection. Ileave, therefore, with a true sense ofsatisfaction and immense appreciationfor the members and staff of theCommission who have worked

through some tough years to makeACIR a dynamic and vital institution.”

Dr. Hawkins, who is president ofthe Institute for Contempmry Studiesin San Francisco, said that he willcertainly stay irr close touch with theCommission’s work as he continues toremain involved in issues of federal-ism and self-government.

On the ACIR Agenda

The Corn-on met as a cmmrrit-tee of the whole on June 10-11, 1993,inWashington, D.C. The frdl co-ion,depending on fundirrg, will meet inSeptember for fii action on agendaitems d~ at the meeting.

Following are highlights from theagenda.

Geograptdc Data Project

‘f’heCommission has been workingwith the U.S. Geolo~cal Survey to helpdevelop a state and Iml partnemhipwith the Federal Geugraphlc DataCorrrnrittee (FGDC). ACIR convened awork group of representatives from ninenational asmciations representing stateand lncal governments aad regiomlplaming councils. me gcoup met inDecember 1992 and in Febmary,March, and April 1W3. On April 23,1993, the group adopted a statementthat supprts the work of FGDC arrdrammends the development of wp-erative institutions for more efftiiveand efficient intergovernmental and

irrteragen~ exchmge of irrfonrmtion.The statement also urges the participat-ing organizations to Forge an effa-tivepartnership with FGDC. ‘ffre Commis-sion endorsed the statement and willcontinue its role on the project (seeStatement, page 8).

Child Care in the Federal System

An analysis of the intergovernmen-tal relations of child care progmms wasgiven initial cmrsideration at the Com-mission’s meeting on December 18,1992. The Commission reviewed theprinciples, fiidirrg3, and recommenda-tions at this meeting. Clraiin RcbertB. Hswkins, Jr., appointed Cornmis-sionem Daniel J. E-, Robert ImaqBadrars Sheen Wd, and Bmce ‘Ibdd toa mmmittee to fmlize the fiidmgs mdrecommendations.

Other Commission Actions

■ The Commission endorsedACIRS mntinuing role in the infra-stmcture strategy project with theU.S. Army Corps of Engineers toevaluate federal, state, and lucal gov-ernment and private-sector infrastruc-ture policy issues.

■ ‘me Commission approved rec-ommendations with mudflcetions fora report on State Law and Local hton-omy: Needs for Constitutional, Statuto~and Judicial Reform. me forthcomingreport fmses on the legal aspects oflocal government autonomy.

Intergovemmenti PO=pactivelSummer 1993 5

——.—

State Support for ACIR“~he Commission would like to

thank the following stat= for theirrecent financial sup~m Arkan.m.r,California, Colorado, Connecticut,Florida, Hamii, Indiana, Kamar,Kentucky, Maryland, Minnesota,Missouri, New Hampshire, NewJemey, New Mexico, Ohio, Oklahc-ma, Pennsylvania, Rhode Island,South Carolina, Tennessee, Virginia,and Wimrrsin.

.—

■ The Commission began prelim-inary discussion of a ne~ fo~r-yearwork agenda. Tnpira based includedfedersI !rrandatw, I=A, mnsumptiontsxes, intergovernmental deciaion-making in environmental protectionand public works, apprenticeship pro-V$ mrd state versus tribaf regrda.trons m the gaming induat~.

ACIR Urges Revampingof Criminal Justice Policies

At a press briefing in Washington,DC, on July 12, 193, ACIR releasedThe Role of Geneml GovernmentElected Oficials in Criminal Justice.ACIR’S Chaii Robert B. Hawkina,Jr.! sai~ me overlnsding of ourpnaom co- and other cdminal jus-tice agenties has been driven more bypublic policies eapecinlfy sentencingWlicie\ erected by our eltied statemd federal official$ thmr by increaaedcrime or m’rests.” He urged the mtion’sgeneral elwed atate, local, md federaloffii to rewp rdmii jutiicepiJliciea snd require more intergover-nmentalmd interagency roo~tinn.

Thii report it accompanied by aGuide to the CrimindJustice System forGeneral Government Elected Oficialsto help them oversee the system moreeffectively. The Guide deals with thesystem after crime occurs, focuses onmajor cost impacts, and provides basictools to help officials improve criminaljustice agencies.

National Conferenceon High PerformanceInfrastructure

ACIR, in cuoperstion with theU.S. Army Corps of Engineers, spon-sored a two-day cotierence on per-formance-based federal infrastmctureinvestment strategy. The participantsreviewed and commented on a dmftACIR repost on infrastructure strate-

gy, and the six task force reports onwhich it is based.

Alice M. Rivlin, deputy director ofthe U.S. Office of Management andBudget, gave the keynote address onbudgeting for performance. Sen. BobGraham, member of the Congressio-nal Infrastructure Caucus, and Rep.Bob Cam, csiairrnan of the Tmnsporta-tion and Related Agencies Appropri-ations Committee, presented viewsfrom the Congress.

Also participating in the cutier-ence, which involved more than ~people, were ACIR members EdwardG. Rendell, Mayor of Phdadelpha, PABarbara Sheen Todd, Commissioner,Pinellas County, FG and Bmce M.Todd, Mayor of Ausdxr, Tx.

Short Courseon Clinton Federalism

ACIR will host a short mucae on‘%e Clinton Administrating and theProspects for Reinventing Federal-ism.” The murae is ~nsored by theOrganized Section on Federalism andIntergovernmental Relations of theAmerican Political Science Associ-ation. The cmrrse will involve briefingsOn the federalism initiatives of theClinton admtilstration as they relateto the administrstion’s mandates forchange rebuilding the emnomy, re-ducing the federal deficit, investing inthe nation’s infrastructure, providingaffordable universal health care, re-forming welfare, edrrmting Amerira,and greening the market. The cmsraetil be held at ACIR from lZOO-SNp.m., September 1, 1993. Registration,which is due by August ~, is $35 perperson for APSA Federahsm Sectionmembers and $45 for non-membesa.To register, please contact: Prof. Ste-phen L. Schechter, Department ofGovernment, Russell Sage College,Troy, NY 12180;phone (518)270-236>FAX (518) 271-4545.

Commission Appointment

House Speaker ~omas S. Foleyappohted Rep. Steven H. Schiff(R-NM) to a two-year term on theCommission.

Representative Schii bsa been amember of Congress since 1989. fnaddition to his membership on theJrrdiciaxy Committee; the Science,Space mrd Tecbnolow Cmmnittee; mdthe Committee on Standards of OffIciafConduct, Reprewntative - sem=M the mtig Repubficm on the

Steven H. Schlff

Subcmrunittee on H- Resourcesmd Intergovemnrental Relntions.

Reprmentative kbiff aewes sschsinmm of the House RepublicanResearch Conunittee’s ~k Fom onCrime, which ia developing model legia-Istion for dealing with violent juvetienffenders. The mtittee alao k atirdy-inz prison reform, inchrdmg good-timecr-~”it for ptin tit% fi;h-in-sen-terrcing, md DWf Ie@tion.

—— —. —

State ACIR Newa

w me Viginis Adviamyco~ n on Jntergovemen-taJ Relatiorra rmrrtly publishedTown-CountyFrrc&Relutions: l?ieI.sueofDo&e Ttin. The studyia de3i@ed to detemrine whetherthere ars certain c41mIty3srvice5tit tmvrr re=ents du not rtiesven their@ they pmtialfy fmcethem tfrrou@ paysnmt of comdyties.

■ me Rhode IslandSeme-bl Relations Commis-sion k now imrsctive.

= The Florida AdvisovCouncil on IntergovernmentalRelations will host the annualconference of state ACS.RS onSeptember 10-11 in Orlando,FL. Agenda items for tbi3 con-ference include state mandates,Indian gamtig, local autonomya,nd home rule, md double t~.tlon. For further informationand registration materisl pleasecmrtact Sandy Shiver (W)488-%27 or Jeffrey Fitzpatrick(~2) 653-5540../

_—. ———.

6 lntergovemmen~ Pers~tive/Summer 1593

~ ACIR P.bl,cat,ons

The Role of General GovernmentElected Officials in Criminal Justice

General $ovemment elected officials play a crucial role in everyaspect of crimmal justice-from shaping plicy to holding an administra-tor accountable for the cost of a new building~ from listening to a grievingrelative plead for tougher sentencing to smtmg out the statistical claimsof program perfonnanm; from using political leverage to requiringinteragency collaboration in making hard budget decisions. This reportspells out the intergovernmental, policy, snd management issues facinggenerat government elwted officials in dealing with the decta ofexplosive growth in the ~em drning the Iaat 15 years and with thecbaltengcs of the nti d-e.

A.12S 1s93 $20

Guide to the Criminal Justice Systemfor General Government Elected Officials

The guide is intended to assist general government officials–elected chief executives, legislators, and admtilstrators and advisors-intheir oversight of the criminal justice system. The guide focuses onsystem actions after crime occurs, emphasizes the role of state and localgovernments (the federal justice system handles only about 6 percent ofcriminal cases), fmses on concerns that have major cost inrpacts acrossagencies and governments and over tirnc, and provides basic tools to helpofficials improve the functioning of crirrdmal justice agencies.

M.1S4 1993 $8

Set (M.1S4 & A.125) $23

Federal Regulation of State and kal GovemmenkThe Mued Record of the 1980s

A decade ago, ACIR kued a report on regrdato~ federalism-theuse of federal reguhtions aimed at or implemented by state and localgovernments. Thii report examines the results of initiatives to refomintergovernmental regulation during the 19S0s, especially ExecutiveOrder 1X12 on Federalism and the State and Local Government CostESimareAct. The report .1s0 inventories a number of new mandates andtraces the U.S. Supreme Court’s evolving doctrines affecting intergov-ernmental regulation.

A.126 1%3 $15

(see page 29 for order form)

lntargOvammenW Para~tiva/Summer 199S 7

STATEMENTWorkgroup on State and Local Partnership

with the Federal Geographic Data Committee

We, the rapreaentatives of the Council of State Governments,Intematiemal City/tinty Management -ation, National-ationof Wntim,Nadenal mation of Regional Ceun-cils, National @nfemncc of State Le@latures, Natid *m-om’ _@ N_ League of ~~ National StabGeograPti Inferrnaden Wti 81KIU.S. ~nfemnce of -mm p- te -- invited te mme tegether to mnsti mtab-Iishing apmhip tith the -d -hit Data mlnib(FG~titObCcOme tiNin**ti

We haw app~ Oda tmk with a growing sense ofimpadent enthuaiaam. Datnmerdination oppertunitim are beinglest and duplicadve spedng is squandering limited Hm.Immediate nction is _ te eliminate thm 1-s.

We wish to ~owledge the fflntribution of ACfR to thepitive outmme of our wrk ACfR has made it ~ible forreprmentati= of nine pubti interest groups, including state andlocal offidab, te wrk tegether, to de=lop and mmmendtiting iimt steps toward building a National Spatial DataInfrastructure in Partnemhip with the Federal Geographic Data~mmiti. Without the pref=ional, dedicated vmrk, facilita-tion skills, patienq and understanding of the ACIR stti, ourwrk muld net have.~.

Aa the result ef eur deliberations from December 19P2threugh April 1PP3

L We Ffnd th8ti

The annuef public ~nditures for spatial data collection,maintenance, and manipulation are estimated to be betweenS7billion and $lObillion nationally in 1993. The federal, state,and local govemmenta each fund substantial portions of threempemli- V. Ii* of ti invmtinent- its fill potendrdbecauaeofpervasim redundmti~, inmmbtendea, and inaceura-ciea. Given the -nt of these public expenditures, and thesignificance of geographic information m a strategic =urce inthe Information Age.,an urgent attempt must be made to seek outo~mtionrd efficient and to fully capitalim on society’sinvestment in spatial data. At this jun~re., the public spatial datammmunity h= a rmpomibilhy to wrve the mmbined interests ofall ~yem and pubk dtionmakem.

The oppmtuniti fer wotiination and mllaboration aretechnically practicel, -nemically feasible, and tiscally mpoti-blc. F(3N hap- a mmept for developing a nationalspatial data infr86tructure (NSDf) consisting of repidly dewloping ~ne~ data p, s~tematic fmm-fi, andcommuniticd of ~h and instituting dedicated m vmrkingtegether. It ia time new fer w organizations and others to ste~foti te e~ntly and ~mibly inwt in NSDI u an-ntial mcchaniam for cnc.rdination and ccdlahmtion amongall the aectom cd ~mment.

n. WG**C

tigr8phic informaden ia a stretegic national Hume ofvital impm’tancete beth the public and private interests in thenation. It mnsista of prodigious amounta of geo~phic andp~PhiC$dlY refemh data produced by the federal, stati,and hl gm=emments, interstate and inhnstme regionelagen~, utilitica, and othem We must act to realize the 6dl valueof this sbntc@ national _ by d-loping spatial datapartnerships among the federal, stati, intemtate, suktateregional, 8nd local govcmmenx and the Primte -r. Suchparhershipa shouM

1. -and the mntent and availability, and impmve the~ and quality of the national ~gmphw infonna.tion _ beyond the ability of individual partiawrking on their mm;

2. Reduce.the duplication of effort and minimti the atsof mllecting and maintaining daw

3. Maximti the use, sharing, and reciprocal ~change ofgmgraphic infonnatiom

4, Fretide the institutional frammrk for formal andregular participation among federal, state, interstate,aubtate regional, and Iccal entities; and

5. Improve the qmdity of public and private d-ionmakingby helping dtiionmakem en~ion the @graphicrealities which they are add-ing.

111.We SuppO*

1, The pu~ of FGDC and its efforts to (a) mrdinatefederal agendea’ gwgraphic data programs, and @)involve state, intemtate, substate rcgional~ and lMIgovemmenm m well as the private -r in Its tiviti~;

2 The creation and implementation of the national SpatialData %nsfer Standard (SD=)

3. The aeatien and implementation of the nationalMetadata Standti

4. The creation md implementation of the nationalGeographic Data Clearingb-,

5. The creation and operation of a nationwide ne-rk ofinformation superhighwa~ to facilitaterapid, easy,o~n,and affordablepublicaccmato the manydifferent%ou-of geographic data in the nation;

6. Within anch state, the District of ~lumbia, and theterritories of the U.S. (bemin*r referred to as “state”),the -ition and d~loprnent of an misting state_P~lc mordinating WUWI (SGCC), or the creation,m~ltmn, and &lopment of a nmv SGCC in eachstate. where none p=ntly tit8, that wilk (a) bringtegether federal, atite, intemtate, aubstate regional, andIecal agencia, utility mmpania, tax _ment offimm,and other ptiumm and usem of geographic informationwithin the state to fc6tir coordination and collaLmIutiow(b)mnven.s@ali@ wrkinggroups aati~ and(c)pti& an awnue of communicating, education, andad- tith tk inwlved in the -lopment of_pti information and th NSDfi

7. where app~riatc, the _tion of titing regionalgmgraphk atinrding COU* @~) of either ilItCI-state or sut5tak ~ and * nxcgniden of vnkntarilymted RG(Xsthac (a)-mermm’e_and/or(b)* fu*Ortechniml -In-Out& titim R~ may bring tcgether - atiteiintemtite, auhstete _ 8nd W W* udlitymm- d other ink~ted ~ and mey cmnene~-6muP=-

8. ~emiudenofanati~hk~~munciito link, fadlhate, d support fcdcml, s% in~mmte, and.su~te RgkIna3 gccgmphic -nating -M andpromote fill *@merit of NSDk d

9. The ewlution and use. of d~pute mlutien p— bythe FGDC and the other gmgraphic mrdinatingmuncik referenced ahve

N.

v.

■

.

.

m

m

■

To Help Reach These Objectives, We UrgeOur Organizations t%

1. Make uw of their communications media-includingnemlettem and con ferenw -to dimminate informa-tion abut, raise the visibility of, prnmote understandingof, and ad~te geographic data ws, i?.su~, and needswith the political decisionmakers and staffs of state andl-l governmen~

Z Promote the w of geographic information for a widervariety of PU-;

3. Provide active and continuous advice and mistance toFGDC and its @rdinating mmmittees, sutimmittees,and wrking groups;

4. Coordinate and promote intergovernmental partner-ships with FGDC and the federal departments andagencia repre%nted on FGDC;

5. Consider adopting and promoting applicable FGDCinitiatives;

6. Formalize and fund the ordination of public interestgroup wrk related to gagraphic information to respondto OMB Circular A-16 and wrk tith FGDC;

7. Promote education and training in the use of geographicinformation systems and rewurces, and

8. Addre= proprieta~, privacy, public -w, pricing, andethical issues in the sharing and uw of geographicinformation.

We Propose That Our Organimtions Work with FGDCto Accomplish the Following Objectives mich Are NotNecessarily Listed in Priority Orderh

Create a state-local geographic information node for~RNET computer sass in each state that does notalready have one;

Rmgnim an SGCC (with a facilitative staff) in each sta@(and help to establish an SGCC in each state that does notaheady have one) to promote ~ERNET use and tomnvene such federal, state, regional, and Iccal user groupsas maybe needed to address o~rational problems in sharingdata and to develop m~rative ag~ments supportingjoint projects;

Promote local government and regional agency connectionsto and use of the state fNTER~T nndex

De%lop the nationwide Geographic Data Clearinghouseam- through ~R~T to include

n mdtication of atl of tk tides and agendas of FGDC(including its mmmi~ Sutimmi*, mrki”g groups,mds~ m wI] as GfS mn~ d spal pmj~

❑ a cumplete catalog of geo~phic data resourws residingthroughout the natio~ and

u a bulletin bard serviw to facilitate interaction amonggeographic information creators, managers, and users.

Implement the SD~ and Metadata standards was to m=tthe mmbined needs of the fderal, state, intentate, substatefegional, and Iccal g~mmenw,

Develop and publiciu cax studi= demonstrating the&nefits of geographic information use bypublic officialsinmaking more effective, efficient, and timely decisions aboutcritical public plicy isue.s (including targeting humanremum service delivery, =essing environmental impacts,planning infrastmctu% and trans~rtation improvements,

■

■

m

■

m

■

w.

■

■

8

■

allocating ffical resourm, and managing public programssuch us the decennial census]

pursue joint projects to produce. higher quality, moreeconomical, and more -ible data film and standtireporting fonnas

Develop consistent, easy to use mntract and intergoxm-mental agreement formats for routine w by federal, state,interstate, substate re~onal, and Iml partners *hing topursue joint projec%

Develop a mprative financial plan for public -orparticipation in strengthening the NSDI;

&mine the campla and sometimes inflicting i?.sutirelating to propriet~ data, priung of data, privacy, publicatias to data, and the ethics of -s to and analfiis ofsensitive data;

S~nsor and schedule regular fomms for state, interstate,substate regional, and local participation in ordination,mllahration, and information sharin~ and

fitabhh inmntiw-bti poli& d m~anisms @ promote-lopment ofNSDI by (a)e-rig wluntary @pa-dom@)kraging _ froma tityof partitipans d(c) amiding the w of .nn~ mandati

To Continue the Intacgovemmental D]alogueEssentialta Underpin the NSDI, We Recommend the FollowingImmediate Action Steps:

The Clinton-Gore Administration should clearly articulateits vision for the NSDI, retinn its supprt for FGDC, andprovide more adequate finding for FGDC wmmemuratewith its responsibilities under OMB circular A-16

The Workgroup on State and I.’xal Partnership Mth FGDCshould be mntinuti as an interim cnmmittee until areplacement organization is stablished, and it should kprovided with continued FGDC fanda to sup~fl limitedmtariat, meeting and trawl ~naes;

The US. ~so~ Commhion on IntergovernmentalRelations (ACIR) should be 8sked to mntinue its rnle m thesemtariat to the interim Workgroup;

The interim Workgroup, in pattnemhip with FGDC,should

0

❑

0

0

.

❑

d-lop a list of top ptirity o~tional & tingFGDC attention and quick& (including such pmbleins asadminktratiw dela~ in federal mntractin~

develop a plan to eatabliah a national geographicmrdinating wuntil te)underpin the NSD1;

establish federal r-gnition of an appropriate SGCC ineach stat%

develop recommendations to the ClfntotiGore Admink.tration for incoprating the NSDI into the performancereview plans for restructuring government and usingtechnology to enhance America’s economic growh;

develop an economic jwtifi-tion for support andfinding of NSDI; and

dmign, develop, evaluate, and publidze a small numkrof case studi= that wuld demoastrata critically neededadvances in the development of the intergowmmentalrelationships and partnemhjps -ntial to the -ti]na-tdintegrated wllection, sharing, maintenanm, and wof geographic information.

Dated April 23,1993(si~ed 6y 30 members of the work group representingallnine sponsoring o~anizatiom.)

Intargovemmental Pem-e~mmer IW3 9

LocalProperty

Taxes:Emerging

Trends

Philip M. Dearborn

~ hat old warhorse of taxes, the property tax,kicked up its heels in the 1980s. A surge in prop-erty values and new construction, coupled withimproved assessments that reflect values on amore current basis, provided many local gov-ernments with a flood of revenue. From 1980 to1990, local property taKesincreased nationallyby an impressive 128 percen~ with 32 states m.penencing increases over 100 percent-certain.Iy not the record of a sluggish tax source. Andfrom 1990 to 1991, despite the national reces-sion, property taxes increased nationally by 8percen~ well above the inflation rate. Propertytaxes in 11 states increased by more than 10 per-cent from 1990 to 1991 (see Table 1).

Table1Pemntsge Change

in h] Property Tax Revenues

Percent Change Percent Change1980-1990 t990-J991

AlabamaAlaskaArizonaArkanaasCalifornia

GlorsdoConnecticutDelaweHotidaGmrsia

HatiiIdahoIllinoisIndianalow

KansasKentuckyLnuisianaMaineMaryland

MassachusettsMichiganMinnataMissiiippiMiiuri

MontanaNebraskaNetiaNew HampshireNew Je~y

New MexicoNew YorkNorth CarolinaNorth DakotaOEO

OklahomaOregonPennsylvaniaRhode fslandSouth Carolina

South DakotaTennmeeTressUtahVermont

VirginiaWashingtonWest VbginiaWismnsinWyOminS

Total

116.8%232.0lsl.o76.1

lnl

237.0235.9103.0Z2.6194.3

129.094.9

105.498.375.0

59.3%.2

133.314s.5W.3

46.997.1

134.s229.4U.9

64.191.5

164.5212.0146.2

W.7109.4133.S74.693.1

W.6141.1114.4107.31s3.1

67.411671s1.2116.6140.6

197.623s.7n2

122.740.5

127.9

6.3V01.75.37,58.9

3.37.94.4

14.34.9

14.86.25.3

22.24.6

5.8us3.49.86,2

6.410,32.78.3

11.4

-38.0-1.513.816.79.9

4.9S.o

11.05.65.7

-s.95.7

10.29.47,6

0.74.06.6

-0.911.3

8.59.47,09.32.1

7.9

Sou& U.S. Department of Commem, Bureau of the emus,Govewent Finances in 1979.80,1989-90, and 1990-91.

10 lnta~varnman~ *m*e/Summar 1993

It maybe poprdar in Washington to talk of more exotictrees, such as the value added tax, but property taxes re-mairr the bedrnck of local government tax revenues, espe-cially those of Schml districts. The fixed nature of thebase, predictability of revenues, and stabflityof yields fromyear to year have made the property tax not onlya key rev-enue to support vital Iml services, such as police, fire,and education, but also the revenue pledged by lncal gov-ernments for payment of general obligation bonds. Be-cause of its importance irr our tax system, this issue ofIrrtergovsrrrmenfulPe~ctiw presents several articles onemerging prope~ tax trends.

Property taxes constituted almost three-quarters ofall local tax revenues in 191, a dependence virtuallyunchanged from 19W. However, the use of property taxesvaries widely by @e of government. Independent schoold~tricts received 97.5 percent of their tas revenues fromproperly taxes in 1991. This mntrasts with municipalities,which received only 52.1 percent from that srmrce, andcounties, which received 74.0 percent.

There is also a wide variation between states irr theuse of local property taxes (see ~ble 2). New Hampshue’slocal governments derive 99.4 percent of their taxrevenues from the property tax whale, at the otherextreme, Alabama’a I@l governments receive only 36.9percent. Most, but not all, of the low-use states are in theSouth and West. High-use states tend to be in the Northand Northeast. Of the 41 states with independent schooldistricts, alI but three depend almost entirely on propertytaxes as a Iml tu source.

The importance of property taxes, whife high on anaggregate national or even state basis, varies widelyamong IHI governments. This is especially true for largecentral cities, some of which are permitted by their statesto use alternative taxes, such as sales and irrmme. Areview of 30 large central cities shows a property taxdependency that ranges from 8.5 percent irr Columbus,Ohio, to 92.5 percent in Boston (see ‘fbble 3). Almost half(14) of those cities received more than 50 percent of theirtax revenues from property ties, with several citiesgetting three-quarters of their taxes or more from thissource.

A frequent l-l mmplairrt about the property taxisits alleged lack of elasticity, that @ that annual revenueincreases do not keep pace with irrflstinn and localeconomic growh. However, the rard of the 1980s doesnot support thw premise. Increased revenues were causedby arromic growth that resulted in new construction andincr- irrmarket value of land and &ting improvements,and by changes in tax rates and in the mtio of mmerds tomarket value. While some local governments are able toaoocate their inm- revenum to each of these factom nomtional atadadi permit such an allocation.

However, an mmirration of what happened toassessed values in large central cities in the 1980ssuggeststhat increases irr assessed values were a major mntniutorto the growth of property taxes, not tm rate increases.Assessed values in 16 of 29 large central cities between19134and 1990 incrased by more than ttice the incrase inthe CPI rate over the same period (see~ble 4). Only eight

Table2Property Taxes as a Percentage of Total Lucal Taxes

1991

All Ucal Governments School Districts

. . . . . - .-New riampsmrcVermontRhode IslandConnecticutMaine

New JerseyMwachusettsWisconsinIowaIdaho

MinnesotaMisskippiMontanaMichiganNorth Dakota

South CarolinaOregonIndianaNebraskaAlaska

WynmingDelaweKansasFloridaTmar

W=t VirginiaHamiiSouth DakotaArimnaIllinois

UtahVirginiaNorth CarolinaArkansasCalifornia

GeorgiaPennsylvaniaColoradoNevadaOhio

New YorkTennesccMarylandMissouriWashington

New MmicoOklahomaKentuckybuisianaAlabama

meal

YY.47099.298.898.798.6

9S297.297.196.195.9

94.694.593.893.392.2

92.189.589.587.S85.6

S5.285.183.882581.5

80.679.578.67s.578.0

75.773.172670,870.3

70,16s.7a.267.967.9

62.261.059.959.858.8

55.555.151.141.336.9

75.7

100.070100.0

●

.

100.0

100,0.

100,0W.3

100.0

99.999.9

100.099.499.3

W.6Im.o99.799.9

.

96.7100.0100.0100.099.8

100.0.

95.9lm.olCSI.O

100.0●

.

Im.o100.0

100.083.8

lCSI.O99.499.8

98.3..

99.1100.0

100.09.267.043.0

100.0

97.5

●No property taxes reprtcd by school districts separate fromgeneral governments.

Sourw U.8. Department of Commerce, Bureau of the Census,Government Finmcm in 1990-91.

lnte~wnmti Pers_lSummer 1993 11

Table3Property Tax Dependency, Selected Major Cities, 1990

Property Taxes Property ‘Jkxesas a Percentage as a Percentage

City of Totul ~es City of Total ‘raxes

Boston 92.5% New Orleans 45.1%Milwaukee 92.4 New York 43.4Buffalo 87.5 San Diego 39.6Indiana~lk 80.9 Chicago 39.2Jacksonville 77.4 Phosnix 36.8Minneapolis 77,4 b Angeles 36.3Memphis 74.6 Detroit 34.8Baltimore @z Seattle 33.2Dallas 58.6 Denver 27.6Nashville 57.3 Philtielphia 19.6San Antonio 55.1 Cleveland 18.5Houston 54.3 Kansav Chy 18.1Atlanta 54.2 Cincinnati 16,9San Francisco 53.5 St. J.olds 12.5Pittsburgh 45.9 Columbuc S.5

Sour~ Philip M. Dearhm, George E. Peterson, and RichardH. Kirk, Cify Finmcs in the 1990s (Washington, DCme Urban Institute, 1992).

Table4Properly Tax Changes, Sel~d Major Cities, 1984.1990

NominalAssessed Values Tax Rata Tax LQvy

BaltimoreBostonBuffalo (19S3-1991)ChiagoCincinnatiClewlandColumbusDallasDenverDetroitHouston (19W1989)Indiana~licJackmnvilleKan5acCityLoc AngelesMemphisMih.iaukeeMinneapolisNashvilleNew OrleansNew YorkPhiladelphiaPhoenixPittsburghSt. LouisSan AntonioSan DiegoSan FrancimSeattleCPI

60.27063.7

158.5-2.952.235.817.460.411.365.53.3

-12.767.5

116.575.s

17.714.729.5

190.523.153.543.369.82S.8MS49.886.376.469.125.8

19.770-0.7

-50.6N.A.-7.23.1

-4.60.0

14.7-24.6-9.327.3

-12.5-5.9

-16.4

5.812.40.0

-24.030.96.4

-4.015.121.3

-26.013.7-3.1-2.843.6

56.3%63.856.0N,A.41.740.817.255.050.717.4-6.111.13s.0

101.96S.6

18.32d.o2s.3

126.577.762.837.6

107.441.421.270,4

107.370.486.6

Cities’ assesacd valuea irrcreaaed leaa than the inflationrate. In response to the rapid growth in asaeased values, 14cities decmaaed their nominal tax ratea. However, 12citieaincreaaed their tax ratea, isr five instances apparently tooffset below inflation growth in aweaaed values.

Some citi= stand out in their ~riences over the19S4-lM period. BoatoL hecauw of ncw mmtructiominfJation of valu+ and a 1~ percent vaJue—~ ent ratin,had a l%perc=ent incrmse in =- valuea. ~pemrittedthe city to redum ita tax rate 51percent while experiencing a56 percent incrm.se irr ita property tax le~. JackcmrvilfeandNa31rvillq two mnwfidatcd city-mmrty govemnrens morethan doubled hnth their ~ dues mrd prnperty taxlevies while aJan decreasing prnpe~ tax ratea.

Houston 3tands in slraIP contract to thece favorablepmpcrty tax reardts. From 19S4 tn 1969, the dty ~vaJuM deer-by 13Pe=nt, and d~ite a 27 pemnt taxrate incrm, its total tax le~ increased ordy 11pcccent riverthe five-year period. Detroit, whiJe cxperientig Lmcelyanyinmcace in *saments fmm 19M to 1~, neverthelessr~uced its tax rate mrd was the onJy centd city smvcyed tohave an actti decfine in its toti tax levy.

Overall, it is clear that the property tas in tbe 1980amore than held its ovm in terns of importance. It aIsodisproved its stod~ reputation as a stable but low-growthrevenue source. This record is especially sru’priaing in viewof Pro osition 13 enacted in California in 1978, Proposi-

Ytion 2 /2 enacted in Massachusetts in 1981, and thegeneral public dislike for property ties.

The eondnued strength of property tases maybe tberesult of improvements urged by ACIR and others tomake the property tax a better revenue wurce. Amongthese were remmmendations to make the prope~ taxless regressive, including the circuit breake~ improvedassessment practices; and constant yield tas rates to fiiitinffation growth.

Never’thelesa, by the late 19Wa, the revenue bnnanza,while beneficial for governments, caused a resurgence intaxpayer demands to Iiit annual growth in propertytaxes. Initially, when revenues were increasing as a resultof reassesamenta, the demand waa to limit iucreaaes inaaaessments due to inflation, but with the recession’sdepressing effects on property values in the early lMs,the emphasis may be shifting to limits on rate increases.Split tm rates, with land taxed at higher rates thanimprovements, have been suggested by anme as adesirable new property tax irnprnvement. There alao hasbeen renewed murt activity challenging assessmentpractices that maybe diacrindnatory among taxpayera, andthere mntinue to be murk actions challenging the unevendistribution of school financing based on property taxea.

New technology haa made it feasible to updateassessments annually with improved aaraq and at lowermata, and new gengraphlc mapping capabdities make iteasier to maintain property remrda and charactetitics. Inaddition, IRS reports of real estate roles provide a richnew source of information about value changes.

AO these developments make pmpecty tax policies andadminiitmtinn a matter of keen interest to local offii.

Sour= Philip M. Dearbm, George E. Peterson, and RichardH. Kirk, City Finarrcain tha 1990s (Washington, DCThe Urban Imtitute, 1992).

Philip M. Dearborn is director of Government Fi-nance Research at ACIR,

12 Intergovammental Perspective/Summar 1593

Assessmentsand Property

Taxes:Today

and Tomorrow

John O. Behrens

L ocal and state property taxes comprise 14.9percent of the revenue produced by all taxeslevied by all governments in the United States.The nationwide property tax base, to a great ex-tent the work product of the nation’s 13,500 as-sessors, probably surpassed $6 trillion inassessed value by 1989. Its market worth is a val-uation chaflenge, in part because ita state-asseased componen~ largely utility properly,rarely sefls. A component that more often doeasefl, namely the 118 million parcels of locaUyas-sessed real property, had an estimated assessedvaluq in 1989,of $5.2 triffion, an amount that ap-proximates $15 trilfion in market value.

Market Value:The Explicit-Implicit Value Level

Market value is the standard for assewing, explicitlyby law in 17 states and the District of Columbia, andimplicitly irr the 12 states that assess at specified singlepercentages of market value and the 17 states that“clasa~ by types of property.

California uses two market values, one at propertyacquisition, the other at change in ownership. Indianadiaavom market value and wants “true tax Vslue>>ti~t~d(depreciated reproduction cost for improvements andsales-oriented value for land). A legislative proposal callsfor assessing at market value on December 31, 1999.Minnesota has 24 “tax rapacity” rates, each for multiplyingby an applicable market value estimate (subject to a“limited” value just pawed). New York State penrrits NewYork City and Nas3au County to use four clmses eecb, andto limit spec~led assessment increases. All other assessingjurisdictions in the state may have two classes, the secondone for homestead exemptions. There are claw~lcationsby different rates, not value levels, in the District ofColumbia, Massachusetts, and West Virginia.

Retio Studies end Their Usee

Because market value is subjective, the objectiveassessment-sales price ratio study, mrrformirrg withstatistical principles, k used to idendfy de facto assessedvalue levels, measure disparity among them, and monitorassessment performance. Conducting such studies meansenumerating all or representative samples of sales withina specified time. There must be enough sales to supportessential statistical malysis. Study products includemeasures of central tendency (mean, weighted mean,median) and dispersion (inefficient of dispersion, meffi.cient of variation).

Ratio studies have two pmblem$ fii, getting enoughsales and mn~ mrmtetig their implication that soIdpropefies repraent all taxable properties. Although littlecan be done ahout the sand problem, getdns enough salesprices may time easier. A pro-g harbinger is therequirement, added as Section 6045(e) of the U.S.Intenrsl Revenue Code by the Tas~i Act of 1986, thatthe permn responsible for closing every realty tmnssctionreptt gross proceeds (sales price) to fRS. Reportingincludes mfm pti, identifiition of wld property, andname and address of seller. Beginning in 1992 the E-Poficy,-tctadded to the reporting for every sale of a residencethe amount of real estate tas for the year of aaIe that was@by the buyer. ~S thus accumtites an ammsf databasewith as nrmry as 10 million sales. Agreements among allparties could result in sharing such data with state and lecal~g Officials.

Documentation contaitring sales prices also comesfmm 35 of the 38 states that imp tfier taxes on realty3alcs. fn 15 stst% the requirement is mr tildavit. A third~tentisl wuu of 3ales data will he any state law patternedafter the American Bar ~tion’s Model Law on Real-W Wer ~omtion. me statement it calls for is apublic r-cd if the state folfmvs the ABA t~.

Individual Tax Obligations snd Litigation

W payable usually results from interaction ofassessed value and tas rate, but litigation, tas relief, andrate limits may also influence the outcome.

The Nerd/inger v. H*l case has left intact Proposi-tion 13, formally Article XfIIA of California’s constitu-tion. It Iindts real property taxes to 1 percent nf full cashvalue, defined as assessed value for base year 1975-76 (theti]tial aqu~ition value), subject annually to decreaseswithout Iiiit and increases of no more than 2 percent ofbase value to aaunt for inffation, subject to immediaterevaluation at market value when a change in ownershipoccurs. ~o changes escape reappraiaah (1) transfers fromparents to chifdren of principal residence plus the fust $1mioion of full cash value of other real property, and (2)transfer by owner-occupier aged 55 years or older ofbase-year property for any in the same mrrnty of equal orlesser value. The U.S. Supreme Com’t upheld theacquisition value system even though plairrtiff Nord~mgerfaced an increased tax bfll of $1,700 on her home,purchased (change irr omership) in November 1988 for$170,W0 (reappmiwl at market value). Neighbors irrve~similar hnmes paid about $350 because they had base-yearassessed values of about $35,~.

In its 8-to-1 opirrion, the Court said Proposition 13didnot violate equal protection guarantees of the U.S.Constitution’s 14th Amendment because it posed nothreat to any fundamental interest and had no suspectclassification that warrants strict scrutiny (despite dispari-ties as high as ~ to 1). California’s aqrdsition-valuesystem has a rational basis, namely, it dimumges rapidturnover by allowing older owners to pay less than newerones. Older owners had “reaannable reliance interests”more worthy of protection.

Three emnomiats examined all sales in Los Angelescounty for 1990 and 19912 and found that 43 percent ofhomeowners had not moved since 1975. With a mediandisparity ratio (market to assessed value) at 5.19, eachowner has an effective property tm rate of 0.19 percent nfmarket value. If all 1975 base-year owners sold theirhomes, each new owsrer would pay 400 percent more irrproperty taxes. In mntrsst, if California repealed Proposi-tion 13, then increased each base-year assessment tomarket value and lowerd the tax rate enough to get thesame revenue, all 1975base-year taxpayers would face tasballs increased by more than la percent. Chances of thatdenouement are slim.

The Supreme Court distirrguished Caliiomia’s acqu-isitionvalue system, rooted instate law, fmm the effects ofaberrational departure from state law, that is, assessingproperty “in proportion to its value,” isrWest Virginia. InAllegheny Pittsbu%h Coal Comparry v. Webster County in1989,3the assessor derived assessed values from sales onlyfor three mal miniigproperties, each involved in separatesales. The AOegheny Pittsburgh propedy sold for $24miflion in 1979 and was assessed at $12 miflion until 1982,when its assessment increased to $15 miflion to reflect asemnd mle at $30 miflion. For two other coal mmpaniessold dining the same perirxf, safes prices also were A toget respective meaaed valrrea.‘fhe latter were 8 to 35 times

higher than the prmaifing value level would just@. meSupreme Court nrfed the@ mmpany =Ssmenta invalidbecause selective ahemtional usc of safes created exces5ive-Iy high _ents. fn Cafifomia, in mntrasq rcappti iammrdato~ as soon as a change irr omemhip occurs.

In Pacific Southw& Realty v. County of Los .4ngeles,4the plaintiff sold Security Pacific Plaza, an office buifding,to an insurance mmpany for $310 million, conveying all“right, title and interest,” except the “estate for years”affecting two towers instituting 73 percent of theproperty, embcdied in a leaseback to the plaintiff, whoagreed irr the lease to pay the plaintiff’s share of propertytaxes. The plaintiff leased one tower for 60 years,iucluding 10 mnsecutive renewal nptions of five yearseach, and also became lessee of the second tower for 21months, including renewal nption. The plaintiff hadsubstantial control of the entire structure. For irrcome tax,the plaintiff and Metropolitan Life Insurance Cnmpanytreated the transaction as a safe and leaseback. The countyassessnr, advised by the state equafiition board, reas-sessed only the pmtion nnt subject to the lease, at a valueof $169.5 miflion. Seven months later, the board reverseditself, mncluding there was a change in ownership, and theassessnr accordirrgfy reappraised, setting the new value at$323 million. me plaintiff paid the tax bills, applied for arefund, and won relief irr trial court, which the court ofappeals approved.

The California Supreme Court reversed, agreeingthat there was a change in ownership, under thethree-part test of the state revenue and tasation da (1)there was transfer of a present irrterest in realty; (2) itincluded transferor’s beneficial or equitable interest irrthe lan@ and (3) the value of isrterest transfemed wassubstantially equal to the value uf fee interest.

In a Wisconsin case, State sx rel N/S Associates v.Board of Review of ~llage of Greendafe,5 NIS Associatesbought Southridge Mall in Aprif 1988 for $114.9 million.The 1987 assessed value was approximately $33 miflion.The assessor irrcreased this, as of Janua~ 1, 1989, to$100,968,000 ($2,020,900 for land, $98,947,100 for build-ings). The state board of review upheld the assessment.The circuit court affirmed, as did the murt of appeals,which said the sale was an arm’s length transaction,unaffected by a simultaneous purchase of Northridge, arelated mall, from the same seller. me appeals muflnoted that in repmts to irrvestom, dated September 30,1988, and March 31, 1989, Southridge Mall was reportedto have market values of $In million.

Use-o f-Revsnue: Public Educrrtion Casss

Assessed value and tax rates are not the only aspectsof the property tax to be subject to litigation. ‘lkxas andCalifnmia are among 29 states where, as of June 1993,challenges of state schnnl finance systems were in themur’ts. In those two state> school finance roses go backtwo decades. Reasnns given for the current litigationirrchrde faifure to maintain “thorough” and/or “efficient”education systems, and faifure to assure equal protectionof the law as required by state mrrstitutions. no recentmmt cases irr MS became a preface to ill-fated

14 lntarewamms~ Psra@e/3ummsr 1S93

legislation that was struck down by a third Case. At the“last mimrte,” a new law has appeared.

States have contniuted shout 51 percent of totalsch~l dlstr’ict revenue nationwide since FY 1978, whentheir share hovered at 48 percent. The local property taxportion of school district revenue stood at 41 percent thatyear, 36 percent in 1982, and 37 percent in FY 1991.

Sclronl f~ee initialty gained attention in 1971 inCa!.ifoti when the atate supreme mmt, in Swrarw v.Mm(Sin@ ~’ noted that one school district in a county had an~ed value per pupil 14 times that of another, yet wasable to 3pend twice aa muti per pupil as the other with Ieasthan half the other’s tax rate. In 1977, the state supremecourt flied in Stmmo W that California school fumtiOIated the state constitution’s equal prot@iOn prnviaions.Serrm Wis emerging, although no trial date has been set.

In Texas, school finance woes preceded and followedthe 1973 case San Atonio Independent School District v.Rodriguez,a in which the U.S. Supreme Court held thatthere was nn srrWece class or fundamental interestidentified as dhdvantaged by the Ms system, hence noviolation of the U.S. Constitution’s 14th amendment.

In Ed@ Indepmdwrt SchoofDistrict V.~ (Ed@-wood J),gbrought by d8 ~horrl districts, the b suprememutt held that the atate violated the -S constitution byfailing to atablish “an Mient system of public freeWools.” The “hundrd poorest diahicts had an avem.ge taxrate of 74.5 cents” per $lM of aase~ vahre mrd “aPent anaverage of $2978 per student. The IN wealthiest diahictstaxed at an average of 47 cerrtaper $lCSJand apent an averageof $7,233per student.” h EefgewoodJf,10the must noted thatthe new law left tax base disparities of 4W to 1.

In a third Wxas case in 1992, Carrollton-FarmersBmnch Independent School District v. Edgewood Indepen-dent School Distric/ et d.:’ the state supreme court struckdown an unauthorized state ad valorem tax. On May 1,1993, the people voted against a proposed amendmentauthotimg the state to transfer $5CSJmillion annuallyfrom pcopecty-rich to prope~-pr districts. State Dia-tcict Judge Scott McCown stated that if no school financeplan emerged hy June 1, 1993, he would freeze all countyand state education funds.

With a court-imposed deadlie of June 1 for thelegislature to pass a school finance plan, Governor AnnRichards signed Senate Bill 7 on May 31, and it becamelaw the next day. It gives the 109 achorrl districts with themost taxable property per student five options for sharingavailable wealth to produce a ceifing of $280,W perstudent for any district: (1) consolidate tax base with thatof another district (2) send money to the state to educatechOdren in property-~r districts; (3) contract with otherdistricts to educate their student~ (4) consolidate fullywith another school districC and (5) tranafer somebusiness prope~ tn another diatcict’s tax rolls.

Uncertainty Ahead

New technology fnr the mexment and prnperly taxentionment k here, with more old tradhiom ado titallyWlve thmr either proponents or detractom would -t.

(continued on page 23)

Significant Features of Fiscal Federaffsm1993 Edition

Volume ff - Revenue and Expenditures

This vohrrne of Signr~t Fearum presents data

on revenues sod mpenditurea for the feder~stati, and loeat govemnrenta. Si&ificant Featuwcmrtains a broad picture of changes in the gov-ernment’s role in the -nomy through 1991.Also presented are

■ Changes in the composition of expendi-tures and revenues and in the level andrelative importance of federal granta to

state and Ioeal govemmenty

■ ACIR measures of state fiscal capacity

and effo~,

■ State ratddngs of state-loeaI revenue and

expenditure item3;

■ Individual state profiles;

s State and Iocat debt and

■ kal public ernployw retirement systems.

Significant Features of Fiscef Federalism,Vol.I, includes federal and state budget proeesse$federal individual income tax rates; state andlocal individual income tax rates updatedthrough November 1992 tax rate and base in-formation on soeief security and unemployment

insurancq general sales tax rates and aemp-tion$ state severanw taxey property tax retief

programs; federal and state excise tax rate$ es-tate, inheritanm, and gift tax+ state and localproperty transfer taxes; and automobile feesand taxes.

Volume II M-183.11 September 1993 $22.30

Volume I M.183 February 1993 $20.00

(see page 29 fnr order form)

IntargovemmentalPara*tive/Summer 1993 15

TheProperty Tax:

LocalRevenueMainstay

Hugh Mlelds, Jr.

T here is no part of the administration of gov-ernment that requires extensive informationand a thorough knowledge of the principles ofpolitical economy so much as the business oftaxation . . . . It might be demonstrated that themost productive system of finance will always bethe least burdensome. There can be no doubtthat in order to a (sic) judicious exercise of thepower of taxation, it is necessary that the personin whose hands it is should be acquainted withthe general genius, habita, and modes of think-ing of the people at large and with the resourcesof the country. . . . Fekralist No. 35.

The baaic principles of gond democratic tax plicyrrrakirrghave long been well known. We also know that there arelimits to how well governors and state legislators ean runId governments from state eapitala. Behind the issuesthat drive most tas policy dec~lons lies the fundamentalone of how to make certain that government administersthe system responsibly, fairly, and equitably while alsomaking certain that citizens have the information theyneed to understand how the process works.

Harold M. Groves, an eminent pubtic financespecialkt, noted in 1948 that, up to that time, the generalproperty tas had been by far “the most important memberof the tas system in the United States.”r It had beenparticularly outstanding as “the main and frequently thesole support of local government units” despite “constantand emphatic criticism.” Critics found prope~ only arough gauge of benefits received and “an even lessdefensible irrdexof abflity to pay.” Groves pointed out thatthe property tax was “supported as the best avuilobleindependent source of local revenue”md made itpossible forcitizem “topenal theirown money”as thq collectively sawfit(emphasis added). ‘fldi simple obsemation gets at somecore political truths that have been ignored irr recent yearsat great mst to the local ~ politic.

Groves acknowledged that administration of theproperty ti caused mrrcem for at least three goodreaaorr~ (1) tangible personal property was often includedin the base and increased the difficulty of adminiitration;(2) there were problems associated with use of the sametas and frequently the same tax base to serve differentgovemment$ and (3) there were thorny problems asso-ciated with determining value.

Despite ail, it muld reasonably be mid that theproperty tas enjoyed a “steady evolution” for the betterinto the 1950s, although with substantial variations fromstate to state. Some states improved the prncess throughbetter administrative devices, such as central srrpenfiaionand equalization. Othera sought to deal with problems byclassifimtion, treating various forms of property withdifferent rates or levels of assessment. Durirrg the GreatDepression, several states had experimented with rateceilings and homestead memptions.

How Things Hava ChangadIn 19M, Dick Netzer noted in Economics of the

Propsrty Tti, that, although the property k was no longervirtually the sole suppnrt of state and local governments asit was at the turn of the twentieth century, it remained themost irnportarrt factor in state-lml fmarrce.2 Netzer alsosuggested that the intensity of criticism of the property taxhad bemme aumewhat muted by “a new mmplaecney.”

In 1993, John Peterwn concluded that the propertytas remains tbe “mainstay,” the “prime mover” in ldpublic fmancc that it was at mid-century. Despite the factthat “more than any other form of government revenue,the property tas has been subject to a myriad of mnstrairrtsmeant to ease, shift or obviate its potential burden on afew, many or all taspayera, the property tax generally hasdemonstrated remarkable ability to srrrvive.”3

No other tas gets more attention and review by localgovernment officials. By the nature of its lncal admirristra-

16 Intafgmmmental Pa~/Summar 1993

tion, the assessment process, the method of bittirrg,extensive mverage by the press, raume to appml andfrequent involvement in bond referenda for achwls andcapital improvements, the property tax irrtites high levelsof citizen participation and involvement. It ia extremelydifficult to avoid, and its unpopularity ia ~ceeded only bythe income tax. ~n the 1992 poll mmmissioned by theAdvisory Commission on Intergovernmental Relations,25 percent of the public aaid the income tas was “theworst” whfle 24.5 percent so charactetied the propertytax). It is also a stable and dependable source of revenue.

Serious problems of property tax administrationpersist. Many locel governments have failed to meetstatutory requirements to maintain current market valuesthrough timely property reassessments. Some have beenslow to implement state-of-the-art improvements inadmirdatration, valuation and collection, and mmputertechnolo~ generally. New technolo~ and data gatheringtechniques, where adopted, make it possible to fine tunethe system and achieve overalI progressivity, with itsimpact favorable to low-income famities, modest andfixed.inmme famities, and individuals.

Geogm.phic information systems (GIS) and mmputer-@ted H appmiml *ems (CAMA) can mntributeaubstantiatty to the tiectiveneaa of the property tax system.Links with relevant goverrunent c-maua data gatheringprograms and other publictyavailatrle data aoms also makeit p0a3ible for local gwemments to si~lcantly improvedrration capabilities an~ thW tile equity.

Despite the mnsiderable progress in quality ofadministration, however, annther “new mmplacency”leaves property tax administration under attack. More-over, the governmental response has hardly been studied.

State-Local Actions

State and local governments appear to be irrcompeti-tion for diminishing k revenues. Governors, statelegislators, citizen watchdog organizations, trade associ-ations, and other groups try to limit, dindniah, orotherwise control the impact of the property tax onconstituents. A few states are wnsiderirrg wider use ofstate property taxes, part of which would be dedicated tomeetiog certain local needs, such as public education.Some are approving a crrp on lucal real property taxea.Some states go to the voters for approval of a tax increaseby referendum. There also is much action in state comts.

me Kanma legiataturq at the behest of the statesupreme mm erractcd a statewide pmpe~ tax to fmcepmviaion of eqrml funds to atf *M1 districts. ‘fhemnstitutionatity of the statute is beirrg chatfengcd, andseved of the weatthier corrntim have threatened to secede.Tbe Texas legislature, at the direction of its supreme m~pm@ that the more afouerrt comties eqdi bydedicating propc~ tax revenue to poorer mmrtie$ conwti.dating richer with poorer whool dmrict$ assigning revenuefrom specifii properties to poorer shool diat~ or simplyhaving the rich dmricta make grrmta fmm properly tasrevenues to the pnnrer d~tricta. The proce= ia beirrgtimorously chattenged by *vemt muntiea.

Prior to the mid-1970s-and passage of the NewJersey “cap law,” the Tennessee institutional limitationon apendmg, and California’s Proposition 13—tiiitationson the abitby of local governments to spend public fundshad been “covert, indirect and subtle.”4 Nearly all thestates have institutional protilons or statutes limitinglocal governments’ ability to incur debt. A few haveprovisions requiring an estraordinaxy majority vote foraPPrO~ of revenue and appropriation bills.

By far the most controvemial of the ltiltations wasMoposition 13, approved by California voters on June 8,1978. This amendment to the state institution trans-fomcd the property tm from an ad valorem tax into a tasof up to 1 percent on aqu~hion value as of base year1975-76 or as reappraised at market value whenever anapplimble change ~ O~ership occurred. ‘f’he immediateimpact of Proposition 13 was a 57 percent 10ssof propertytax revenue and an equally signifimnt 10SSof local controlover the delivery of services for which local governmentswere responsible. Initially, the state felt obtigated to plugthe gap with the funds needed to avoid a massived~r’uption of services espected from local govemments.s

Proposition 13 was declared constitutional by theU.S. Supreme Com’t (8-to-1) in Nordlinger v. Hahn onJune 21, 1992. In his dissent, Justice John Paul Stevensaaid the proposition “establishes a privilege of amedieval charactec ‘RVOfamilies with equal needs andequal resources are treated differently solely because oftheir different heritage.”

Sirrriiar intewentions have ~umed or are being.mnaidered in a number of other states. In Michigan, fiscalcrises forced the tow of Kalkaska to close its schoolsmore than two months early. One of the factors that led tothis was a state-imposed one-year freeze on propertyassessments, which had a cascading effect. Further downthe fiscal tedder, Kalkaska County cut ita atlwtion to theschools. “County officials tried three times to persuadevotera to approve a referendum authorizing tbe necessaryincrease needed to keep the schools open and each timethey were rejected?’s

On June 4, 1993, Michigan held a referendum for theapproval Of a W percent increase in the sales tax inexchange for a cap on the local property tax and aguaranteed minimum in state per capita school aid. Itlost.7 Montam held a referendum on June 8, 1993,proposing the first sales tax irr state h~tory. Prmeds wereto be used to equalize spending in schools stateviide and toreduce the property tm. The poor were tn get rebates.Increases were to be limited by a institutional cap. Theproposal lost overwhelmingly with a 75 percent vote.

Indiana, Illinois, and Ohio are reported to beconsiderirrg proposals to tiiit further the authority oflocal governments to levy real property taxes. While theproposals include provisions to deal with mrroctiziigexisting debt, Standard and Poors has reported that themeasures could reduce budget flexibility of the localgovernments affected and poaalbly, as a consequence,ham the credit quality of certain municipalities.s

Why would other states want to follow Catiiorrda,given the seriousness of the state’s financial crises as a

lntargovemmen~ Parsptiva/Summer 1a93 17

result of ballot budgetirrg and its debilitating impact onlocal governments’ revenue-raising mpabilities? Citiesand counties irrCalifornia are facing a loss of $2.6billion asa result of the state’s wide-open irritative prnceas.Governor Pete Wilson wants to balance the state budgetand meet California’s institutional obligation to schwlsby tranafefig the $2.6 bltion from local governments. Inexchange, he offers repeal of state program mandates andthe granting of a six-month extension of a temporaryhalf-cent sales tax (which would generate $700 million forlocal governments) and an opportunity for voters to makeit permanent on a munty-by-county basis.

Local officials have responded that the proposal issimply a short-terrrr fix that would see the state evaderesponsibility for its own fiscal crises by shifting the burdento local government. Local officials object to adding to thepatchwork of rates and services.

Recent referenda irr other states may not have beenCalifornia-style initiatives, but there is probably little todistinguish the two in terms of depth of voter urrderstand-irrg of the long-term impact likely to be produced by a yesvote. Assuming that the state officials involved have beenkeepirrg up with the literature, the California qeriencemust cause some concern about the risks involved in usingthe referendum process.

Where We Are Going

We require truth in lending and should demand truthin taxation as well. Minnesota has already acted to initiatea process that will seek such truth. It has repealed alllegislation limitirrg lncal governments’ abdity to adjustproperty tax rates. It does require a truth-in-tmationhearing before the local government can adopt its annualbudget. The Incal government must establish its maximumlevy before the hearirrgs and can only adjust themdownward as part of the approval process.’

Perhaps part of the reinventing of government mightinvolve taking mme tax policymatig functions endrely outof the hands of the plititins and making them therespnn~tity of commissions which would periedicatlysuggest needed charrgea irr the ~tem that muld he voted upor down but mrrld not be changed. If th~ approach works forbase closing, it maybe worth considering for tax d~ions.

Attematively, some states might consider followingthe model used in New York City and create a financialcontrol board to oversee and enforce a lon~range plan forspending and deficit reduction. As a result of the work ofthe New York Financial Control Board and its supportingtrust fund mechanism, the Municipal Assistance Corpora-tion, the city has had 12years of balanced budgets and witlhave its debt retired by ~8.10

What people really want from their tas system, we aretold by the pundits, once they are satisfied that it is fair, istheir money’s worth. The property taa seems destined toremain a major factor for education, buildirrg of cammuni-ty infrastructure, and tbe practice of democratic localgovernment. That being the case, it is important for allinvolved to understand its significance in the democraticfiscal-political system, and how to make the property taxsystem operate both efficiently and fairly.

Hugh Mields, Jt, is a planner with Linton, Mields,Rekler and Cottone, Ltd.

Note~1Harold M. Groves, cd., Viwpoinls on Pablic Finance@ewYork Henry Holt and Company, 194S).

2Dick Netzcr, Economicsof the Pmpsw Tm (WashingtonDCThe BrookingaInstitution, 1966).

3John E. Peterson and K. K. Mwrds, 7he Impactof DscliningPmpefty VduG on Lord GovernmentFinancu (Washington,DC Urban Land Institute, 1993).

4J. G. Rmc, cd., Tm and Erpenditurs Limira(iom: How toImplement and Live within ~em (New Brun.rtick Center forUrban PolicyRmearch, Rutgem, 1982).

sA. OSullivan, T.A. Sexton,et al.,TheFutureofPmpo$ition13 inCa/ifomia i.Berkeley Universityof California Prex, 1993).

6E. Walsh,“MichiganDistrictClosesSchoolsEarlfi StateAudita$1.5MillionFiscalShortfall,” WmhingronPost, March 2S,1993.

7M. Wines, “What People Want When Their TaxesRiw TheirMoney’sWorth,”Nsw YorkTimes, May 16, 1993.

8J. D. Panger, et al.,“Great Lakes TaxLimitsCould Hurt CreditQuality,” CmditWe* Municipal, April 19, 1993.

qIbid.10FeIk G, Rohatvn. “How the Big AODle Is Polishine Off It.v

Deficit,” Wahi;gton post, June 1: ltij..

RTS 1991State Revenue Capacity and Effort

Vith RTS 1991: Stote Revenue Capacity and Effort,WIR mtrtirmes its tredkian of providing informationm the relative mnomic welt-being rmd fiil per-orrnance of the states. ACIR developed the Repre-sentative Tkx System (RTS) and the Representative{evenue System (RRS) to improve on avaiteble mea-:ures of state revenue mpacity and effort. These mea-;ures show state and local government capacity to ml-ect tax as well as nontax revenue.my measure state fiscal capacity?

. Tn facilitate corrrparativeficaf wralysis by stateand revenue base.

● Tb provide wctiw on econom”c trends.● ~ aid irr designingfedeml gruntformulas.

my use the RTS and RRS?*

●

●

9

Tlreymessure gwernrnents’~errdaf abilitieatoraise -m relative to a national average.They are cornfsreJrtiw, measuring all majortax amrrcesand nontax aorrrws that mrrtributeto a government’s abilky to raise revenue.They are the onfy indicators that measrsre fie-cal capacity on a revenue-by-~e basis.They are murfiiy understandable systems thatare osed by many state and federalpolicymakers and analysts.

R~ 1991: State Rsverrue Capacity arrd WM–. Contains tables and graphs on RTS and RRS

arranged by revenue base and state.● Discusses recent changes irr states’ revenue

capacity and effort.● Compares WS and RRS with other capacity

measures.● Includes historical data.

M.187 120 pages $20

1a IntergovernmentalPeEpective/SummerI393

Two-RateProperty T=es

and UrbanDevelopment

John E. Anderson

T he property tax has been implemented tra-ditionally with equal rates applied to land andimprovements. The assessor determines thecombined value of the land and the structures.The local governments apply their tax rates tothat assessed value, generating revenue to sup-port the provision of local public goods and ser-vices, most notably schools. This form ofproperty taxation was long thought to be per-fectly neutral in its effects on land use. Recentresearch on property taxes, however, has sug-gested several non-neutral effects that may oc-cur. Property taxes can affect both the capitalintensity and the timing of development. Forboth of these reasons, there is cause to considerthe split-rate or graded property tax that taxesland and structures at different rates.

The extreme version of a two-rate taxis the single taxes-poused by Hemy George 1879. In that case, the cateapplied to improvements falls to zero and that applied toland rises to the level necessary to meet revenue require-ments. In recent years, we have mme to undemtand thatthere may be gocd reasons to move away from a standardproperly tas with an equal rate applied to land and structurestoward a tax that places a heavier burden on land and a light-er btien on structures. Pmpew tas systems that tax landmrd improvements at differential rates are intemhangeablycalled two-rate, split-cate, or graded ta%~tems. ?hme sy3-tems are distinct from a tiled tax system that ties pmp-eties of particukr type of use at dfierent rates.

The ptiaty advantages of a two-rate ~tem areremgnized as (1) discmrmging speculative holding of land,thus enmucaging a more orderly development process,and (2) encouraging commercial improvement of proper-ty, and at the same time enhancing the housing stock. mesingle-rate propetty tax, in mmpar’ison, (1) encourages theholding of undeveloped land because taxes are low onvacant land and (2) discourages property improvementbecause any capital improvements result in higher taxes.

The Hemy George view of property taxation stressedboth efficiency and equity. Since land is a f~ed factor ofproduction (as Wdl Rogers said, ‘They ain’t makin’ anymore of it”), its retunr on investment is a pure economicrent or a payment beyond that necessary to draw it intoproductive use. ‘Ibxingland rents in tti mntm retits in noefflciencj lox to the anomy. It simply rcdistniuta wealthfrom landowners to others. Given that landowner wealth isdue to the pure economic rent, an equity cbjective can beacbievd in taxing land rents. Henry Gmrge summarized theeffects of various tm altemativ= tbi3 WY

‘Rexmanufactures, and the effect is to checkmanufacturing; tax improvements, and the effectis to lessen improvement; tax commerce, and theeffect is to prevent cxchangq tas capital, and theeffect is to drive it away. But the whole value ofland may be taken in taxation, and the only effectwill be to stimulate industry, to open newOppotiunities to rapital, and to increase theproduction of wealth.]

While economists in general have not shared HenryGeorge’s vision of a single tax on land, they have notedthe potential benefits of land value taxation. In fact, C.Lowell Harriss, writing in Incentive 7“tiorr in 1991, re-ported that seven Nobel prize winning economists haveendorsed the concept.

Indications from Economic Theory

The traditioml property tax with equal rates oftaxation on land and improvements was thought to beneutral with respect to land use decisions, but recentstudies have shown that there are clear non-neutralitiesand that the property tas can affect both the timiig andintensity of land development.

Jan Bmeckner was the fir3t emnomist to investigatespecific effects of graded @tion using medem economictheory. The plicy hsues had been debated for manydecades, and thu careful analysk was long overdue.Brueckner’s long-run model of applying higher tax to land

Intergovemmeti Par5@ve/Summer 1S93 19

in a small area demonstrated that the price of housing willremain unchanged, but the level of improvements peracre and the value of the land itself will isrcrease.2

The increase in land values was srscprising becauseone would thirrk that a higher tas on land would result irr alower value. Usually that is tcrre, but because the lower tason improvements has the effect of raising land values, thenet effect will depend on the relative magnitudes of thesetwo impacta. Brrreckner demonstrated that the effect ofthe lower tas on housing improvements will more thanoffset the effects of the higher tax on land. Hence, landvalues and land tax rates are directly related when anequal-revenue switch from improvement taxation to landtaxation oceura.

If the area over which tbe tax is implemented is largerelative to the city (or housing market), the effect isreversed. ~ing land at a higher rate witl depress landvalues because it witl have an effect on housing prices. (fna small area, the overall pcice of housing in the area isunchanged.) As the rate of taxation on land is increased,the price of housing falls sharply (due to the inelasticity ofhousing demand), and there is a correspondingly largereduction in the net-of-tax price of land.

These results indicate that the effects of a move to agraded tax system wifl depend cnrciallyon the comprehen-siveness of the tax, that is, the portion of the urban areathat moves to a graded-tas system. Cities that apply agraded tax in a small area or an isolated zone can espectland values rise. Those implementing a graded tax overthe entire urban area csn espect land values to fall.

These results are also indicative of the longruneffects that can be qected. In the short-run, however, amove to a graded tax system will create wisrdfall gains andlosses that are also important to consider. Bruecknerexplains that short-run losses are conferred on the mostintensively developed parcels of land while short-rrmgains are conferred on the least irrtensively developedparcels. This result may seem to be munter-intuitivebecause it would appear that irrtensively developedparcels have the most to gain from a switch to site valuetaxation. That view ignorea the corresponding fact thatintensively developed parcels also have high land values;hence, a switch to heavier reliance on site value taxationwill be burdensome to them. When tbe elasticity ofsubstitution between capital and land ia less than one, areasonable assumption given the empirieal evidence, thelatter effect dominates the former and tas liability riseswith the switch to a gcaded tax system.

Evidenee from PolicySimulation and Implementation

Pennsylvania

Several municipalities isrPennayIvania have implem-ented two-rate property tas Systems.$ The e~erience ofPittsburgh, in particular, has received a good deal ofattention. Some advwtes have asserted that the city’srecent revival was due irrpart to its implementation of thesystem, but analysts must be cautious israttributing recentgrowth to this policy beesuse the city implemented itsmodified land tas irr 1913. Pittsburgh did change itsproperty tas policy significantly in 1979, increasing theland tax rate from twice to five times the rate onimprovements.4

Wallace Oates and Robert Schwab reported favocablearralfiia of the Pittsburgh reforms. ~ey apeerdated that thed~tortive effect of a land value tax that biases develop-ment decisions in favor of capital intensive projects withquick payoffs was pactly reWonsible for Pbtsburgh’s fastgrowth in the 19SfIs. Their results indicated that “newbrritding activity clearly picked up following the strikingrise in land taxation in the city of Pittsburgh-and thisincrease in new building permits is not to be fomrd in othercities of the region.”5 ‘flrey urged caution, however, irrinterpreting the apparent eff@a, noting that ‘<the resultsare, in a sense, tm g@ it is dificult to believe that cityproperty tm reform could, by itself, produce such dramaticresults. There were, in fact, other programs introduced atthis time... .“ An association between buildirrg activity andthe tax-regime change does not. prove causality, but it isreaamr for further investigation.

Boston

Joseph DiMasi simulated the effects of a move to atwo-rate property tax for the Boston metropolitan areausirrg a long-run computational general equilibriumcomputer model. By his estimation, a two-rate propertytax could result in a welfare gain for residents of as muchas 6.6 percent of tas revenues raised. His model alanpredicted that a move to a two-rate system would reduceland values, raise housing prices, raise wages, and musethe urban area to shrink in size.’

Jamaica

James Follain and ~mar Femandez simulated thegeneral equilibrium effects of a reduction in the Jamaicanirreome tax with increased reliance on either a land valuetax or capital value tax. Their results indicated that therevenue potential of the land value taxis Ies thmr that of thecapital value tax? Using a land value tax to replace 20percent of the income tas revenue in Jamaica would requireconfiition of its land. Thii result vitidly indicat~ thesevere revenue limitations of its land value tax.

They also demonstrated that the potential welfaregains from a switch to the land value ti are sensitive tothe nature of the economy. For a closed wnomy with amodest labor supply elasticity, the welfare gains areestimated to be .06 of GNP or about one-third of thedeadweight loss generated by an irrcome tax only. For anopen economy with the mme labor supply, the gain ismagnified by a factor of ten. With more elastic laborsupply, the potential gairrs are even greater.

Implementation Issues and Problems

Implementing a two-rate property tax system re-quires, fmt of all, that assessors identify site value andimprovement value separately for each parcel irr thetaxing jurisdiction. Although assessors do tbia routirrely,and such a requirement maybe quite simple to implemen~serious &ues must be mnsidered that affect our abtity toseparate value into distinct components. A site and itseepital improvements are mmplementmy elemen@ of aproperty that has an anorrric use. Beemrse these factom(each of them valuable) are mmbined to form the predictive

(.otied on page 28)

20 lntargovemman~ Pemmtiva/Summer 1993

ModernTechnology

for theMass

Appraiser

David L. Jensen

computer-assisted mass property appraisal(CAMA) has been confined to woof the threevaluation approaches, replacement or repro-duction costs and comparable sales. The thirdapproach, capitalization of income, usually re-quires attention to individual properties andthe financial markek.

Computer-Aseisted Meee Appraisel

In the late 19WS and throughout the 19dOs, thecomputer proved to be an ideal tool for appraising largenumbers of real property parcels. CAMAS early disadvan-tage was rest. me fii mainframe times were within thebudgets of the largest ju-ions ofly, and the _rwasjust one customer among municipal depment hinds.Uttirnately, the mmputer emerged as a mass appraisal tool,sometimes made avaiIable to smaller j~lons by privateservice bureaus, with machine-time and progrmm’dngSUPPOfiprowdcd on a mntmctuat ~.

In the early 1980s, mmputer hardware and softwarebecame affordable for even the smallest jurisdictions.When emphasis shifted from the replacement costapproach to market valuation techniques, mmputer-asslsted mass appraisal really came into being withsophisticated techniques for estimating the market valueof unsold properties. This muld be done effectively byusing either market models or mmparable sales.

Market models are simply mathematical representa-tions of real-world ecnnomic influences that determineproperty value. These include property location, lot size,lot frontage, building style, living area, structure age andrendition, types of roofing, tierior siding, foundation,numbers of living units, bedrooms, bathrooms, fueplaces,extent of airanditioning, and tistence and sizes ofattached or detached garages, carports, covered orenclosed porches, decks, patios, swimming pools, andsheds. The models are algebraic formulas that equate mleprice to described property value mmpnnents. Theformulas are initially calibrated to recent sales and thenused to estimate ~ected sale prices (idicators of marketvalue) of properties that have not sold.

Multiplelinmr -’on analysis is the market valuationtechnique at the center of most CAMA software packages.When mmpamble sales are usd for estimating marketvalue, actual dcs prices must be adjusted. For -pie,suppnse that the moat mmparable sale to a particukproperty was $lN,W and that properly w lM wuare feetIacger, but did not have an attaticd gamge. The actual saleprice of $lW,W would have to be reduced by the dollarvalue of the lM square feet and incrmmdby the value of theattacbcd gm’age in order to deteonine what the sale primwould have ken had the two properties been identti.Thus, usually, odyadjuated rather than actual sale prices arereliable indicators of market values of subject properties.

Wes price adjustments (in the previous example,market value of the ICCIsquare feet) can be determinedacmrately without knowing cummt rates for the tiousproperty descriptoxa. me rates camrot be determined frommat tables because building prim is not n~y marketvalue. Current market rates can mme otiy fcom local recentsales. One way of mmpudng them is to tit a market model toavailable sales using muldple linear regression analysis. medesired rates emerge from mfficients mmputed for themodel. ‘Ihu$ even when market mcdels are not used toestimate market values duectly, they cm be W to mppnfithe alternative comparable sales approach.

Most of t~y’s better CAMA softwace packages offerbnth techniqufi Sofhmre packages atso offer enhanw-

lntergwemme@ WrapacUveiSumnrar 1S9S 21

menta to mnventiOnaJ mtitiple linear regr~on analysis.Stqmvire-bn automatically aclrrdes atstiatically unirn-potit (mcb es weter heater rendition) or redmrdssrt (inches rnnm count) property descriptors. Constmioed~sion isa meens for rmtricting the mnge or limiting the size nf Ammputed eoeffiient. Notitim - rmd odqutiwerdmation (fe*ck) ensble mmplex models to k fit toa*le aslm deta without reqtig eomplm tranafomrs.tiona. moo en *es @le updsting of en+ig model by the insertion of a set of aalea. With thistw~u~ a statewide or mun~de m~el derived frnm alsrge diverse set of ectuel sal~ can eccmrrmdte a ldjmiadictimr with otherwise Wtient safes. FirmlIy, cluster@siv automatically =Pmates different markets in ammsnon dets st for im3ividueJmcdefing.

Mastering Computer-Aeeisted Maas Appreisal

Technical tasks required for developing free-tunedmarket mndels include (1) formulating an elgebraicmndel capable of support from the avaifable sales date; (2)trmraforrrdng rew varisbles (measured and observedproperty dewriptors) into statistically relevant fonny (3)computing statistical estimates of the market rates andpercentage adjustments; (4) testing the accuracy andintegrity of mmputational resulty (5) checking tbe validityof underlying stedatical assumption and (6) refining themtiel for effective use.

Competent in-house appraiaexs csn be trained in just afew weekv to perfornr regression-besed market medelingcff~vely. However, the vewtilily, flexibility,md stetiatical~wer of the newer CAMA @ges tend to limit their useto highly trained -sin data p~ing and Statistia.Few jurisdictions bsve the in-house tslent needed toimplement mmputer--cd mass appmiasl, arrd mostcsrrrrot afford the aafmiea n~ to attrsct quslifledcandi&tS nor can they juat~ the ~nae of hiring outsideeonsdtsnt~ at lea5t on mr on-going bsaia.

Michael Ireland end Linda Adama proposed the useof a central mndel-building agency in which computerresources could be shared by a group of related jurisdic-tions within a wunty or stste. They demonstrated thissolution with a residential market-calibrated mst mndelfor four jrrtilctions (two towns and two small munties) inIllinois. In critiquing th~ effost, Willia,m Wadsworth notedthat results obtained for the two better jurisdictions wereworse thsn those obtained by an in-house staff.1 It mustalso be noted that this “solution” presents its ownproblems, such as unifying the database, standardizing thedata mllection procedures, and ensuring mmplete andmnsistent date cleaning, sales vefication, etc.

It was predicted that mmputer-assisted mass appraia-al would not bemme widespread untif software muld beimplemented without specialist support-an artificialintelligence system that woold perform regression model-ing automatically, decide statistical aspects internally, andgenerally simulate tbe krrowledge of an ~eti incomputer-assisted mass appraisal.

Expert CAMA Syeteme

Sigma Systems lkchnolo~ waa employed to assist inthe development of a total valuation system for the Junta

de Andalucia (Seville), providing CtiA software andexpertise necessmy to create the knowledge base for~W~g Out the regression analysis and market valuationvu artificial intelligence.

An optimum system would need to integrate theknowledge base and decNlonmaker thst together mnsti-tute the artflcisl intelligent capability withisr theregression software, ao that the ststiatical modeliigprocess muld be directed in real-time. This would requirethe power, efficiency, and functional integration of atailored statiatiml package that did not tist. In thecircumstances, as a practical alternative to tirne.mnsum-~g, @stly system develOpment, it was decided to place theknowledge base within a generic artificial intelligenceshell, and to tie that shell to a field-tested, regres-sion-based CAMA software package capable of generat-ing required market models.

The resulting prototype, called “Tributum,” eventhough a patchwork of unrelated software, actuallyworked. Although still under development, Tributum hasbeen successfully tested on Junts de Andalucis datathrough the initisl modeling stages. ~is proto~icaleffort demonstrated that a CAMA system with artificialintelligence is indeed possible.

Buifding nn this effort and itsown CAMAe~erience,Sigma developed the Automatic Cost Calibrator formsrket models, which uses advanced regression-basedtechniques and requires no tiemal direction from theuser or statistical analysis. Unlike Tcibutum, the Automat-ic Cost Calibrator functionally integrates the knowledgebase and decisionmaker all in one unified packsge so thatthe mcdel process an operate efficiently in real-thewithin a single mmputer nm. The Automatic CostCalibrator uses artificial intelligence to (1) perform apreliminary sales analysis; (2) detemine data-cleaningedit limits from available sales; (3) formulate a meaningfulmultivariste model that available ssles data will support;(4) transform the rsw variables (measured and observedpro~rly descriptors) into statistically relevmt forms; (3) titthe mdel to the available asles (in the prwaa mmputinginitisl estimates of market rates and percentage adjust-ments); (6) test the a~mq and integrity of mmputstionalresrdty (7) refine the mdel w thet mmputed rstes mdpercentage adjustments will be intuitively acceptable snddefensible; (8) cheek the ti:dity of underlying statisticalwurnptions by means of a mmplete residual amlya~ and(9) generrdIy mmplete the mndel w that it cao ultinmtelymeet aU of the demds plad on it.

Aa a f~ step, the program automatically demmposesthe total market-adjusted mst mtiel into separate Isnd srrdbuilding models (market-adjusted reproduction mst newle~depreciation) so that the two addhive vslue mmponenta abe independently calcuhted end individually defended. ~u.sthe system becomes idd for snrslfer jurisdictions that haveno t~ atsff in-house ad cannot afforrl mmtianta.Even where ~riend medeleca are avaiIsble, the systemis coat effective because it can reduec the numkr ofmmputer runs required and save time.

Though Automatic Cost Calibrator does not performtrue market valuation, but rather prnduces nmrket-adjusted cost estimates, the artificial intelligence andmodeling techniques it uses cen be extended to a fullmarket model as anon as requisite software is developed.

Typical ReaulteUsing Computer-Assiatad Mass Appreisal

Overall sppraiaal performance can be measured bystatistics such as the median assessment-sales price ratio,the inefficient of diapersion, the index of inequality, andthe price-related differential. The median assessmentsales-price ratio indirates the de facto level of assessmentwith respect to market value. The inefficient of dispersionand the index of inequality indicate the uniformity andmnsisten~ of the reapp- by showing the estent of=tter or aprad aromd tbe medii ratio. me price-relateddfierential is tie quotient re!mlting from ditiing the meanratio for a WOUpof safes by the apgregste ratio for the samegroup. Aprice-relsted dtierential greater than 10Uindiratesthat higher value properties in the group have lower ratiosthan lower due properties, md A versa.

The International Association of Assessing Officers(IAAO) has established standards for these statistim forthe median assessment-sales price ratio, 90 to 110percent;for the inefficient of dispersion, under 10.0 percent (fornew and/or otherwise homogeneous areas) and under 15.0percent (for older and/or othemiae heterogeneous areas}and for the price-related differential, 98 to 103 percent.

Charleston County, South Carolina, completed anin-house cumputer-assisted mass appraisal within twoyears. Officials were able to ammptiih the followingtie a request for propsal for CAMA software, emhmtereapnrrdirrgproposal$ select a contractor, inatao the CAMAanftware on their mainfmnre wmputer, conveti data, trainsti, clean up the data base, perform the rr~ Happ- (empl@g ~ thee ~uation apprnacbe$ asaPPrOPMte), rnnve at md review fmsl r~ult~ publkhtaxpayer notice$ mrd initiate infomsrd hearin&e~~wy-era in preparation for completing the _ .

The mediin aaseasment aalm-price mtio went from72.99 percent b~ore the reapp- to lM percent. meSouth Carolii State ti Conrmiasion mandates that theratio fall between 80 and 105 percent. The comity’s-fficient of dWeraiOn dropped frnm 25.4 to 122 percent.Sily, the indes of inequality dropped from 16.9 to 6.3peunt. me South Camtina State ~ Co-on mm-datea the latter indm k less than 15.0 percent. The pricerelated dtierential for the county dropped from 108 to 103percent. ~eae performance achievements indicate thatCharIestOn County improved from an unacceptable appraia-al situation to a near perfect one in just two years, and theydid it in-house tithout expensive consultants.

SimiIarly, Shelby County @emphis) Wnn&ee com-pleted two sutive full reapptis irr four years, as we13as procuring mrd isrstalfinga complete har’dwe system. In191, median assessment-sales price ratios sanged from92.46 percent to 99.40 percent, and the mrrespondirrgmefficients stnod at 8.16 percent and 11.85 percent. Thelow-high range among the mefficients estended from 6.45percent to 22.03 percent. In 1993, the ratios were as low as68.76 percent and as high as 107.57 percent. Both ratiosare extreme because it was necessa~ to use techniquesother than multiple regression analysis. The two regionsare near but not at the top of the range in coefficients ofdispersion, which tiended from 7.13 percent to 15.04percent. ‘flrese performance statistics indicate goodquality reappraisals for the most part.

Shelby County, like Charleston County, did most ofthe work in-house. Both had good CAMA systems plusmnsiderable training. Similar outmmes have m%urred inBoston, Cambridge, Newton, Lexington, Bedford, andSomerville, Massachusetts Eveaham, New Jersey; Cuy-ahoga County (Cleveland), Ohiq Des Moines and PolkCounty, Iowa; Salt bke County (Salt Lake City), Utah;and Dona Ana County (Las Cs’uces), New Mexim. In all ofthese jurisdictions, the assessors used the same CAMAsoftwre package, totally irr-house.

In-house, regression-based market software is today’spractical standard technique for use in eomputer-assiatedmass appraisal. ~mor’row’s CAMA is Iiiely to call onexpert systems that use artflcisl intelligence to drive theregression-based modeling. Non-mmputerized, manualmass appraisal, particularly any based on the replacementmst approach, is slowly becoming obsolete.

Note~1Michael Ireland and Linda Adams, “Transportability of aGeneral-Fu- Residential Market-Calibrated Coat Mndel,”Pmpe~ Tm Joumaf 10 (Spring 1991) 203-204;and WilliamWadswrth, “Comments on Ireland and Adams,Trampnrtabil-ity of a General-pup Residential Market-Calibrated CostMndel,” Pmpew Tm Joumd 10(Spring 1991) 225-226,

David L, Jensen is a senior research analyst at Sig-ma Systenrs Technolo~, Inc., Willtirrrsville, New York

Assessments and Prnperty Taxes(continuedfim page 13)

The courts alan mntinue to influence the ultimateshape of property tases. Recent eoufi decisions irderpret-ing state tax limits and assessing practices, as well as theuse of property taxes for school financing, bring new un-certainties to property taxes.

John O. Behrens k a visiting fellow at ACIR.

Note~1Nordlinger v. Hahn, 120L M 2d 1, 112S G 2326(1992),z“me Future of Propition t3 in California,” by ArthurOSullivsn, Tern A Stion, and StevenM. Sheffrin,CPSBtief5March 1993] 3-6.

3Allegheny Pittsburgh Coal Company v. Webster County, 4i7SU.S.336(1989).See also “Federal huntabitity for til Tax*merit Schemes An Equal Protection Overlay,” TheTaL~r 43 (Winter 1990>457-473,esp. 466.

4PacificSouthwst RealtyCo, v.County ofLca Angelss,S211P2d1046(1991)

sState “a rel. N/S Amnciat~ v. Board of Reviewof Village ofGreendale, 473NW 2d 554(Wisconsin, 1991),

6Wrrano v.Priest,4S7P 2d 1241(1971),96Cal.Rptr. 601(1971).7Sermno v. Priest, 557P 2d 929, L35Cal. rptr. MS (1W8San Antonio Independent Schnnl District v. Rodriguez, 411USL 93 S Ct 1278.36 L W 2d 16(19731. ..–.

9~ge+ Indepkdent Schnol District v. Rirby, ~ SW 2d391@exss, 1989)

10~ge~ r“de~”dent School District V. Rirby, fIf14sw ~

491 (1-m, 1991)iIC~IIton.Fmem Bmnch Independent School D~trict v.

Fdgcti Independent School District et al., S26SW 2d 489(’ram, 1992).

lntargovemmen~ Psra@tive/Summar 1W3 23

——.. ——

~ntergovernmentalDigest

President SiguaSupplemental Appropriation

&mti Redus

City Financae Still at hw Ebb

Court Rules RetroactiveState Tax Ralief

president Cliiton has signed a supplemental appropriations bill for FY 1993.Included in the bill are an additional $2W million in loan authority for mralwater and sewage trcatmen~ $35 million for rurat water and waste d~aalgrant$ $250 million more loan autborityfor rumt housing $66 million formralhousing assistance; $170miIlion for summer youth employment programs; $Wmillion for anew “Youth Fair Cbana” program under theJ& ~tdngPurtw-stipAcr; $150 million for discretionary grants to state and Ioral governments toh~e more “UJPSon the beat”; and $9fJmittion for disaster assistance under theCommunity Development Bl@ Grant program.

In McDorme/1v. City of Omaha, the U.S. Court of Appeals for the EighthCwrrit mled in favor of Omaha by holding that the city need not pay overtimewages to five current and former assistant fue chiefs because, as bona fideadministrative empluyees, they are axempt from the overtime mandates of thefederal Fair Lubor Standd$ Act. The July dectilon by the appeals courtoverturned a district court ru~mg against tbe city, whtch would have costOmaha about $67,~ in overtime payments. ‘f’bii case was regarded as soimportant that the National League of Cities mounted an unprwedentedsupport effort for Omaha, including an arrricus brief by NLC and financialsupport from state municipal leagues across the muntry. The McDonell deci-sion, however, stands in contrast to an earlier ruling by tbe Ninth Cmuit Courtof Appeals in A6sfire v. County of M. That decision went against Iucalgovernments. Under A6Miw, cities in the Ninth Cucuit, including hs An-geles, face millions of dollars of overtime rests per year. It is tiiely, therefore,that the U.S. Supreme Court wifl have to settle the dtiferenee betweenA6s/rirsand McDonnell.

The National League of Cities’ Ciry Ffscal Conditiorrs in 1993, released inmid-July, reported tittle improvement since 1~. More than half the citiesincluded in the survey raid that their general fund spending will exeeedrevenues in 1993. Cities having more than 300,W people, central citie% andnortheastern cities are the most likely to experience tight fiscal renditions in1W3. The average ending balarr~ of cities responding to the survey is expectedto be $5.9 million in 1993, a 6.3 percent decline from the 192 average batanceof $6.3 million. The most frequently cited factors contributing to fiil stresswere the cost of city employee health benefits, irrfmstrrrcture needs, unfundedfederal and state mandates, and lml eronomic conditions.

On June 18, the U.S. Supreme Court mled in Harpe?v. Erginia DepurtmerrtofTation that its 19W hfichigorrv. Davis detilon requira states to provideretroactive retief to federal pensioners whose retirement benefits were taxedby the states whale state government pensioners were exempted from taxes ontheir benefits. In 1989, the Court ruled that states rannot give favored taxtreatment to state over federal retirees, but it dd not reanlve tbe question ofretroactive remedies. As a result of Harper, some 17 states raay now have torefund as much as $2 b~lion to federal pensioners.

Viginia beads the lit with a possible liability of $467 million, foUowed by*na at $339 mittion, South Caroliia at $~ million, and, near the bottom,~ OtdaboW and Montsm at about $20 rniltion each. Huwever, Just&

24 Itirgovsmmantal Patapactiva/8ummsr 1993

Motor Voter Gassed Up

Clarence Thomas, writing for the majority, said that “federal law does notnecessarily entitle (the pensioners) to a refund . . . but it requires Viiginia toprovide relief consistent with federal due process principles.” The case wasremanded to state courts to decide appropriate relief measures.

President COnton signed the Nrztiond Vof&Rrgistrti”onAcl (PL 103-31) on May20, 1993. States will be required to provide for voter registration by rnait, atdriver’s ticense bureaus pubtic asistice offices and state-funded Offices thatserve ps~ns tith d~bfities. Under a House-Senate mmprofie, welfare of-fices must inform applicants and recipients that failing to register to vote will notaffect their benefit levels. State3 may alsn establish registration at unemploymentoffus and designate other sites for voter registration, such as public libraries,f~hmg and hunting license bureaus, @ offwes, and public schwls.

Nearly 30 states already provide for “motor voter” registration, althoughmany will have to revise their programs to mmply with the federal law. TheCongressional Budget Office estimated that state compliance with the law willmst about $20 million a year for the first five years. Some state officials believethe costs will be higher. “Motor voter” goes into effect at the beginning of1995, or 1996 where states must amend their constitutions to mmply with thefederal law.

Lottery Revenues Down The trend in state lottery revenues took a sharp downward turn during 1990.The 2.5 percent increase in 1991 lottery revenues was below the rate ofinflation and below tbe annual increases in recent years, despite new statelotteries and new games in some states.

Figurs1Net Proceeds nf State Lotteries, Annual Percentage Change, fiscal Years 1980-91

30-

25-

10I

US. Depafiment nf

1982-33

Comme]

1983-84

rce,Bureau of the Cel

m1986-87

3: [VwiowlSUS,State nt Finance

A1990-91

year].

Intergovsmmentsl Psrspsctive/Summer 1993 25

AssessmentInnovationin Orange

County,Florida

Richard W. Rourk

urider today’s tight economic conditions andwith citizen demands for more and better ser-vice at lower costs, governments throughout thenation are pressed to look for more efficientmethods of operation. In Florida, massivegrowth in the past 20 years and a tourist-basedeconomy have placed extraordinary burdens onthe infrastructure. In central Florida, the officeof the Orange County Property Appraiser ismeeting demands for greater efficiency by im-plementing new technology to address the in-creasing challenges of tax assessment.

The property appraiser (tax assessor in Florida) assessesall taxable property in Orange County-a growing metro-politan region of 1,000 square miles, with more than270,000 parcels and a taxable value of over $40 bfllion, andhome to Disney World, Universal Studios Florida, andSeaWorld. Orange County alsn is a leader irr the irrrple-mentation of geographic information systems (GIS). TheNational Center for Geographic Information and Analysisdescribes GIS as “a mmputerized data base managementsystem for capture, storage, retrieval, analysis and displayof spatial (lmtionally defined) data.” GIS includes peo-ple, data, technolo~, and associated procedures, all keyedto promote imrovation.

GIS evolved over many years in Orange County,based on three prirrciplex (1) data quality ia essential, (2)data must be accessible to all people and programs, and (3)people and process witl change.

Data Quality

One of the most inrportant factors in any data baseaPPli~tiOn is the ~ta. ~k is especially true with GIS.Unlike typical infonrration system applications that aredetivered as “empty” systems in which the data is builtover time by the end-user, GIS must have hardware,software and applications, and data as well. kurate andmaintainable data need to be created, wnverted, orsquired to make GIS successful.

The Orange County GIS project emphasizes rigorousquality control to achieve tbe necessa~ data awuracy andretiibility. WItbout these, meeting the increased demandsof citizens and state regulations would be irrrpossl%le.Utilizing a key GIS capability, with the abflity to displaythematic graphics or maps, the property appraiser’s officeanalyzes large geographic regions for data mmpletenessand insistency each time a change occurs.

More than 40 field appraisers and 20 agencies usethe GIS data. These inctude City of Orlando arrd OrangeCorrnty agenci~ suti as pubtic works, public utilities,planning and development mrdrrg real estate managementand envirmmrentrd services. me GIS data ffle also is=uted to other mrrrrieipalitiesarrd private orgtitions.~eir feedback is *eled through sti&i e~renrr~on forms providing valuable in-the-field verifiidon.

Better data quality translates into better dceision-makirrg. Erroneous data leads to poor appraiwls, whichcarr have expensive effects. For example, when an errorhelps generate a value below what aproperry owner thinkis a “fair market” value, the property owner rarelymmplairrs, and the undervaluation results irr lost propertytw revenue. Conversely, when an error leads to a valuejudgment higher than the property owner thinks is fair,there may be a complaint. It can take an hour or more tomrreet even a simple factual error that needs no fieldverification. If the property owner rerrrairrs unsatisfied and?PP=}S the assessment, the rests can be significant. h ajunsdlctlon the size of Orange county, error reductionalone can account for over 1,~ hours of savings per yearon mmplairrt handling. Ttrii an prevent tax revenuelosses amountirrg to miflions of dollars.

Data Accessibility

~ axessom have been utiltimg computer-assistedrrrass apprakl (CAMA) systems for mass property

aPPra~l s~ce the 1970s. CAMA data provide anexcellent foundation for building new technologies andaPPfi~tiOns. me System Of the 199fIsmust ammmodategreater statistical and graphic modeling to integratenumerous appraisal support elements and applications.These include statistical packages, spreadsheets, wordprocessing, photographic images, dncument images, andspatial data of all kirrds.

For example, one may wish to direct output from aCAMA mmpareble sales application onto a GIS map todisplay the location or other attributes of the properties.Orange County has relied heavily on in-house customiza-tion to achieve this level of irrtegration. A variety ofstumbling blncks impedes integration, usually related tovariations in hardware, software, and data.

One of the challenges is integrating older CAMAsystems with GIS. Many CAMA systems were developedmore than 20 years ago and tend to be mainframe systemswith proprietaV, non-relational data structures. Becauseintegrating its old mainframe CAMA system with newtechnologies would be costly, Orange County decided tomnvert its system to a PC Local Area Network (LAN).The LAN has facilitated implementation of a recordsmanagement system, officewide electronic mail, andspreadsheet, data base, and advanced statistical applica-tions. The network allows easier and less expensive

upgrades and enabled the county to save nearly a mtiliondollars a year by lowering rests of hardware maintenance,mmputer operation, and software support.

Orange County directed that its CAMA-GIS systemchange from proprietary to open, with non-redundantdata sharing. A major impact of the implementation ofGIS haa been elimination of manual map products.Appraisal map products are now generated directly fromCAMA. Aa a result, any inwnsistencies and ercorsbecome noticeable quickly and corrective action is set inmotion immediately. Although the effects of this ondecisionmaking are difficult to quantify, it is worth notingthat elimination of redundant maintenance saved of morethan l,OCSIhours per year. With a mechanism that linksGIS to the CAMA system, higher quality products arenow generated more efficiently.

Increased data awessibility also has allowed the

aPPmiser tOcreate new custOmtied products for each usergroup. These customized products enable apprakera toperfom their assignments more efficiently. The newproducts were never practical before GIS because theyrequired large volumes of dynamic data. Aa a result ofbetter data awessibility, more than 10 new appraisalproducts were developed. They reflect an estimatedannual labor savings of over 7,000 hours. Some of theseproducts include value defense, sales-assessment ratioanalysis, land reassessment, structure use and dimensions,and sales analysis maps. These new GIS products not onlyutilize color and hatch patterns to bigblight specificattributes, but they often include advanced statistics,market indicators, and lncstional key maps to aid the

aPPraker ~ PrOPefiy identifimtion and valuation. Theirbasic benefit is better decisionmaking, which, in turn,results in more equitable and defensible value judgments.

People

Penple are the major mmpnnent nf any computetiedsvstem. Individuals wmpile data, digitize maps, analyze~ata, make inquiries, amlyze results, and upti-te the &tabase. Users contribute to design, development, andimplementation of any new technology.

Frequently, of murse, there is a natural resistance tochange. The appraiser’s office has developed severalstrategies to overwme this. Arr end-user steering mmmit-tee provides advice on newapplicstions. In the process, allof the workers get a Inok at the vision of the future. Inaddition, advantage is taken of opportunities to ~seusers to new prnducts and systems.

me munty provides a variety of training andcross-training alternatives to help user’s understand thenew systems. These include training programs of variouskinds, plus in-house expert/novice work pairing. In-housetraining deals with the specific environment, prncessesand applications of the appraiser’s operation. Expert/novice training teams emphasize team work and employee

~PeratiOn, while Wmputer-based instruction offemchallenges and opportunities during non-peak work bouraor on personal time.

Proceae Re-Engineering

Often in government an inefficient process willcontinue for years because “it has always been done thatway.” Those who would improve it with something new,however, first need a thorough understanding of existingprncesses. This munty review of data and procedures,rolled process re-engineerirrg, has irrchrded recordsprocessing and the appratil function.

~ administer prope~ taxation and analyze markettrends appropriately, the appraiser’s office tracks name,address, and legal changes whenever property is sold nrotherwise transferred. The ~ical “instrument of change”is the deed. Before the re-engirreering, there was afour-month processing backlog in remrding deeds. Byrestructuring work flow, ennugh time was gained toinclude the double entV of all ownexsbip and sales&@ andelan achieve 1~ percent mmcy. AU mership changesare now pr~ within one day. me benefits of thesechanges are profound. We from the benefit of higherqurdity sale data for use in value judgrnenta, a-teomership information eliminates u~ mistakecorrection, end saves more than ~ hours nf staff time.

Increasing efficien~ via process re-engineering maynecessitate organizational changes. In Orange County, apermanent staff of four awmplishes what seven pemra-nent and four tempnra~ staff members did. Thesechanges pinduced ravings of 5,000 hours annually.

A semnd example of productivity increase relates tonew appraisal procedures made possible by GIS. Residen-tial appraisers were able tn initiate a house-to-houseevaluation project that inmrporated information aboutnew construction and structural additions. As a result,

aPP~ise~ were free to appmise mther than to spend timetracking sales and pemrits. This re-engineering processalso improved the quality of the property assessmentrecords associated with the area.

Irrtarenvemmntsl Pam_lSummer 1W3 27

—

Land appraisers have also revked their operating pro-cedures to incorporate a new GIS equity evaluation tech-nique made pnssible by project re-errgineering. Appraiaalstaff cite a 75 percent reduction irr tirrre spent, in compari-ann with previous manual methods. This also has helpedaPPraiSal Staff dtiver opportunities for better cmrdirra-tion of mmmercial and residential appraisals. The ulti-mate impact of these changes is a cnmbmation ofincreased efficiency and iruproved decisionmakirrg, bothreflected irr more accurate property valuations that aremore conficirrgly defended.

Advances lie integrating CNA with GIS can helpgovernment make better decisions arrd dramaticallyincrease efficiency of operations through innovationsaffecting data, systems, people, and prmedures. Aa aresult, government bemmes more responsive and ac-countable to its citizens through use of innovation.

Richard W Rourk is directoc Mapping and Re-cords, Orange County Prope~ Appraiseg Orlando,Florida

Wo-ftate Property Taxes(conri.ued@m page 19)

property, they are jointly r~tile for the income streamgenerated by the property. What is the site worth on its own?Well, we could just Innk at a sirrriku site without irnprove-menta and fmd that vatue, mtidrr’t we? The answer is yes.But would the two sites reaJly he mmparable? No.

Arr analoW from the aportirrg world helps to illustratethis point. Jf we wanted to koow how much Cecil Fielder,the home-run hitter for the Detroit Tigers, is worth wewould face the same difficulty. Cecil’s productivitydepends on the productivity of those bittirrg irr the line-upahead of him. He witJ have more RJ3fs if they get hits. Thrrsmch beball player’s anoruic worth depends on hist~te.s’ perforrrrance. The sarue ia true of land andstructures, arrd the prnblem of separatirrg the value of each ianot triviat. Conventional app~l arrd =ssnrent methodsprovide ordy irrrpcrfcct estimates of land value diadict fromirrrpmvement value for developed PIa. Observing vacantland tium and irrferrirrg from those what land is worth irrdeveloped w is like aakirrg what CecO Fielder is worth inthe absence of the rest of the team. Economists mustdevelop better methods of cluing tand irrdeveloped use irrorder to irrrplement a twu-rate proprly tax.

Another issue is the proper ratio of taxation of siteand structures. Between the extremes of the conventionalproperty tax with equal rates applied to land andirrrprovements and the Henry George single tax with azero rate on irrrprovements and a unitary rate on land,there is a number of possible two-rate tas structures.Which of these possibilities is the best? As yet, there is noresearch to guide policy application of a two-rate system.There is qerience from immunities that have apptiedseveral different ratios, but there is no systematicevaluation of the effects. Research is needed on theoptirrral ratio of tm rates to be applied to sites andstructures. The optimal ratio will depend, of murae, onthe objectives of the community. Because tiruirrg, densityof development, land values, house values, and other

factors are all potentially affected by a move to gradedtasation, the mmmunity must detemrirre its objective irrmakirrg such a change and select tax rates that witl supportthat objective. Thk will be no easy task. The potentialpayoff, however, is that the cummunity rrmy have anadditional f-l tool irr the forrrr of the two-rate tax to usein affecting land use and development.

Summary and Conclusions

The idea of affecting urban development patterns usinga split-rate proWrty tax k worthy of cartiof cmraideration. Itwill not anlve all of our * problems. It cordd, however,help alter hth the timing and the derrsity of urbandevelopment irr ways that would relieve wme of theprblem f- by cities. On the basii of anonric thing,there is r~n to believe that split-rate ties are worth a try.On the basIs of ~rienm irr a few limited applicationsthere is no reason not to try thu forrrr of tition.

From a practical poirrt of view, there are severalimpediments to adopting a two-rate system. The mostirrrmednte concern ia providirrg assessors with methuds todistirrguish site value from the value of improvementsaccurately. Further, additional research is needed todetermine the opturral rates of taxation on sites andirrrprovements, given community objectives.

Atl in all, two-rate property tax systems protide apotentially useful method of affectirrg urban developmentpatterns. We would do well to mnsider them carefully andplan for selected implementation with mmprehensiveevaluation of their effects. A two-rate property tax will notrenew every blighted urban area or fdl in every vacantparcel beirrg held for speculation. But there is plenty ofreawn to think harder about implementing such taxsystems bemuse they hold the prospect for clear irrrprove-ments over the traditional sirrgle rate property tax.

John E. Anderson kprofessor of economics, Uni-versity of Nebraska.

Note~1Henry George, Pmfls and Paverry @ew York 1929, Ro&rtShalkenbach Foundation, 50th Annivers~ Fdition), p. 414.

2Jan Brueckner, “A Mndem Analysis of the Effects of Site ValueTaxation,” Nafionul T@ JounMI39 (January 1986), 49-58.

3Other isnlatcd = have etited in the United States. Forexample, an as.sewr in South field, Michigan, one implem-ented a twmte s~tem in tiolation of the state constitution. Arecent change in Colorado law resulted in different rates oftaxation on meant land and improvements. This is a relativelynew development and provides limited ~rience from whichto draw inferenws.

4The school district and aunty cuntinucd to apply a single-rateproprty tax. The combined effect of the tity, school, andcaunty taxes resulted in a total tax rate on land of slightly morethan tice the rate on structures.

5Wallace E. Oates and Robert M. Schwab, “Urban LandTaxation for the Economic Rejuvenation of center Citim ThePittsburgh ~rience,” Penruylvarda he of Citti Repi-ter(JanuaT 1992} 2S-30.

6Joseph A. DiMasi, “The Effects of Site Value Taxation in anUrban Area A General ~uilibrium Computational Appreach; Nazional TaxJoud @ (December 19g7) 577-SW.

7James R. FoOain and Tamar Emi Femandez, “Land VemusCapital Value Taxation A General ~uilibrium Anal~is,”Nafiond TarJoumd 39 (September 1986>451-470.

28 Intargovammental Parswtive/Summer IW3

Publications of the Advisory Commission on Intergovernmental Relations(not advertised elsewhere in this publication)

The National Guard Defending the Nation and the States, A-124, 1993State Solvency Regulation of Property. Casualty and Life Insuranca Companies, A-123, 1992lntergovemmental Decisionmaking for Environmental Protection and Public Worka, A-122, 1992Federal Statutory Preemption of State and heal Authority, A-121, 1992Toward a Federal Infrastructure Strate~ Issues and Options, A-120, 1992Medicaid: Intergovernmental mends and Options, A-119, 1992State Laws Governing bl Government Structure and Administration, M-186, 1992Irrterjurisdictional Tax and Policy Competition: Good or Bad for the Federal System? M-177, 1991Intergovernmental Regulation of Telecommurrieetions, A-115, 1990Mandate* Cases in State.Local Relations, M-173, 1990State Constitutional Law Cases and Materials with 1990.91 Supplement, M-159S, 1990State Constitutions in the Federal System SeIected Issues and Opportunities for State Initiatives, A-113, 1989Residential Community Associations Questions and hswers fur Pubtic 00icials, M-166, 1989Residential Community Associations: Private Cevemments in the Intergovernmental System? A-112, 1989Disabfity Rights Mandates: Federal and State Compliance with Employment Protections

$15.00$20.CSI$10.00$10.00$8.00

$10.00$10.00$10.OQ$10.00$10.00$30.00$15.00$5.00

$10.00

and Architectural Barrier Removal, A-ill, 1989 $10.W

ACIR PUBLICATION AND DISKETTE ORDER FORM

Mark your selections on this form and returnWITH CHECK OR MONEY ORDER to

ACIRPubliationx WOK Street, ~, Soutb Building, Suite 450, Washington, DC 20575

ALL ORDERS MUST BE PREPAID

Report Quantity Price Amount Report Quantity Price Amount

M-187 $20 A-119 $10M-186 $10 A-115 $10M-185 $20 — A-113 $15M-185-II $22.50 _ A-112 $10M-184” $8 A-ill $10M-177 $10 —M-173 $10 — State. Local Finance Diskettes:M-166 $5 Set FY83-90 $345A-126 $15 — 90-5.25” $115A-125* $20 90-3.5” $125A-124 $15 — 89 $75A-123 $20 88 $60A-122 $10 83-87 $25 eachA-121 $10 State Tax Revenue Diskette:A-120 $8 — FY 1983-91 $m“Set $23 — FY 1991 $7.50 _(if purchased together)

Total EncIosed

Name@lease type or print)Organization/Company

Address

City, State, Zip

lntsrgovsmmentit Parspstilve/Summer 1593 29

~rants NotesMore, Smaller Federal GrantsAre Focus for “Reinventing” Governmenttirles G@ths and Bruce Q McDowell

Analysts in the Congress and theNational Performance Review beingmnducted by Vice President Al Gorefor President Bitl Clinton have askedACIR to update an arudysis of federalgrant programs published by tbe Com-mission in 1981. Following is a briefsummary of findings from th~ update.

After some streamltimg of thegrant system in the early 1980s, groundhas again been lost. The number ofseparate grant programs ia at an all-time high, and many of the programsare quite small (see also page 32). Thechallenge of “reinventing” the grantsystem is at least as great as it waswhen the 1980s be an.

fme number o federal grants hascrept back up from a low of 0 in 19Wto a high of about 557 irr FY 1992.Block grants, which aaunted forabout 15 percent of all federal grantfunds in 1978, now amunt for onlyabout, 10 percent. Thus, complexityand nEIdItv have reemerged irr thegrant +tein.

In its 1981 report An Agenda for~er’ic~ Federdisnr, ACIR clusteredsimilar federal grant programs andcompared the percentage of federalgmnt programs in each cluster to thepercentage of federal grant finds inthe cluster. Ttria urnduced a “frag-mentation index.” “

An index number of less than oneindicates that the cluster has fewer,and larger programs than average. Anindex number greater than one irrdl-cate3 the cluster baa a larger number of3matler prograrrr3. The r-ning be-hind the index is that, irr geneml, theder,prngmma prnbably mny a di3-Pwfimmtely heavy burden of admin-mtive nverhead and provide a diapro-portionrdely ti amount of the re-wurcea needed to meet mtiontie pro-gram needs effectively. A high fragmen-tation irrdq then, wggests where OPportrrnitia might W for gsant mHfi-dadon$ termination or turnhcJra.

me UpdataOver the past two months, ACIR

has prepared a rough update of therankings of federal grant programs by

size, and has reralcrrlated the frag-mentation indexes of program clus-ters. Because of substantial programchanges over the past dozen years, the~mpafiOnS between the FY 1980findings (used in the 1981 report) andFY 1992fmdirrgs are not precise. Nev-ertheless, a few of these mmpariannsare noted to give a sense of h~toricaldevelopment. Of prima interest for

?current grant reform ef orts are theFY 1992 fragmentation indexes.

Number and Size of Programs.Aa showrr in ~ble 1, the federal grantprograms available to state and 1-1governments in FY 19t?0 have irr-creased to 557, up about 19 permnt. In19g0, the largest 19 progmms ac-counted for 80 percent of all federalgrant dollara, mmpared to 22 pro-grams in 1992. Ninety percent of allgrant dollaca were in tbe largest 49programs in 1980 and the largest 47programs in 1992.

Changes in Program Structures.Aa shown in ~ble 3 health/medicrdprograms moved up to become thelargest program cluster, while housingdropped from first place to fourth.me employment/trainiig, crimiialjustice, and wpational health andsafety clusters dropped in relativesize. The other clusters remained fair-ly stable in relation to each other, al-thnugh precise comparisons are d~fi-cult because of anme inmnsiatenciesirr program classification.

merrtation 3ndexes. A shownin Mle 3, again allowing for aume dif-ferenm m *Icadou the fragmen-tation patterna remained much thesame over the 12-year period. ‘fire mostfra~ented progmnr clusters in hthyeaIs were edumtion, ~ justice,rmu mnservatinn and develop-ment, cultumt affaira (arts and hmmmi-tiea), and disaster preventiotirelief.

ConelualonIt should be stressed that these

fragmentation irrdmes are only roughindicators of where to begin lookingfor opportunities to “reinvent” grantprograms. Some small programs, un-doubtedly, are well designed and ef-fective for the puqoses they serve.Changes should not be made without athorough investigation of the irrdivid-ual programs within a cluster.

Whh that caveat, it appeara fromthis analysis that the most likely op-portunities for grant consolidation orother reforms might be found in thefnllowirrg program clustem health,eduratinn, and =ial services andpublic assistance (which contain thetargest rrrrmkr of programs), and jus-ti% MturSl rams, vetemna’ bene.fits and ae~ Iibruri% oceupatiorralhmlth and safety, and cultumt affaim(which have the highest fragmentationindexes).

A more detailed report, tiiting aIlthe FY 1S92 programs, by size andfunctional cluster. is available fromACIR for $5.

Table1Number and Sir.a

uf Federal Grant Programs Available tu State and bral GovernmentsFY 1980 and FY 1992

FY t980Number

of ObligationsPrograms (thouaanda) Percentage

5 $56,320,044 487019 92,246,837 8049 1U,507,435 w

473 116,227,656 llm

NumberObligations

Progms (thouaanda) Precentage

3 $lco.512.921 50%22 160;914;730 8047 181.407.882 90

557 20~376;162 100

30 Itrtargnvemmentsl Para_/Summer 1993

T&/e 2Program Clusters of Federsl Grants to State and Local Governments,

by Number of Programs and Percentage of Total Funding in Each Cluster, FY 1980 and FY 1992

Percentage Numberof Funding FY 1980 Categories of Programs

19.45%15.1112.0510,179.809.2416.325.914.394.150.81

0.720.530.480.210.190.170.170.090.080.020.00

HousingMedicalEmployment and TrainingTransportationFood and NutritionEducationPublic AistanwGeneral Revenue SharingEnvironmental ProtectionDevelopmentNatural Resources and

Conservation and DevelopmentVocational RehabilitationCriminal Justi&tinomic Op~rtunityCivil PreparednessArts and HumanitiesOmpational Safety and HealthMiwllaneousVoluntar ServicestibrariesEnergyFire ProtectionTOTAL

6102

214n24

3;41

105693

473

Percentage Numberof Funding FY 1992 Categories of Programs

37.99%11.4210.8010,257,155.885.312892.3a2140.810.610.490.490.440.380.260.150.070.070.05

HealthTmmportationInmme SmrityHousineEducat%nSocial Serviw and Public WitanwFood and Nutrition~ and k DewlopmentTraining and EmploymentEnvironmental QualityNational DefenseIndian ProgramsNatural ResourcesDisinter Preventio@eliefAgricultureJusticeEnergycultural AffairsUbrarieVe@rans’ Henefits and ServimOapational Health and Safety

TOTAf, 557

T&le 3Federal Grant Program Clusters Ranked by Fragmentation Index, FY 1980 and N 1992

Fragmen-Percentage of tation

Progr8ms Funding FY 1980 Categories Index

100.00 100.00 All Pmmms 1.00

Q 21.56

[ g,

~g

i 4.44

9

1.484.231.062111.276.341.90

1 0.63

MedicalJ5.114.399.204.150.480.720.17

0.81

0.210.530.090.170.080.190.020.00

Environmental ProtectionFducationDevelopmentEsOnomic OumrtunitvVocational RR“;habilita~ionOapational Safetyand HealthNatural Resouw andConservationand DevelopmentCivil PreparednessCriminal JustiwVolunteer Serviw

LibrariesArts and HumanitiesEnergyFire Protection

1.431.591.772092224.0s

4.8a

5.457.098.01

11.7612.3816.7533.9189.49

874.33

Fragmen-Percentage of tation

Programs Funding FY 1992 Categories Index

1.80% 10.80% Inmme Smrity,0.25 Housing1.42 TransWrtatiOn

1,97 1[3.95

16.16 ;+.992.69 5.311,97

0.170.190.35

Heal{h 0.43Food and Nutrition

23a0.51

~aining and Employment 0.83

100.00 100.00 All Programs 1.00

1.X5.03

1203

15.as6.462332334,492334.136.@0.901.080.906.46

0.812.895.88

7.152140.490.440.610.260.380.490.070.070.050.15

National Defen~ 1,55-I and ha Development 1.74Social Servi~and Public &istance 205Education 211Environmental Quality 3.02Disaster Prevention and Relief 4.81AgricultureIndian ProgramsEnergyJusticeNatural ResourwsVeterans’ Benefits and Servicesf,ibrariaOwupational Health and SafetyCultural Affairs

5.367.378.W10.9813.64U.7516.0818.9642.70

Intergovemmeti Psr9We/Summer 1S9S 31

Federal Grants-in-AidSoar in the 1990s,But Not for Locals or General Government PurposesBrsnda Avoletta and Philip M. Dearfrom

Federal grants to state and local governments still cryirrg the bluesgovernments irrcressed 46 percent in abmrt federal aid? Undoubtedly, thejust three years, from 1989 to 1992. most important reason is the shift ofEven after adjusting for intlation, the federal emphasis in grants from stateincrease was 31 percent (see Figure 1). and local governments as places to irr-In 1992 alone, grants increased 15per- dividuals in those places. This shift af-cent, following increases of 14percent fects discretion over the use andin 1991 and 11 percent in 1990. mntrol of the grants. Grants to places

llris expansion irr the l-is a re- remgnize governmental needs andrnarkable trrnmrorurd from the remrd give state and local officials some dis-of the 19m when tutal grants dtied cretion over how to spend money.in 1982 arrd 19S7. Gver Ure entire ten Grants to individuals are usuaoy entitle-ycars, grants to state and local gmem- ments. Although they are administeredments had average anrrual increases of by state and local official%they must beotiy 4 percent. After adjusting for irrfla- paid irr amrdarrce viith fderal rules ontiorr, grants dcclirred 12.4 Pemnt over behalf of sO residents who q@.the d-e of the 19fUJ5. Federal grants forpayrnents to in.

Although grants may not agairr dividuals (try state and loral govem-equal the 26.5 percent of state-lml ments) instituted 62.9 percent of allspending achieved in 1978, there has grants irr 1992. In 1978, they were onlybeen a dramatic irrcrease from a low of 31.8 percent. This shift from less than17.3 percent irr 1989 to 22 percent irr a third to almost two-thirds of all1W2. Siiilarly, as a percentage of the grants going to irrdividuals was causedtotal federal budget, grants rebounded both by decreases irr grants to placesfrom a 1980s low of 10.7 percent in and increases in grants to individuals.1989 to 12.9 trercent in 1W2. Thii is, of Leading the decreases irrgrants to

gram provided relatively unrestrictedaid to state and local governments,and it was clearly irnpurtant aid forthose governments.

In cmrtrast, Medicaid, the largestof the grant programs for individuals,increased 147 percent over only fiveyears, from 1987to 1992(see Figure 2).This increase was attributable irr partto more recipients bemmirrg eligiblefor benefits as a result of the recessionand to hyper-inflation in health carecosts. But it was also caused by expan-ded benefits legislated by the federalgovernment, and by state use ofprovider taxes and other such devicesto maximize the federal payments.Federal inmme security grarrts to irrdl-viduals, principally for AFf)C, ak irr-creased irr the early lMs because moreindividuals became eligible as a result ofthe rwe=ion.

In short, intentional federalchanges in the character of federalgrant programs, together with unirr-tentional effects caused by the econo-

crnrrse, still iar below the 17.0 percent places was ~he canceling of ‘Generalof 1978.

mY. .r:sulted in states and localitiesRevenue Sharirrg to states in 1981and receiving fewer grant dollars of value

With this kind of resurgence in the to cities in 19%, resultirrg in grant re- directly to the governments and far1990s, why are many state and local ductions of over $6 bioion. This pro- more of value to individuals.

Figure 1Percentage Changes in Federal Spending, SeIected Categories, 1987.1992

20

15

10~

35

0

-5 I I1987 1988 1989 1990 1991 1992

Sour= US. Offi= of Managment and Budget.

32 lntergovemmenM Pam@w/Summer 1993

Figun 2Percentage Change in Medicaid Grants and Afl Other Grants, 1987.1992

30

■ Medicaid Grants ❑ An Other Grants

~ 20

! ,0

0

-lo I1987 1988 1989 1990 1991 1992

Sour= US. Offi~ of Managment and Budget,

Some would argue, therefore,that the dramatic increase in state andInmlgrants in the 1990s is not mean-in~ul because it does not directlybenefit governments. However, stateand local govemmentsdo not alwayssee the relative importance of federslgrants to individuals this clearly. Aproposnl to rap Medimid ~ts metswift objwion frnm states. This reac-tion reflws a ragnitinn that witioutincreased Medicaid grant$ the ~tesmny have to asmme respnmibiity forinccmaed hmlth care rests from fieirom revenues. me emrcem uver rap-ping the gran~ alw may reflect the factthat some stntes have been able to di-vert a ~rtion of Mdlmid grants totheir gened funds by U3Sof providertsxes or other devices. In any event, thecap isme su~ests tbst grdnts to individ.unls me of mnsidemble isn~rtam% tostate governments. If so, tbi3 mesns thatthe increases in them @ts in the lWdo represent a sub~tisl improvementin federal aid to stat~.

However, local governments havenot fared so well, and there is littlehope for a chmge, bnsed on cns’renttrends. For 191, ofly 12 permnt of aIlfedernf ~ts went dirdly to Id gov-ernments. ‘Ilds is a absrp dmmse frnmmrlier y-. In 1987, 17 pemnt of alfgmnts went directly to local gOvem-ment$ a much higher N Pemnt did snin 1978.L.acrdgovernments not only lostGeneml Revenue Shining in the 19~but slw qerienti a clrsnge in fededphilowphy in the mrly 19~ with a shiftto bld grsnts to states instead of dirtipsyments to ld governments.

Atthough wme pmtion of federnlgmnts to states is passed through tn 10-ml govemen~ no _te mnnt-ing of the smonnts or year-to-yearc3mnges is amilable. Howwer, sincestate psynrents to Inml govenunentshave retied a m-t 34 pmnt oflocal revenues between 1987 snd 1991,lnmt governments are at best holdingtbeirpnsition and not bentilting dirmlyfrom the mpid inccmse in federal sid tostates in rtint years.

Viewing grnnt trends from anotherpe~~ive, the nmnber of fundedgmnt pro-s to state rmd Inml gov-ernments reached a new high of 557 in191, up from otiy 404 in 19S4(se Fig-ure 3). However, W of the new gmntswere mtegorid aid for nmTuw, re-stricted uses. ‘Ilre previous high numberof ~ts w 539 in 1981,jnst before theReagan administmtion’s consnlidstionof rategoricd grmrts into block gmntsbegan. me impnti~ of the 1591 in-

crea3e in the number of gsant programsis hard to judge. Few of the new pr-ogramsinvolve much money. Of the 82new gmnts erected between 19W snd1991, the Inrgest disbu~ $IW Wlonin 1991, and only eight mceeded $50million, or the equivalent of $1 millionper state. Wltb the mnstrsints on thefedersl budget and the increasedspending for Medicaid, it k likely thatany new grant programs will continueto be relatively small and of little isn-poctance to the finances of state andlwl governments.

Whale the importance of the iII.creases in federal grsnts to state and

Figure 3Number of Grant Prngrams,

by Wpe,Selected Fiscal Years, 1987.1991

500

400

300

200

100

9 Categorical

❑ Block

Sour= U.S. AdvisolyCommi%io”CMIntergovernmental Relations.

local governments in the 1990s may bequestioned, there is no doubt that amajor change has owumed from thetrends of the 1980s. For states at Ieast,the money has again been flowing, andthe number of grant programs hasbeen increasing.

Intergovemmeti Parsmve/Summer 1W3 33

~ooks, etc.

Child Care

~ THEY ST* A Digad ofOrganimlirmalmamChifdcm and** child Care Acdmr *-wgn, 3W Seventh Avenue, 17th Hmr,New York NY lW1, 1993.138 pp.

This digest k Part of CCAC’Smulti-year national public educationcampaign, “Child Care and EducationThe Crittil Connection.” The cam-paign objectives include (1) e-e thatearly childhno3 education and child careare wnaidered part nf the same pmcew(2) ensure that needa of parenta andchitdren are add.ca (3) nrake acontinuous syatcnr of child care anded~tion a bmadty au~rted publicPO@; (4) develop mmprehenaive sys-tem guidelines for atatm and localities.

The digest includes 89 publica-tions from 45 organimtions of electedofficials, edumtor’a, poticy analysts,researchers, child care advocates, andbusiness Ieader’a. The annotations fo-cus on policies and recommendations.A chart displaya the organizations’treatment of fmncing, quality, andschool-age chfld care. There are refer-ence liits of the organizations profiledand additional rearmrce organizations.Although the organizations repre-sented are very diverse, all agreed onuniversal access, school-agency collab-oration, parental involvement, role ofthe private sector, need for appropri-ate program content, achnnl-age chfldcare, changes in government ~licies,and government financing.

County Government

VOLUNTEERS & COUNTI= Partnersin Service. National Aa@tion ofCounties, 440 Fmt Street, NW, Wash-ington, DC 20001, 1993.32 pp.

In this time of expansion of re-sponslbitity either delegated by federalor state government or generated bycitizen demand, county governmentsmust lnnk for ways to provide qualityservices while controlling or cuttingrests, and facing growing citizen skep-tickm of all government. Developing

volunteer programs is one strate~that munties can use.

This report catalogs 12 programsaround the cmrntry in which volun-teers assist in airpoti operations, serveas parking enforcers, conduct environ-mental awareness progmms, staff re-cycling hotlines, assist mufls by ser’v-ing as special advncates for neglectedand abused children, offer mediationservices, and provide mental healthmunseling. NACO surveys indicatethat the number of munty-spmraoredvolunteer programs increased from 13to 50 permnt. NACO is operattig aprogram to help munties establish orqand volunteer programs.

Federalism

GRASSROOTS TYRANNY The Lim-its of Federa/i$m. By Clint Bollick.CATO Institute, 1000 MassachusettsAvenue, NW, Washington, DC20001, 1993.205 pp.

For most people, Boltick says,federalism is one of those murkycmrcepts that crops up in pntiticaIscience classes, at best vaguely under-stti as a notion that was importantduring the founding of the nation andhaving something to do with a prefer-ence for local over national gover-nment because of its proximity to the~le. Most people probably wotidmnsider federalism a quaint ~-nianr. fa it? Fedemlimr issues he notes,are at the mre nf legal battles rangingfrom abnrtion to taxation to regulation.

Tire primary purpose of theFounders in embracing federalism,Bollick says, was to safeguard individu-al Ilberty. He argues that two majordevelopments have thwarted thatgoal. The fwst reason is demogrrr-phic–the growth in the number ofgovernments and their officials andempIoyees. The semnd developmenthe calls the abandonment of thetraditional principles of federalism aspromoting individual liberty. What hasbeen created instead is gmsarwtstyrmrny-the abuse @ local gover-

nments of individual rights in private

p~~, fredom of -h, emnonricWrty, privacy, and equality under law.

Environment

A GOVERNOR’S GUIDE TO ENVI-RONMENTAL RISK RESPONSE. ByBarbara Wells. Center for Policy Re-search, National Governors’ Associ-ation, 444 North Capitol Street, NW,Washington, DC, 211001-1512,1993.24PP.

Governors ~ically are not askedto became involved in environmentalmntroveraies. When they are asked,they are likely to be in unfamiliarterritory. Succedrd gubernatorial re-sponse to environmental controversydepends as much on understandingthe roots of community concern aboutrisk as on dealiig with a Spetilchazard. This report explores six casestudies in which a governor was calledon to respond to an environmentalfik. Some of the situations were theresult of negative publicity. In othercases, the governor was asked to actbefore community concerns escalated.[n a few roses, the governor acted asthe state’s defender against perceivedthreats from other states or the federalgovernment. The situations involvedsiting and qosure i3aues with radio-active wastes, dumping hamrdouswastes, cleaning up groundwater con-tamination, oil spills, and chemical airpotlution hazards. Tfre cases share nranyticteriatica and illustrate kcy cmrsid-erations when a governor tries to retievepublic mncems through fik mnrnrmd-catimr and M nranagement.

Fknance

CITY FINANCES, CITY FUTURES. ByJohn L. Mikesett. Volume Z Chal-lenge of a New Centrr~ The Future ofAnreria’s Cities Series. Ohio Munici-pat Lea e and Nadmrat League of

%Citi~ 1 1 Pcnn3ylvania Avenuq W,Washington, DC m, 1993. 10Spp.

~i volume ia focused on municipali-ties’ future finance and taxation chal-lenges. Mikesell attempts to gauge the

34 Intafummntal Psr8@va/3ummer 1S93

potential of several financial resour-ces—from debt to taxes and services tointergovernmental aid—to suppoflurban services. He cmrtends that thetrend toward self-reliance ia “not anaberration, that cities’ future fiscalstrength will rest on their own politicaland economic strengths, not on stateor federal philanthropy.” Thus, cities’f- future hinges on how much reve-nue-raising authority they are given,creativity in fmcirrg servi~ bettertargeting of users of fafities and charg-ing for their use, and how mmpetitivethey are in -ding their @ bases.

The book includes chapters on ci-ties and government services, fiscalconditions in the intergovernmentalenvironment, city revenue structures,infrastructure and bond markets, mn-sequences of city fscal failure, and po-sitioning for the future. There are“comment” sections by John Petersen,Roy Bahl, and Peter Harkness.

Intergovernmental Finance

CATALQG OF STA~ AND FEDERALPROGRAMS AIDING NEW YORKSLOCAL GOVERNME~. 1993Edition.Legislative Co-on on Stste-hlRelations, Agenq Building 4, 14thFloor, Albany, NY 12248,1993. 462pp.

The mmmission issues the catalogas part of its evaluation of the state’ssystem of aid tn localities. T’he guide iaupdated on a two-year cycle, and thisrevision reflects the status of 4Wprograms as of December 1992. Indi-vidual prom proffles mntain infor-nration about administration, eligibilityand restrictions, the award prmss andmethod of apportionment, and annualapproptitions and disbu~menta.

me mmmissiorr notes that the1980s was a time of contcactingfederslfunds with an increased demand forpublic services on state and localgovernments. As a result, the stateand its municipalities have had toshare a larger portion of their fiscalresponsibilities. Fiscal uncertaintiescontinue, and increased aid fromWashington is unpredictable.

CATALOG OF STATE ASSISTANCETO LOCAL GOVERNMENTS. FtthEdition. Illinois Commission on Inter-governmental Cooperation, 707 Strat-ton Building, Sprin#Ield, IL 627M,1993. 3W pp.

The state transfers over $3.5 bil-lion a year in federal and state funds to

lml governments and special d~tricts.Through 41 agenciq the state providesmore thmr 345 financial md technicalawistance progm, shares revenuewith ld governments to be used attheir dmetion, and provides salarysubsidies and bnuses to many Id

OffIcials (e.g., state’s attom~ aa3ess-ment offIcera, cmrnty clerks, and Whand probation officers). Wch progmmsununary includes a description andinformation regarding eligibility, fmldsq and statute and code citations.

DETERMINING THE APPROPRI-ATENESS OF MANDATORY ASSIGN-MENT IN THE STATES, By JanemarieMulvey and Dorothy Jensen. PublicPolicy Institute, American Associationof Retired Persons, 601 E Street, W,Washington, DC 20049, 1993.126 pp.

This paper is intended to assiststates that are crrnsidering introducingmandatory assignment legislation thatwould require physicians to acceptMedicare’s approved charges as fullpayment, thus limiting so-called bal-ance bil~mg and lowering patients’out-of-pocket liabilities. Recent feder-al pnlicies have been enacted to limitbalance billing, and many state legisla-tures are considering such bills.

AARP notes that such legislation,alon8 tith other regulations on physi-cians’ fees, could have significantadverse effects on availability uf andaccess to health care for beneficiariesin some states.The authors discusstrends in balance billing liabilities,federal and state policies affectingbalance billing, and key indicators formandatory assignment (the assign-ment rate, physician supply, incomeand poverty status, carrier practices,and effects of physician payment re-form), including a chart for each state.The authors assign the states to one ofthree categories-red light, yellowlight, and green light–based on whatthey believe to be the possible orpotential impact of mandatory assign-ment on Medicare beneficiaries.

International made

GOING G~BAL A Govemork Guideto International Trade.National Gover-nors’ Association, 444 Noflh CapitolStreet, NW, Washington, DC 20001-1572, 1992.

In tbe past 20 years, governorshave taken on an expanding role ininternational trade promotion. State

gnvemments are recognized as estab-lished, experienced, and effective ex-port promoters, and eve~ state has aprogram of services to small andmedium sized mmpanies. States workin partnership with the business mm-munity, other governments, and oftenwith each other. Tire states’ programshave changed in recent years in re-sponse to the emergence of newdemoc-racies and the formation of regionaltrading amngements, federal policiesthat have emphasized a narrower setof programs, and lM1 economic andbudget realities.

This referenm guide containscomparative (time and place) data ontotal world trade, U.S. merchandiseexports and imports, state e~orts tothe world, state bud8ets and personnelfor international trade promotion,state budgets for trade development,state foreign trade development pro-grams, and the number of state officesaround the world.

A View from the Commission(continuedfim pqe 2)

mendatiom in the areas of grant reform,state and local capacity building, theRepresentative ~ System, distre~edmmmunitie$ metropolitan govenranm,mandates and preemption, regubtion,infrastructure% state constitutional law,the new judicial f~eraliim, and so on.~ type of amlytic suppnfi that ACfRprotides to federal, state, and Iddti:onmakem k inwluable, and itwould be very unfortunate if its opera-tions were discontinued.

But, let me end on a personalnote. Although I have long been fa-miliar with ACIR, it was not until Irecently returned to graduate school towork on my Ph.D. that I ftiy realizedhow widely cited, quoted, and appre-ciated ACIR’S work has been over theyam. ACfR has had a profound impactnot only on intergmecnmental affairsbut alw on the entire field of public ad-rniniitration. Tlrii impact is not mnfiiedto the United States either; it is etidentaround the world. We need ACIR, andthe muntry needs the federal guvem-ment to ragnize that fact agsirr.

Mary EIlerr JoyceSenior RegrdatoV Analyst

American Petroleum Institute

Intergovernmental Pers~tiva/Summer 1993 35

Members of theU.S. Advisory Commission on Intergovernmental Relations

(August 1W3)

Private CitizensDaniel J. Elasar, Philadelphia, Pennsylvania

Robert B. Hawkins, Jr., Chairman, San Francisco,California

Mary Ellen Joyce, Arlington, Virginia

Members of the U.S. SenateDaniel K. Akaka, Hawaii

B~on L. Dorgan, North DakotaDave Durenberger, Minnesota

Members of the U.S. House of Representatives

Donald M. Payne, New JerseySteven A. Schiff, New Mexico

Vacancy

Officers of the Executive Branch, U.S. Government

VacanqVacanqVacancy

Governors

VacancyVacancyVacancyVacanq

MayorsVictor H. Ashe, Knoxville, Tennessee

Robert M. Isaac, Colorado Springs, ColoradoMward G. Rendell, Philadelphia, Pennsylvania

Bruce M. Todd, Austin, Texas

Members of State bgislatures

Paul Bud Burke, Kansas State SenateSamuel B. Nunez, Jr., President, buisiana Senate

Vacancy

Elected County OfficialsAnn Klinger,Merced County, California

Board of SupervisorsBarbara Sheen Todd, Pinellas County, Florida,—

County CommissionVacancy

ADVISORY COMMISSION ON INTERGOVERNMENTAL RELATIONS

u

BULK RATE

WASHINGTON, DC 20575 U.S. POSTAGEPAID

OFFICIAL BUSINESS PERMIT 827

PENALW FOR PRIVATE USE, $300 WASHINGTON, DC