The impact of rising property taxes on communities

The rise of property taxes has become a topic of discussion across many local communities in the U.S. According to ATTOM’s 2023 Property Tax Analysis, there has been a significant 6.9% rise in nationwide single-family taxes, with particularly high rates observed in the Northeast and Midwest regions.

This trend, driven by several economic factors and local governance decisions, has a major effect on the social and economic growth of neighborhoods across the country. As property values increase and local governments struggle with funding needs, the burden on homeowners, businesses and community stability intensifies.

These statistics highlight the pressing impact of rising property taxes on households and businesses, reinforcing the need for effective strategies to mitigate these challenges and maintain community well-being.

The causes behind rising property taxes
The increase of property taxes stems from several factors. As property values rise due to market and economic growth, local governments often adjust tax rates to capture a larger share of this increased value. This is compounded by the need for municipalities to fund essential services such as education, infrastructure maintenance and public safety, all of which rely heavily on property tax revenues.

Local governments are facing increasing pressure to meet growing demands for services amid rising costs and expectations. This dynamic often leads to higher property taxes to bridge budget gaps and financing community projects.

In a recent study, it was found that property taxes accounted for an average of 72% of total local tax revenues across the United States. This statistic emphasizes the significant role of local governments on property taxes as a primary source of funding for such public services. According to data from the Tax Foundation, property taxes accounted for an average of 31.3% of total state and local tax revenues in 2021.

Impact on local economies and businesses
The effects of increasing property taxes extend far beyond individual households. Small businesses face a significant impact, often operating on narrow profit margins. Increased property taxes contribute to higher operating costs, which can undermine sustainability. More specifically, they drive real estate costs for office and retail businesses whether they rent or own the property. Higher property taxes can deter potential investors and entrepreneurs from establishing roots in a community.

Areas with excessively high tax rates may find themselves at a disadvantage compared to regions with more favorable tax environments, leading to less jobs and economic growth. This not only impacts local development but also contributes to broader economic inequalities across regions.

Long-term implications for property values and housing markets
While rising property values typically correlate with increased taxes, excessive tax burdens can impact property values over time. Prospective buyers are often deterred by the idea of high ongoing taxes, decreasing demand and potentially stagnating the real estate market. Specifically, the disconnect between current property values and previously assessed market values can lead to situations where property taxes remain high even as market conditions change, placing a burden on property owners without a corresponding increase in property value. This effect highlights the balance local governments must maintain between generating revenue and maintaining property market stability.

Addressing the challenge: Solutions and innovations
Effectively managing property tax increases requires innovative approaches and collaborative efforts between stakeholders. A focus on enhancing government operations and tax collection processes is important and often overlooked. This includes modernizing e-government services, reducing bureaucratic inefficiencies and leveraging automation as well as using vendor services funded solely through service fees. These strategies not only streamline administrative processes but also optimize resource allocation and improve revenue collection, by alleviating pressure on taxpayers.

Traditional methods of property tax assessment and collection often involve manual data entry, paper-based records and labor-intensive procedures. These processes are not only time-consuming but also prone to errors and inefficiencies.

Automation can revolutionize these operations by digitizing records, automating data entry and integrating various systems. For example, automated property assessment tools can use algorithms and machine learning to analyze property data, ensuring more accurate and consistent assessments. This reduces the likelihood of errors and appeals, saving both time and resources.

Moreover, automation can enhance the efficiency of tax collection processes. Online payment reminders and automated billing can significantly reduce the administrative burden on government staff while providing a more convenient and user-friendly experience for taxpayers. By reducing administrative overhead, local governments can allocate more resources to other critical areas, potentially lowering the overall tax burden.

However, even online payment systems are not all created equal, therefore governments must leverage platforms that drive the most efficiency working behind the scenes in collections between the payer/bank, the processor and the property tax collector.

The issue of rising property taxes represents a multifaceted challenge that necessitates thoughtful analysis and strategic intervention. As communities navigate the complexities of economic growth, fiscal responsibility and social equity, stakeholders must collaborate to develop sustainable solutions that prioritize long-term prosperity and community well-being. By leveraging technological advancements, promoting fiscal transparency and fostering a dialogue between government entities and residents, communities can forge a path toward equitable and resilient fiscal policies.

In the face of escalating property taxes, proactive governance and community engagement remain pivotal in shaping a future where economic stability and social cohesion thrive hand in hand. Embracing innovation and efficiency in public administration can pave the way towards sustainable fiscal policies that benefit all members of the community.

Niko Spyridonos is CEO and founder of Autoagent Data Solutions, the market leading revenue payment processor with modernized service-focused solutions that eliminates refunds and provides up-to-the-minute accurate tax files and payments for local governments. The company’s customer-focused approach results in simplifying the revenue process for its government partners.