The Potential Impacts of a Split-Rate Property Tax in the City of Erie Kerry A. King Kerry A. King Todd M. Nesbit Todd M. Nesbit The Sixth Annual ERIE Economic Conference The Sixth Annual ERIE Economic Conference Tuesday, August 14, 2007 Tuesday, August 14, 2007 The Economic Research Institute of Erie The Economic Research Institute of Erie The Sam and Irene Black School of The Sam and Irene Black School of Business Business Penn State Erie Penn State Erie
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The Potential Impacts of a Split-Rate Property Tax in the City of Erie Kerry A. King Todd M. Nesbit The Sixth Annual ERIE Economic Conference Tuesday,
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The Potential Impacts of a Split-Rate Property Tax in the City of Erie
Kerry A. KingKerry A. KingTodd M. NesbitTodd M. Nesbit
The Sixth Annual ERIE Economic ConferenceThe Sixth Annual ERIE Economic ConferenceTuesday, August 14, 2007Tuesday, August 14, 2007
The Economic Research Institute of ErieThe Economic Research Institute of ErieThe Sam and Irene Black School of BusinessThe Sam and Irene Black School of Business
Penn State EriePenn State Erie
What is a Split-Rate Tax?What is a Split-Rate Tax?
Split-Rate TaxSplit-Rate Tax– Tax the assessed value of land at a higher Tax the assessed value of land at a higher
raterate
Example of Split-Rate TaxValueValue Tax Rate Tax Rate
(mills)(mills)Tax LiabilityTax Liability
Single-Rate TaxSingle-Rate Tax
Land Land
BuildingBuilding
TotalTotal
$50,000$50,000
$200,000$200,000
1010
1010
$500$500
$2,000$2,000
$2,500$2,500
Split-Rate TaxSplit-Rate Tax
Land Land
BuildingBuilding
TotalTotal
$50,000$50,000
$200,000$200,000
2020
7.57.5
$1,000$1,000
$1,500$1,500
$2,500$2,500
Panel A:Market
For Land
Panel B:Market For Buildings
SBSL
DB0
DB1
DL0
DL1
QB1 QB0QL0
PL0
PL1
PB0
PB1
PB1+T
= QL1
=PL1 + T
AdvantagesAdvantages
Revitalization of dilapidated areasRevitalization of dilapidated areas
Infill developmentInfill development
Discourages speculationDiscourages speculation
More commercial developmentMore commercial development
Creates jobsCreates jobs
Larger quantity and better quality of Larger quantity and better quality of housinghousing
DisadvantagesDisadvantages
Less incentive to preserve green spaceLess incentive to preserve green space
Balancing efficiency and equity Balancing efficiency and equity
Regressive in nature Regressive in nature
Administrative costsAdministrative costs
Effects are gradualEffects are gradual
Current Conditions in Erie (2006)Current Conditions in Erie (2006)
36,246 parcels36,246 parcels
Total value $2.57 billionTotal value $2.57 billion
Average Change in Residential Tax Average Change in Residential Tax Liability by Decile Using 3.64:1Liability by Decile Using 3.64:1
2
3
45
6
8
910
1
7
-$20
-$10
$0
$10
$20
$30
$40
$50
Property Value Decile
Average Change in Apartment Tax Average Change in Apartment Tax Liability by Quintile Using 3.64:1Liability by Quintile Using 3.64:1
2 3 4
5
1
-$900
-$800
-$700
-$600
-$500
-$400
-$300
-$200
-$100
$0
Property Value Quintile
Average Change in Commercial Tax Average Change in Commercial Tax Liability by Quintile Using 3.64:1Liability by Quintile Using 3.64:1
12
3 4
5-$600
-$500
-$400
-$300
-$200
-$100
$0
$100
$200
Property Value Quintile
Average Change in Industrial Tax Average Change in Industrial Tax Liability by Quintile Using 3.64:1Liability by Quintile Using 3.64:1
12 3
4
5-$2,500
-$2,000
-$1,500
-$1,000
-$500
$0
$500
$1,000
Property Value Quintile
Transition from Single-Rate to Split-Transition from Single-Rate to Split-Rate Property TaxRate Property Tax
Tax Ratio Tax Ratio (Land/Building)(Land/Building)
Years for Years for TransitionTransition
Decrease in Decrease in Building TaxBuilding Tax
Ending Building Ending Building Tax RateTax Rate
3.64:13.64:1 22 1.981.98 6.266.26
7.78:17.78:1 44 1.581.58 3.893.89
11.93:111.93:1 44 1.851.85 2.832.83
16.07:116.07:1 44 2.002.00 2.222.22
20.21:120.21:1 55 1.681.68 1.831.83
24.35:124.35:1 55 1.731.73 1.551.55
Final Word of CautionFinal Word of Caution
Implementing a split-rate tax with a Implementing a split-rate tax with a simultaneous tax increase is strongly simultaneous tax increase is strongly discouraged. discouraged.