Property Taxes & Government Services

Property Taxes & Government Services

I've spent quite a bit of time talking to people around my district today, by phone--ecofriendly campaigning! I keep hearing one recurring complaint about what happens to property taxes when someone moves in with lots of money and builds a nice house.

One of the complaints this evening was that a person moved into this rural community and built a million dollar house. For those of you on the coasts--we have a lot of million dollar views in Idaho, but few million dollar houses. Other houses in the area were then reassessed because of the increase in value--and people living in ancient, not good shape farmhouses now have their property taxes rise dramatically.

One of the points that I made when answering a questionnaire for a PAC several weeks back was that property taxes, which pay for government services, should be determined based on the cost of services--not the value of the house. A 1200 square foot costs the same amount for the fire department to protect if it is worth $100,000 or $400,000. The insurance company has a good reason to charge you a higher premium for the more expensive house, but the fire department doesn't. They need the same equipment, the same number of firefighters, the same amount of water.

It is true that as property values rise, government employee salaries might have to rise as well, and so there has historically been a weak connection between the cost of providing government services and the value of homes--but this is only a weak connection. It would make a lot more sense for property taxes that are paying for government services that are associated with a piece of property to be set based on the likely cost of those services.

Fire services for a bare patch of land would be pretty minimal compared to a house. Without question, even an unimproved land require some fire protection services because of wildfire, but there are no structures to save, and usually, no lives. I suspect that there would be few differences between a one story 1200 square foot house and a one story 3000 square foot house. At most, the differences would be in the number of likely occupants; it might make sense to charge a bit more for five bedrooms vs. three bedrooms.

As the number of stories increase, or distance from a public road or water supply to the dwelling increases, there would be legitimate reasons to increase the fire services charge. It should be obvious that a five story building has much higher service costs than an equivalent low-rise shopping mall (you need those hook and ladder rigs). Some businesses might well justify a higher service cost because of hazardous materials.

Police services are a similar situation. It might well be that a nice house in Eagle has more stuff to steal than a crummy house in a rundown section of Boise. But again, pricing should have some connection to actual demand for services. I would expect that a lot of bars would end up with substantially higher service charges than family restaurants, simply because alcohol does breed fights. Some neighborhoods with big burglary problems would end up paying much higher police service costs for that very reason.

Now, at this point, some of you are going to start screaming "discrimination!" because the poorest neighborhoods in many places have the highest rates of burglary, murder, robbery, rape, etc. This might well be the case (although crimes like motor vehicle theft and burglary are often much more common in nicer neighborhoods), but think very carefully about this, and you will start to see one great advantage to realistic pricing: it provides information from which you can make rational economic decisions.

If property taxes in your neighborhood go up because of an increase in burglaries, you have a very direct incentive to correct this localized problem by being more actively involved in your community and improving the security of your home. If increased neighborhood vigilance, more alarm systems, and more care in locking the house when you leave reduces burglaries--you will see some decline in police service fees within a year or two. There is a strong, fairly direct incentive to take steps that make you and the rest of your neighborhood more secure. The same would be true with respect to fire hazards, especially in rural areas where some people let the weeds build up until the nearest fire department issues an abatement order.

I remember reading some years ago, right after California passed Proposition 13, that the city of Inglewood started to look at doing something like this to get around the freeze in residential property taxes. They went so far as to start evaluating individual commercial buildings for how much work they would be for the fire department. In some cases, particular buildings that were considered especially dangerous would have experienced increases. In some cases, such as the Forum (a sports and concert forum), the net effect would have been a reduction in property taxes--because the Forum was apparently especially well designed with respect to fire exits, and automatic fire suppression.

This is another area where the current system isn't terribly rational. If I build a house with automatic fire sprinklers in it, built largely of non-combustible materials (lots of steel and glass, for example, with tile roofing), it substantially reduces the risk of fire destroying the house. My insurance company may give me a discount on the fire insurance. But I'll pay the same property taxes as my neighbor who builds a house that meets the minimum building codes--but is otherwise a firetrap.

I will admit that I cringe a little at the thought of cities and counties evaluating each and every building for fire and police services. One problem is that it would be a very time consuming process, at least the first time, and it would involve a good bit of rather invasive evaluation. Some people wouldn't be willing to allow that kind of interior inspection--and I can't say that I blame them. Another problem is that there would be inevitably some subjective evaluations on some of these questions--and anything subjective means that there would be lawsuits--and sometimes with good reason.

It might be best to leave this at the level of objectively, externally measurable aspects of buildings and neighborhoods. How many stories is the building? What is the construction method on the building plans? How far from the nearest water supply? How far from the nearest public road? What are the external materials: combustible or not? Do the building plans show a built-in fire suppression sprinkler system? How many fire service calls were there in this square mile area in the last year? How many police service calls?

You could spend a lot of time arguing about the details, of course, and I'm sure that there are some details that I have completely missed. But it would solve a number of problems with the current system--and encourage property owners to make more rational economic decisions about government services.