Neighborhood Foreclosures and Property Tax Burden: An Examination of Change in Valuation Standard and Assessment Equity

Abstract

The quality of property tax assessment practices impacts the stability of local government revenue and the equity of property tax burden. This study examines the potential shift in property tax burden associated with concentrations of foreclosures while taking into account a procedural transition from a lagged market versus a current market valuation standard. The findings suggest that property tax administration matters, especially with a growing number of foreclosures. In the case studied, current market value assessments partially mitigate equity consequences of nearby foreclosure sales. It is concluded that foreclosures have a relatively small, but significant negative effect on the change in assessed values of nearby properties. That shift mitigates the over-assessment associated with foreclosures under a lagged assessment standard. However, the analysis illuminates the continued complexity of achieving horizontal equity in the property tax base within or near higher concentrations of foreclosures after the transition to current market value assessment.