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Changes in the Benefits of the Taxable Value Cap when Property Values are De-creasing: Evidence from Michigan

Author: TIMOTHY R. HODGE, CHARLES L. BALLARD & MARK SKIDMORE
Published in PFM, Vol. 18 No. 4

We evaluate the changes in the benefits of the taxable value cap in the property tax in Michigan, stemming from decreases in real-estate values. We find a substantial increase in the dispersion of benefits. Comparing results for 2012 with results for 2008, we find that the tax savings for long-time homeowners were reduced in areas with low and medium rates of population growth, but that the benefits increased by 60% in high-growth areas. We also find that, in areas that experienced greater price appreciation before Michigan’s housing-price decline than depreciation during the decline, long-time homeowners experienced reductions in their effective property-tax rates of 1.08 mills for each year of ownership. However, long-time homeowners in areas with pre-crisis appreciation that was substantially smaller than the subsequent depreciation actually experienced higher effective tax rates, relative to new home-owners. Finally, we explore the non-linearity of our results, comparing “older” and “newer” homeowners (i.e., those purchasing their property before or during the hous-ing-market decline). The benefits nearly double for long-time homeowners with the exclusion of newer homeowners, with newer homeowners contributing to the higher effective tax rates. These findings are the result of inaccurate assessments, particu-larly overassessments, experienced by those purchasing their property during the housing-market decline.

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