Assessing Assessors *

Abstract

Property tax revenues-the largest discretionary source of revenue for local governments-adjust at a pace that is inconsistent with property values in the US. We show that this form of revenue smoothing may be rooted in the political economy of municipalities. Measures of local budget stressors are positively related to upward assessments of a property's value. Moreover, municipalities are significantly more likely to reassess in up markets as opposed to down-consistent with maximizing tax base and revenue collected. Using micro-level evidence from just-passing school referenda in Illinois, these shocks to municipal liabilities lead to significant increases in property assessments without any associated increases in market values or transactions. Passing a referendum over the prior 3 years increases the probability that a house is reassessed upward by 23%. This flexible form of revenue smoothing creates avenues for personal rent extraction. We find that local tax assessors: 1) have tax assessments on their own properties significantly lower than neighboring properties; and 2) these tax assessments grow significantly slower than neighbors-lowering their tax bills. We further document a significant connection between the underassessment of tax assessors' own properties and the tax-maximizing assessment gaps documented in the districts they operate.

Keywords: JEL Classification: H2, H23, H71, G12, G18, R38 Rent Extraction, Strategic Valuation, Political Economy, Local Finance