Author
Last spring, the 18-member 2020-21 class of Institute Visiting Scholars was named. Some established, some emerging, they bring a diversity of backgrounds and research interests as they examine what sorts of policies work to improve economic opportunity and inclusion, and why.
As an education consultant in Chicago, Troup Howard would often hear community leaders fret that minority homeowners were overtaxed. There wasn’t a specific cause they pointed to, just an understanding that this was how things have always been.
Fast-forward a few years and Howard was a graduate student at the University of California, Berkeley, looking at property taxes for a pension study when he and co-author Carlos Avenancio-León realized that their data could also provide evidence of racial inequality in taxation.
Historians have documented such bias in the 19th and 20th centuries, Howard said. “What we realized was that we were going to have the econometric tools to be able to test that hypothesis in aggregate data in the modern era— within the last couple of decades.”
His research found that community leaders were right and that the assessment process is to blame.
The assessed value of a home is what the government estimates it’s worth if sold on the market. Taxes are levied on the basis of this value. If assessments were perfectly fair, the ratio between assessed and market values would be the same for every homeowner in a given taxing district.
The magazine of the opportunity & Inclusive Growth institute
But looking at homes sold from 2005 to 2016, Howard found the ratio for Black and Hispanic homeowners 10 to 13 percent higher on average than the ratio for White homeowners.
Half of this “assessment gap” occurs because assessments aren’t as sensitive to differences among neighborhoods as the market is, according to Howard. Minority neighborhoods often have characteristics home buyers don’t want, such as poverty. But assessments often lump together neighborhoods in large areas without accounting for vast socioeconomic differences.
Howard said just accounting for differences among ZIP codes would dramatically narrow the gap.
As for the other half of the gap, Howard found evidence suggesting that minority homeowners are less likely than Whites to appeal their assessments, less likely to succeed, and less likely to get as high a reduction in value.
“As a scholar, I’m interested in how financial choices of state and local governments affect both regional economies and household finances,” he said. “The home is typically the largest asset owned by many, many families. Property taxes are the central pillar of essentially all local government budgets.”
This article is featured in the Fall 2020 issue of For All, the magazine of the Opportunity & Inclusive Growth Institute
More Scholar Spotlights from this issue
Tu-Uyen Tran is the senior writer in the Minneapolis Fed’s Public Affairs department. He specializes in deeply reported, data-driven articles. Before joining the Bank in 2018, Tu-Uyen was an editor and reporter in Fargo, Grand Forks, and Seattle.
