Keep the Uniformity Clause

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Years ago, one of the candidates for mayor of Milwaukee (not Mayor Tom Barrett) proposed that Milwaukee should charge long-term residents of their homes less in property taxes than newcomers. She thought it was terrible that retirees should have their property taxes go up when gentrification of the neighborhood occurs.

Such ideas are good politics for two reasons: first, it appeals to taxpayers (voters) that it will keep their taxes down, while only raising taxes on newcomers (currently non-voters); second, tax the rich yuppies to help little old ladies is always popular to a certain constituency.

I pointed out to her at the forum where she advocated this, that under Wisconsin’s Uniformity Clause, her proposal was patently unconstitutional, and she became rather flustered by that fact.

Now, a member of the state assembly is proposing that we amend the constitution to do away with the Clause.

http://www.thewheelerreport.com/releases/Feb09/feb9/0209shermanuniformity.pdf

So, let me use the gentrification scenario to explain why this is a terrible idea on policy grounds.

Suppose little old lady Smith lives in a rough neighborhood, and her home is worth $50,000. Her property taxes are roughly $1,100. One day, latte-sipping yuppies buy the houses on either side of hers and spend a lot of money to fix them up real nice. The neighborhood is undergoing gentrification and living there has become chic. Solely by virtue of living on the same street, Smith’s property value goes up to $100,000, and her property taxes also double to $2,200 per year.

Smith is basically a free-rider of the investment and work of her neighbors. Yes, her property taxes have doubled, but it is solely because her equity in her home has gone up $50,000, with no effort on her part. Any rational elderly person would gladly pay $1,100 every year, as a condition of a gift of $50,000. And if she really doesn’t want to pay the extra taxes, she can sell her house to a chardonnay-sipping yuppie for twice what she would have gotten if not for the earlier “urban pioneering” by the latte-sipping yuppies next door.

Now, suppose that Milwaukee does what some other jurisdictions without a uniformity clause have done and taxes newcomers more than long-term residents. The value of Smith’s home will not rise as much. A broker would inform the prospective buyers that, even though Smith only pays $1,100 in taxes, he would have to pay $3,300 a year in taxes if he bought the house. “You see,” the broker explains. “Mrs. Jones and Mrs. Johnson across the street are also long-term residents, and their taxes re capped at only $1,100, even though their homes are worth $100,000, and would normally be taxed at $2,200 per year. So the city has to make that lost money up by taxing you even more.”

That will necessarily have a negative impact on how much the yuppie is willing to pay Smith for her house. Even worse, he may decide to give up on the urban thing altogether, and buy a house in the suburbs, where he won’t be treated like a second-class citizen.

Multiply that scenario by thousands of home-shopping yuppies, and the result is gentrification simply doesn’t occur. Older neighborhoods continue to decline, suburbs boom, and instead of a $100,000 house, Smith stays where she began – a house worth $50,000 and probably declining, possibly with drug dealers living next door instead of merlot-sipping yuppies.

Thus would ditching the Uniformity Clause hurt the very homeowners its detractors want to protect.