COVID-19 and State Emergency Orders

Issue July/August 2020 August 2020 By Natasha Varyani
Taxation Law
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Natasha Varyani

In the past few months, the COVID-19 pandemic has caused a seismic shift in almost every aspect of the way our government, commercial and social systems operate. At the same time, the justice system and its relationship with race are subject to an unprecedented level of scrutiny. Counterintuitive though it may seem, an examination of the history and role of property tax in our collective conduct may be just the right lens through which we should seek to understand some current shifts. Through this same lens, we can watch for developing trends to determine how the proverbial dust will settle when we pass through these crises.

Property Tax Overview

An examination of the relationship of local property values and taxes can reveal a great deal about the way that race and class are written into American history. As local property tax is derived by taking a percentage of the property value, whether focusing on a set of neighborhoods over time or aggregating data from across the country, a story about access to desirable property emerges. Basic principles of supply and demand are in operation and reflect the larger values that have been collectively agreed on in various times and places. More desirable property is assessed at a greater value, and layering data regarding the movement of racial groups in and among neighborhoods paints an uncomfortable picture about the relationship between race and property values that Americans have historically lived with. The additional layer of the government’s role in access to capital (discussed below) makes the larger picture even more uncomfortable.

It all comes back around: Neighborhood Desirability and Municipal Services

There is a circular relationship between the desirability and value of property, and residential property in particular. As property tax is a portion of the assessed value of property, high property values result in greater tax revenue for the locality. Cities and towns with high levels of income can provide high-quality services to the residents who live there. These services may include things like maintenance and garbage collection, road repairs, emergency support services, libraries and, perhaps most important, schools. When property values and local tax revenues decrease, those services simply cannot be as robust, neighborhoods become less attractive, and the individuals who reside there generally have a lower likelihood of economic success. In many of these neighborhoods, that results in more consolidated living, which means more people who need local services and the same or even lower amounts of property tax revenue. This pattern of spiraling is one that is not only supported by data, but also resonates with the intuition of many.

The same concept works in the other direction as well. The more common pattern is that a formerly undeveloped space with little to no property tax revenue has housing built that attracts high-income individuals, historically mostly white neighborhoods, and relatively high tax revenues allow for robust local services, which make a community more attractive and more valuable.

A History of Colored Lines

Another element to add to these patterns in property tax revenues is the way that the state has been involved in these issues. The practice of “redlining” in the mid-20th century resulted in a systematic denial of certain services, most notably access to credit and insurance sufficient to allow for property ownership in neighborhoods that were explicitly identified as having high percentages of Black residents. Denying access to credit and insurance and other services to support homeownership and protection of property values only exacerbated the downward spirals described above. In the early 21st century, private banks (backed by government agencies) used the same red lines when finding loans to collateralize, resulting in a disproportionate negative impact on communities of color during the 2008 financial mortgage crisis. 

The New Order: Post-Pandemic Property

Though many historians and scholars have taken lessons and cues from the viral pandemic that occurred roughly a century ago (the Spanish Flu), an important distinction exists: the internet. The ability to take professional, academic and personal lives online through a host of creative solutions and internet tools makes the current health crisis unprecedented in many ways. Though many of these tools were available prior to the pandemic, their widespread use since the spring of 2020 by a critical mass of individuals may have some impact on the attributes of residential property that people prioritize and value. In the past, through a system of covenants, government programs and financial institutions, treatment of minority communities has made access to high-paying jobs difficult from some blighted communities. These dynamics served only to exacerbate existing inequities, but these novel times and circumstances may have an unpredictable impact, particularly as issues relating to racial justice are simultaneously experiencing a changing cultural tide.

Redistribution: Access to High-Paying Jobs and The Next Phase in Our History

Though it may seem as though time has stopped in some respects in response to the pandemic and related emergency orders, the undercurrents of some large systemic issues are shifting. With physical access to high-paying jobs no longer a relevant factor, a revolution in race relations potentially on the horizon, and desperation for local services in a very high number of local jurisdictions, it may be true that a seismic shift is underway. During a time in which predictions are rendered useless, continuing to monitor what happens to property values and tax revenues for localities may provide some early hints about a new world order.

Natasha Varyani is an associate professor of law at New England Law | Boston,
where she teaches courses in property, tax, eCommerce and critical race theory. She was a tax practitioner in large firms in Boston for roughly a decade before coming to academia.