Katharine L. Bradbury

Property tax limits, local fiscal behavior, and property values: evidence from Massachusetts under Proposition

Abstract This paper examines the impact of a specific property tax limit, Proposition 2 1 2 in Massachusetts, on the fiscal behavior of cities and towns in Massachusetts and the capitalization of that behavior into property values. Proposition 2 1 2 places a cap on the effective property tax rate at 2.5% and limits nominal annual growth in property tax revenues to 2.5%, unless residents pass a referendum allowing a greater increase. The study analyzes the 1990–1994 period, a time when Massachusetts municipalities faced significant fiscal stress because of a 30% cut in real state aid and a demographically driven increase in school enrollments. The findings include the following: (1) Proposition 2 1 2 significantly constrained local spending in some communities, with most of its impact on school spending; (2) constrained communities realized gains in property values to the degree that they were able to increase school spending despite the limitation; and (3) changes in non-school spending had little impact on property values.

Property tax limits and local fiscal behavior: did Massachusetts cities and towns spend too little on town services under proposition 2 1/2?

This paper examines the impact of a specific local tax limit, Proposition 2* in Massachusetts, on the fiscal behavior of cities and towns in Massachusetts and the capitalization of that behavior into property values. Proposition 2* places a cap on the effective property tax rate at 2.5 percent and limits nominal annual growth in property tax revenues to 2.5 percent, unless residents pass a referendum (an override) allowing a greater increase. The study analyzes the 1990-94 period, a time when Massachusetts municipalities faced significant fiscal stress because of a 30 percent cut in real state aid and a demographically driven increase in school enrollments. The findings include the following: (1) Proposition 2* significantly constrained local spending in some communities; (2) constrained communities realized gains in property values to the degree that they were able to increase school spending despite the limitation; and (3) changes in school spending were a much stronger influence on house price changes than were changes in nonschool spending. These findings are confirmed using several different econometric approaches, including a two stage technique that directly estimates how close each community?s spending was to what it would have been in the absence of Proposition 2.

Trends in U.S. family income mobility, 1967-2004

Much of America’s promise is predicated on the existence of economic mobility—the idea that people are not limited or defined by where they start, but can move up the economic ladder based on their efforts and accomplishments. Family income mobility—changes in individual families’ real incomes over time—is one indicator of the degree to which the eventual economic wellbeing of any family is tethered to its starting point. In the United States, family income inequality has risen from year to year since the mid-1970s, raising questions about whether long-term income is also increasingly unequally distributed; changes over time in mobility, which can offset or amplify the cross-sectional increase in inequality, determine the degree to which the inequality of longer-term income has risen in parallel. ; Using data from the Panel Study of Income Dynamics and a number of mobility concepts and measures drawn from the literature, we examine mobility levels and trends for U.S. working-age families, overall and by race, during the time span 1967–2004. By most measures, we find that mobility is lower in more recent periods (the 1990s into the early 2000s) than in earlier periods (the 1970s). Most notably, mobility of families starting near the bottom has worsened over time. However, in recent years, the down-trend in mobility is more or less pronounced (or even non-existent) depending on the measure, although a decrease in the frequency with which panel data on family incomes are gathered makes it difficult to draw firm conclusions. Measured relative to the overall distribution or in absolute terms, black families exhibit substantially less mobility than whites in all periods; their mobility decreased between the 1970s and the 1990s, but no more than that of white families, although they lost ground in terms of relative income. ; Taken together, this evidence suggests that over the 1967-to-2004 time span, a low-income family’s probability of moving up decreased, families’ later year incomes increasingly depended on their starting place, and the distribution of families’ lifetime incomes became less equal.

Measurement of Unemployment

Measures of unemployment tally people without a job who are looking for one. For measurement purposes, the critical question is what constitutes looking. This article summarizes how unemployment is measured in the United States and Europe, and describes recent research investigating the permeability of the dividing line between the unemployed and marginally attached subgroups of those out of the labor market. A continuum between unemployed and entirely inactive individuals indicates that measures beyond unemployment may be useful in judging the state of the labor market.

Wives' Work and Family Income Mobility

Over the past 30 years, married women in the United States have significantly increased their labor market activity and become an integral factor in their families’ ongoing economic wellbeing. This change raises questions about the economic impact of two-earner families becoming the norm. Do American families now need both a working husband and a working wife to have any hope of getting ahead or to keep from falling behind? How much does a wife’s labor market activity (participation, hours, and earnings) matter in her family’s ability to make income gains, hold its place relative to other families, or avoid losing ground? ; Using data from the Panel Study of Income Dynamics, this paper focuses on married-couple families during three ten-year periods (1969-79; 1979-89; 1988-98) to see whether favorable family income mobility outcomes are associated with greater wives’ labor market activity and finds that they are. Wives in families that moved ahead or maintained their position had high and rising employment rates, work hours, and pay. Moreover, the annual earnings of wives in upwardly mobile families increased relative to those of their husbands. The popular perception that families needed to work more hours just to hold their own relative to other families is confirmed, and almost all of the increase in work hours came from wives.

Measuring Disparities in Non-School Costs and Revenue Capacity Among Massachusetts Cities and Towns

This paper develops new measures of environmental costs and local revenue capacity as the basis for a new municipal aid formula in Massachusetts. On the cost side, unlike previous studies, we quantify the effects on local non-school spending of characteristics related to uncontrollable costs. On the capacity side, we account for the constraints of a tax limitation, for the first time in the literature, by estimating these constraints as a function of residents’ incomes. The estimates of costs and capacity indicate substantial inter-local fiscal disparities in Massachusetts. Our approach is potentially applicable to other states. ; Also issued as New England Public Policy Center Working Paper 06-3

The Responsiveness of Married Women's Labor Force Participation to Income and Wages: Recent Changes and Possible Explanations

One contributor to the twentieth century rise in married womens labor force participation was declining responsiveness to husbands’ wages and other family income. Now that the rapid rise in married women’s participation has slowed and even begun to reverse, this paper asks whether married women’s cross-wage elasticities have continued to fall. Using the outgoing rotation group of the monthly Current Population Survey (CPS) and estimating coefficients separately for each year from 1994 through 2006, we find that the decline in responsiveness to husbands’ wages has come to an end—at least for the time being—and even find evidence of rising responsiveness to husbands’ wages. This increase in the cross-wage elasticity of participation occurs largely between 1997 and 2002 and is concentrated among younger women and women with children. ; We also explore a number of possible explanations for this development. We conclude that declining divorce rates, rising child care costs, and the increasing prevalence of high work hours for high pay—all of which were more pronounced at the high end of the income distribution—along with rising income inequality may have played a role. Also possible is that some of the decline is an artifact of changes in the tax system and the way income is measured. In addition, we observe some backsliding in attitudes supportive of gender equality in the market and at home, and perhaps a change in lifecycle timing among Generation X women.

Massachusetts Employment Growth 1996-2006: Effects of Industry Performance and Industry Composition

This brief examines the effects of industry performance and industry composition on overall changes in Massachusetts employment in the period 1996 to 2006. Through 2000, Massachusetts enjoyed strong economic expansion. Around the time of the nationwide recession of 2001, however, the Massachusetts economy experienced a relatively severe setback, and the state has yet to regain as many jobs in the ensuing expansion as it lost in the downturn. ; The study finds that Massachusetts industries generally experienced slower employment growth than their national counterparts in the early 2000s. The highest-flying industries of the late 1990s did “give back” some of their gains in the early 2000s, but this fact does not explain the Commonwealth’s overall employment trends relative to national trends. Other, lower-growth industries in Massachusetts also underperformed relative to their national counterparts in the early 2000s, and this disparity accounts for almost all of the observed difference between Massachusetts and U.S. employment growth rates during the post-boom period. ; Cutting the data differently to focus on industries that characterize the “innovation economy” in Massachusetts allows a richer interpretation of the post-boom period. The industries in key clusters identified by the Massachusetts Technology Collaborative had declining U.S. employment in the early 2000s. In addition, these industries had steeper employment losses in Massachusetts than in the nation during this period. Thus, the identity of the state’s key industry clusters, as well as the comparatively poor performance of these clusters, helps to account for the weakness of employment trends in Massachusetts compared with national trends since the boom ended.

Regional differences in the impact of energy price increases

This Public Policy Brief presents estimates of the impact of price increases projected by the U.S. Department of Energy for the winter of 2004-5 on consumers in the nine Census divisions and selected metropolitan areas. It is based on materials presented in a briefing to the President of the Federal Reserve Bank of Boston in December 2004.

Designing State Aid Formulas: The Case of a New Formula for Distributing Municipal Aid in Massachusetts

This paper designs a new equalization-aid formula based on fiscal gaps of local communities. Using conceptual analysis and simulations with Massachusetts data, the authors illustrate the tradeoffs that policymakers face in deciding on the policy variables in the formula and lay out several general guidelines for setting up these variables. When states are in transition to a new local aid formula, the issue of whether and how to hold existing aid harmless poses a challenge. The authors show that previous studies and the formulas derived from them give differential weights to existing and new aid in filling the gap and hence effectively treat communities receiving greater amounts of existing aid more favorably than communities receiving less or no existing aid. As a fairer alternative, the authors propose a new approach that considers existing and new aid within a consistent framework by taking account of both in filling the gap. In addition, unlike previous research that focuses only on a single year’s new aid distribution, the authors simulate the dynamics of aid distributions over multiple years and examine their evolution over time. The authors further provide and compare several possible solutions to addressing the possible tradeoffs between short-term and long-term goals. Although the proposed aid formula is designed for municipal aid and tailored to Massachusetts, the authors note that foundation aid formulas for education implicitly treat existing aid in the same way and suggest that the framework, principles, and policy recommendations might also be applicable to other states designing new municipal aid formulas. ; Also issued as New England Public Policy Center Working Paper, 08-2