How Do Cities and Counties Respond to Changes in Their Property Tax Base?

Over the past decade, the per capita property tax bases of local governments have experienced large upward and downward movements as the result of the boom and bust in real estate markets. This paper provides some evidence on how local governments balance their budgets as their tax base changes. The results suggest that millage rates are adjusted in an attempt to stabilize property tax revenues. The millage rate offset is nearly complete for counties, but less than complete for cities. Cities alter selected expenditures to keep total expenditures in line with total revenues.