Cleaning Data Fair Valuation Racial Bias
Bias - The Bane of Tax Assessors

Bias - The Bane of Tax Assessors

By Tracy Blanchard and Matt Cabrera at CIDARE, Inc.
Updated On: Jul 18, 2022

Bias - A Systemic Problem

In September of 2020, Chicago Tribune reporter Jason Grotto published an investigative series detailing the ways in which former Cook County Assessor Joe Berrios propagated tax breaks to the county’s wealthy homeowners at the expense of less affluent, particularly minority, citizens. Grotto, who analyzed millions of property tax records for his series, wrote:  “Residential assessments have been so far off the mark for so many years that the credibility of the entire property tax system is in doubt.”

To understand how to solve the problem of inequitable taxes, it’s important to first understand how policies and practices shaped the real estate market, impacting all stakeholders.

The Tribune series highlights one of the most egregious examples of what is now common knowledge - the United States has a property tax bias problem. While the problem of tax bias in Chicago was overt and intentional, the more general problem of property tax bias in the U.S. stems from a time when racially biased practices were codified in law, which led to disparities between the quality of minority and white neighborhoods in cities, towns, and counties across the United States. As more whites became homeowners and their tax dollars flowed into their neighborhoods, a proportionate degradation of minority neighborhoods occurred. Fewer minorities owned homes and fewer tax dollars were applied to social services to maintain minority neighborhoods, even as the relative tax burden of these degraded neighborhoods increased.

To understand how to solve the problem of inequitable taxes, it’s important to first understand how policies and practices shaped the real estate market, impacting all stakeholders. Then tax assessors need to address the problem. Left unchecked, the credibility of the entire tax system will wither as confidence in the appraisal and assessment professions erodes and trust in publicly elected or appointed officials diminishes. 

The Structural Bias of the Real Estate Market  

Home ownership in the U.S. skyrocketed in the years following President Roosevelt’s New Deal, which helped create America’s white middle class but lacked benefits for farm workers and domestic workers, roles largely occupied by minorities. With more financial stability came increased home ownership. In 1930 47% of Americans owned their home, while in 1960 60% owned their home. Local governments, seeking different funding mechanisms in the same time period, came to rely on the real estate market as a significant source of tax dollars. 

Most minorities were excluded from participating fully in the rapidly growing real estate market because of both segregation and lack of access to capital. The federal government’s participation in this process was explicit. The Home Owners’ Loan Corporation, a federal institution, created clauses that prevented houses in certain neighborhoods from being sold to minorities which fed the practice known as “redlining” legitimizing discriminatory loan-granting. Though banned in 1968 by the Fair Housing Act, it still covertly exists. In this context, minorities were corralled into buying homes in certain areas with valuations that largely failed to reflect the intrinsic value of the land or buildings they bought.

In the long term, biased valuation and loan practices hollowed out great swaths of many cities, like Detroit and Baltimore, where today derelict properties and rundown neighborhoods are major problems.

Also, during this time period, local governments made decisions that changed the value of parts of their jurisdiction. Millions of tax dollars were poured into social services, parks, recreation, and schools in white neighborhoods, while minority neighborhoods faced increased segregation and degradation. Over time, this practice of investing in only certain parts of a city or county exacerbated the inequality of services between different parts of a jurisdiction. In the long term, biased valuation and loan practices hollowed out great swaths of many cities, like Detroit and Baltimore, where today derelict properties and rundown neighborhoods are major problems. Fiscally, local governments have not realized the full potential tax value of the true value of all of the properties in their jurisdiction, making it difficult to fund services and government operations.

Tax assessors have been directly impacted by the practices of the 20th century in two major ways. First, like most valuation methodologies, mass appraisal assumes that sales data is unbiased. When data is biased, as a result of practices from the 1930s to the present, the resultant values using traditional valuation methodologies are wrong and some properties are valued higher than they should be while others receive lower valuations than they should, especially relative to the true market value of a property. Second, minority communities are not always aware of their options for contesting a property value, so the check assessors rely on to ensure properties are adjusted to be equitable isn’t effective. Troup Howard and Carlos Avenancio-Leon outline these two problems very well in their paper “The Assessment Gap: Racial Inequalities in Property Taxation.”

To address the problems of the past, assessors must change their methodologies and approach their profession differently.

Solutions to racial bias in property tax valuations

The number one thing assessors can do is seek objective data. Using third parties dedicated to data collection only, leveraging aerial imagery, and relying on data from parties like Google, Microsoft, or Digital Globe – all of whom do not participate in the valuation process – is one way to make data more objective.

Second, assessors can seek to expand the methodologies they employ to value properties, much like appraisers are doing. Fannie Mae stated to the NY Times that “the traditional appraisal process relies heavily on human observations that can be subject to conscious or unconscious bias, while modern appraisal methodology – such as desktop and hybrid appraisals – involves significant reliance on data and a more arms-length process between the appraiser and the borrower or homeowner.” Essentially automated valuation models combined with more traditional valuation methods can help to remove conscious or unconscious bias in mass appraisal, too.

Third, assessors need to check their data for bias and remove it. Troup Howard’s and Carlos Avenancio-Leon’s study outlined one method of checking and removing bias. Their solution is to construct neighborhood level price indices to capture the sensitivity of neighborhood market prices and hold tax rate and jurisdiction constant over time, essentially tightening the definition of a neighborhood and smoothing out the valuation curve by controlling for potential bias. Their proof of concept for this methodology resulted in a 70% reduction in racial disparity in tax assessments.

Finally, education is a powerful tool. Assessors can make it easier for constituents to understand how assessing works by furnishing them with information on both the assessing and abatement/appeals processes, educating community groups through videos, presentations, and brochures.

More equitable valuations are already happening

In Cook County, Illinois, Fritz Kaegi replaced Joe Berrios and focused on removing the inequality that existed under Berrios, changing decades old practices by consciously making data more objective.

Another example of a city that is tackling racially biased assessments is Portland, where the Auditor's Racial Equity plan was put into place with the goal of reducing racial disparity in assessments and creating an infrastructure that prioritizes accountability in order to meet these goals.

The measures taken by these and other assessment offices prove that by revising systems that relied on biased data, assessors can successfully address bias in their jurisdictions. As more offices adopt these practices, making use of technologies that promote color blind valuations, employing methodologies that are proven to reduce bias and educating constituents on appeals, assessors can play a central role in restoring the broken trust in the U.S.’s property tax system.

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