Three property tax payments a year reduce delinquency

Property owners are less likely to be late with their tax payments if they make three installment payments a year instead of two, according to a new analysis from the La Follette School of Public Affairs at UW–Madison.

The delinquency rate drops by nearly half if the number of payments is increased from two to three, economist Andrew Reschovsky and 2011 alumnus Paul Waldhart found through a statistical analysis of data from Wisconsin municipalities for 2005-2009.

However, Reschovsky says, more than three installments does not lead to a statistically significant reduction in the property tax delinquency rate.

“Around the United States, more people are late with their property tax payments,” Reschovsky says. “In Wisconsin, the delinquency rate was 2 percent in 2005. In 2007 it was 2.5 percent, and by 2009 it had risen to 3 percent.”

Of Wisconsin’s 1,850 municipalities, about 60 allow more than two installments for real estate taxes, Reschovsky says. These municipalities are generally larger: Of Wisconsin’s 38 municipalities with populations greater than 20,000, 22 allow multiple installments.

In addition, collection methods for delinquent payments vary across and within Wisconsin counties, Reschovsky adds. Some municipalities collect their own delinquent taxes, while many others give the county this responsibility.

On average in fiscal year 2009, local governments in Wisconsin relied on the property tax for 65.2 percent of their own-raised revenues. In only six states did local governments raise a higher share of own-raised revenues from the property tax.

“The importance of the property tax to local government finances makes maximizing the collection rate of the allowable tax levy all the more important for municipal and county governments,” Reschovsky says. “We conclude that a move from two to three payment installments per year results in a large reduction in the rate of property tax delinquency.”

Reschovsky and Waldhart’s study is available online as La Follette School Working Paper No. 2012-008. The project started after city of Madison Treasurer Dave Gawenda noticed an increase in property tax delinquency and wondered whether increasing the number of payment installments would bring it down.

Now an analyst with the Wisconsin Legislative Audit Bureau, Waldhart was a student in Reschovsky’s spring 2011 tax policy seminar and expressed interest in the project. The Lincoln Institute of Land Policy, where Reschovsky is a visiting fellow, supported the research. A copy of the paper is available at http://www.lincolninst.edu/pubs/default.aspx?pub_type=3.