ANN ARBOR — Local government spending makes up about a quarter of all government spending in the United States. This spending funds key services to people across the country, ensuring, as much as possible, the smooth functioning of towns and cities both large and small.

But since local governments are self-funded, the funds available to those governments are closely tied to the affluence of their communities, and the borders between those communities can have unexpected and significant effects on the people who live there.

Robert Manduca, faculty associate in Population Studies Center (PSC) and the Survey Research Center (SRC), explored these phenomena in the latest edition of the Institute for Social Research’s (ISR) Insights Speaker Series. In his presentation, titled “Property Tax Base Fragmentation and Metropolitan Inequality in the U.S.,” Manduca showed how borders can create economic segregation and jurisdictional fragmentation between communities, resulting in high economic inequality.

Drawing on tax data from across the country, Manduca demonstrated how significant the differences between jurisdictions can be. In the Dallas metro area, for instance, the Park City neighborhood generates more tax revenue per capita than the rest of the Dallas area combined because homes there are much more expensive. As a result, people outside of Park City can actually end up paying proportionally higher taxes for fewer government services.

“I would say most people expect that you have this trade-off where you can pay higher taxes in order to receive more services,” he said. “But under these fragmented conditions, you can actually have that inverse, where lower tax rates are associated with higher levels of service provision.”

Tax information from the state of Michigan further demonstrated this conundrum. In 2017, the city of Detroit levied a 1.5% property tax on its residents, generating about $367 in revenue per capita. Bloomfield Hills, meanwhile, taxed its residents at a rate of just 0.4%, but since homes are valued so much more in that neighborhood, the government of Bloomfield Hills generated about $2,188 of revenue per capita, despite taxing its residents a proportionally much smaller amount.

This challenges conventional narratives about the fiscal challenges Detroit faces. While the city has faced its share of problems related to the downturn of the auto industry and overall deindustrialization, tax issues are a separate problem to solve.

“This is about how the taxable wealth that still does exist within the metropolitan area is allocated across jurisdictions,” Manduca said. “It’s not the case that everywhere in Michigan is impoverished or is facing economic challenges. But rather, because of the way that jurisdictional boundaries are drawn, and because of the way that local governments are funded, this sort of creates these particularly extreme economic challenges.”

To expand access to data concerning tax-base fragmentation, Manduca and his co-researchers created a website, [address], to showcase the differences in tax rates across the entire country.

“We see jurisdictional examples of both extreme wealth and extreme poverty all around the country and even in metropolitan areas that, on average, have relatively low values of tax-based fragmentation.”

Manduca’s full presentation is available above or at this link. For more information about the Insights Speaker Series, click here.