namely, it should be 50 percent or whatever it may be, but most of them say true value. The values of property have gone up faster than the reassessment of property.

How that works to limit the borrowing capacity of an individual community is shown by this chart where the assessment is equal to 38 percent of the true value on the residential, commercial, and industrial property.

In this particular case the total amount of assessed value is equal to $142 million, and the debt limit in the State was 10 percent. In that case they were able to borrow $14 million to finance their schools.

If the assessment had been in terms of the actual value as called for in the statute, they would have been able to borrow against $374 million, or to borrow $37 million.

Now, in this particular case, which is an actual example, the State has acted to make it possible for the school districts to issue bonds on the basis of true value, not by reassessing or by having an equalization board which determines what the true value is, and they can issue the bonds on that basis.

I simply point this out to indicate how underassessment does restrict borrowing capacity, and to indicate that there are ways that are used either by reassessment or by such revision of law as this whereby the local community is enabled to borrow an additional amount within the limitations of the statute in order to finance its own schools.

Senator DOUGLAS. Dr. Brownell, may I ask you another question? Dr. BROWNELL. Surely.

Senator DOUGLAS. Have you made any study about inequality of assessment as between residential property, as compared with commercial and industrial property?

Dr. BROWNELL. We have.

Senator DOUGLAS. What is your conclusion?

Dr. BROWNELL. Those facts-and I would also say we have a great many facts which show that there is a great deal of variability of the assessments within any State

Senator DOUGLAS. What is the general condition, countrywide, as to the tendency of assessments on residential properties as compared to industrial property in terms of percentages?

Dr. BROWNELL. It varies a good deal. Some communities where they have been anxious to obtain industrial property have given tax benefits to the industries, so that the industries have been taxed relatively low, compared with the residences.

In other places the opposite has been true where they have taxed the industry high because they were in a position where they could have-sort of the absentee landowner situation, and so there is a great deal of variability.

Senator DOUGLAS. With the possible exception of the iron range of Minnesota, which I take it is the one you refer to, is it not true that generally over the country residential property is assessed at a higher percentage of its real value than industrial property?

Dr. BROWNELL. I think on the average that would be shown true, and I think it would be shown true, likewise, that residential property is assessed differently from farm properties.

Senator DOUGLAS. There are very real implications in this because if the interest upon bonds floated by these local communities and the

repayment of principal is to be met from the general-property tax, that means that a very large proportion would be thrown upon the homeowner rather than upon commercial and industrial property.

Dr. BROWNELL. The question of how the money is to be raised is a part of your total tax program that any State faces.

Senator DOUGLAS. If I may give a little bit of personal testimony, I know of a community, and I will not identify it, in which residences are taxed at very close to 100 percent valuation. A $10,000 workingman's house is assessed at roughly $9,000, but I have information which I believe to be correct that an industrial plant in the same community, the original cost of which was $74 million, is carried on the tax rolls at $1 million.

Dr. BROWNELL. You have, of course, those local problems and the State problems in determining how the tax load shall be handled, which we consider to be a tax problem, and not something that could very well be handled in this particular context.

Senator LEHMAN. You have given a very graphic example there of the difference between the assessed valuation and the actual value of the property. That is one particular instance.

Have you any figures on a national basis with regard to the relationship between assessed valuation and actual valuation?

Dr. BROWNELL. I don't happen to have them with me, Senator, but they are available, and they do show that the assessed values generally are much lower than the true value.

Senator LEHMAN. Could you place those in the record, if you have them available?

Dr. BROWNELL. I think we can get them. I will ask to have them provided for the record.

Senator LEHMAN. Thank you.

Senator MCNAMARA. Mr. Chairman, I would like to ask, Is this a hypothetical case you have before us, or is that an actual State condition?

Dr. BROWNELL. This happens to be New York State, and this happens to be one of those communities in New York State, because New York State, in trying to solve its school problem, did pass this law which made it possible for the school districts to borrow against their true valuation, and in that way they have made it possible for a great many communities to go ahead and build schools that otherwise were restricted by their tax limitations.

Chairman HILL. Of course, Doctor, these assessments are not made by your school people, are they?

Dr. BROWNELL. No. Assessments are not made by the school people. Senator PURTELL. Mr. Chairman, may I ask a question.

Chairman HILL. Surely.

Senator PURTELL. Is there any particular section of the country in which you find underassessment of commercial and industrial plants prevalent as compared with the rest of the country?

Dr. BROWNELL. Senator, I wish I could tell you offhand, but I would have to consult the information on that. I don't have that at my knowledge right now.

Senator PURTELL. Will you supply for the information of the committee such information as you have on that.

Dr. BROWNELL. Yes; I will be very glad to see what we can find, and supply that for the record.

(The information requested is as follows:)

Hon. LISTER HILL

DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE,
OFFICE OF EDUCATION,
Washington 25, D. C., March 10, 1955.

Chairman, Committee on Labor and Public Welfare,

U. S. Senate

DEAR MR. CHAIRMAN: At the hearing on S. 968 on Wednesday, February 16, 1955, Senators Lehman and Purtell asked for certain information about the relation of assessed values to the market values of taxable property in the States. I agreed to try to supply this information.

I have not been successful in finding data which fully answers the questions. The information I am sending you, however, bears directly upon the questions raised.

In a recent study prepared by an expert with the National Bureau of Economic Research, assessed values of property nationwide were compared with the market value of private real property. This study indicated that assessed values represented 39 percent of the value of private real property in 1948 as compared with 59 percent in 1939 and 56 percent in 1929. (David M. Black. The Role of the Real Property Tax in Municipal Finances, National Tax Journal, Vol. VII, No. 4 (December 1954), p. 319.)

There are no State-by-State statistics on assessed valuations of property in relation to market values. In connection with the Census of Governments, next scheduled for 1957, it is proposed that a sample survey be undertaken of the relationship of assessments to sales prices of property. Such a survey would yield valuable information required to appraise current tax problems of local governments and especially of school finance.

The Department of Agriculture as part of its evaluation of tax problems of the farmer has compiled information on assessed valuations of real and tangible property by States. (See table 1 attached.) These data are compiled from State financial reports and, in the absence of such reports, from other sources. These data are subject to several qualifications because the reporting bases are not wholly comparable. In some instances the data relate to all property assessments including intangibles; for several States the data are for an earlier year than 1952, and in several instances the figures are approximate values obtained from partial data.

Table 2 shows estimates prepared by the Department of Agriculture on the ratio of assessed valuation to market value as computed from Agricultural Census materials. These data while indicative of the wide disparities among the States in assessment ratios of farm real property-a range of from 9 to 78 percentdo not necessarily show State-by-State differences in assessment ratios for all classes of property. They do, however, point up the fact that ratios of assessed to full values have fallen sharply between 1940 and 1950 in all but two States. These reductions point to the difficulties of adequate financing on markedly lower ratios of assessed to full values.

There are at present no nationwide current statistics on assessment to market values for different classes of property. These ratios are known to differ by type and location of property. The commissioner of taxation in one Mid-Western State, for example, has presented assessment ratios for 7 types of property based on statistics compiled in 27 counties. These data showed that farm properties were assessed at 47.66 percent of estimated market value as compared with 30.62 percent for residential property, 32.89 percent for commercial property, 29.43 percent for industrial property, and 47.28 percent for public utilities. The average for all types of property in the 27 counties was 36.97 percent.

Variations among cities in assessed to market values are shown in the attached table 3, reprinted from the National Municipal Review for January 1954. These figures again document the wide variations in assessment ratios in different cities, and hence the different opportunities for financing schools and other facilities.

Reference to these disparities would be incomplete without mentioning the work going forward in a number of States toward improving assessment practices, studying the relation of assessment to sales values, and obtaining a better base for property assessment equalization.

I also call your attention to two research articles which provide additional factual information, as follows: Newcomer, Mabel, "The Decline of the Property

Tax," National Tax Journal, Vol. VI, No. 1, March 1953, pp. 38-51. Newcomer, Mabel, "State and Local Financing in Relation to Economic Fluctuations," National Tax Journal, Vol. VIII, No. 2, June 1954, pp. 97-109.

Senator Purtell asked whether in any particular section of the country there is underassessment of commercial and industrial plants as compared with the rest of the country.

Adequate data are not available on a State-by-State or regional basis to evaluate the relative property tax assessments of industrial and other property. Three States (Delaware, New York, and Pennsylvania), however, have exempted all tangible personalty from the general property tax. Many other States have generous and increasing exemptions for tangible personalty including complete exemption of business inventories, tools, and farm machinery, or lower assessments for these types of property. For example in Kentucky machinery is exempt from all local taxes and in Ohio it is assessed at 50 percent of full value.

Legislation providing special exemptions on industrial real estate to attract business firms is found for the most part in the South, although some of the New England States also have used the device to attract industry. In all, perhaps a third or more of the States permit the localities to grant this type of exemption for a limited period of 5 to 10 years.

In

There is very sparse information on the use of special exemptions. Louisiana where State officials may approve 10-year exemptions for new plants, in addition to the usual 5-year exemption on the option of municipalities, these exemptions amounted in 1950 to 19 percent of assessed value of taxable property. Sincerely yours,

S. M. BROWNELL, Commissioner of Education.

TABLE 1.-Property assessments, 1952, by State

[Preliminary compilation prepared by the Department of Agriculture on assessed valuations of real and tangible personal property].

Compiled from State reports and from Moody's State and Municipal Governments.

500, 000, 000 4,834, 976, 712

TABLE 2.-Ratio of assessed value to full value of farm real estate, by States, 1940, 1945, and 19501

1 Ratios computed after inclusion of value of homestead-exempt property in applicable States. Census values are used to reflect full value.

Source: Department of Agriculture, Agricultural Finance Review, Vol. 16, November 1953, p. 24.