Keeping a lid on property taxes.

Property taxes are stabilizing in response to recent state tax relief efforts. But will the good news last?

Homeowners and entrepreneurs concerned about their property tax burden may have some good news for the first time in more than a decade. Preliminary figures from the U.S. Census Bureau show that since 1993 property taxes have been rising more slowly than Americans' incomes. Although small, the decline in property taxes as a share of personal income - from 3.6 percent to 3.4 percent - marks a turnaround from the property tax growth in the late 1980s and early 1990s.

Interstate comparisons of property taxes are difficult for several reasons. First, they vary dramatically within states because tax rates and property values are determined locally and statewide averages mask significant variations. Second, many states treat business, utility and residential property differently. Even within a jurisdiction, businesses may pay two or three times as much as homeowners. Finally, states with abundant natural resources - like Alaska and Wyoming - have high property tax levels but low resident tax burdens because they can export property taxes to nonresidents through taxes on energy or mining companies.

Despite these limitations, most interstate property tax comparisons divide state and local property tax collections by state personal income as a rough measure of the relative level of property taxes within a state.

The property tax has had its ups and downs over the past two decades. In 1978, voters in California approved a ballot measure (the famous Proposition 13) that rolled back property tax bills by an average of 50 percent. This saved California taxpayers roughly $6 billion and helped produce the first national reduction in property tax collections since the Depression. Property taxes as a share of personal income dropped from 4.1 percent in FY 1978 to 3.6 percent in FY 1979.

California's Proposition 13 was only the beginning of the property tax revolt. Citizens used the initiative process to limit property taxes throughout the West and in Massachusetts, while legislatures throughout the country scrambled to adopt tax relief measures that might head off more dramatic voter initiatives. By the end of FY 1982, property tax levels had dropped to 3.2 percent of personal income.

Fiscal year 1982 turned out to be the low water mark for property tax levels. Property tax levels crept upward throughout the 1980s, and by FY 1992 they were higher than any year since the passage of Proposition 13.

The recession of 1990-91 accelerated the growth in property tax levels. Strapped states reduced the growth rate in school aid, leaving school districts little choice but to raise more money through the local property tax.

However, the end of the recession and the re-emergence of healthy state budgets brought a renewed legislative commitment to reducing the property tax burden. The Michigan Legislature approved, and voters adopted, a $2 billion shift in school funding from the property tax to sales and other state taxes. Wisconsin and South Carolina also reduced property taxes by significantly boosting state support for schools. Meanwhile, voters in Oregon approved a measure to roll back property tax levies. Numerous other states took action to ease the pain of the property tax. Preliminary Census Bureau figures show that these efforts are paying off.

While national data show that property taxes are growing more slowly than income, taxpayers dearly want more relief from this very unpopular tax. In particular, states that have not yet followed the national trend away from reliance on property taxes - or those experiencing rapid appreciation in property values - are candidates for legislative action in 1997.

In Montana, legislators are trying to provide tax relief for homeowners and businesses in the wake of 40 percent average growth in assessed property values since the last revaluation. In Washington, where property values have also skyrocketed in many areas, Republican and Democratic lawmakers have put forward competing tax relief proposals. And in Vermont, Democratic control of the legislature should pave the way for a major property tax relief package this year. Other states where significant property tax relief is possible in 1997: Indiana, Kansas, New York, Pennsylvania, Texas and Wyoming.

Whether states' efforts to reduce overall property tax levels will stick depends upon the performance of the national economy and states' responses to the coming devolution of federal responsibilities. It is unlikely that local governments will be fully immune from the state fiscal risks of welfare reform and other federal policy changes that may pressure them to raise more local revenues. However, states may choose to provide additional local tax options to help local governments keep from falling back upon their old but unpopular standby - the property tax.

Scott Mackey is NCSL's property tax expert.